Bank charges – is the government off the hook?

The potential payouts faced by Britain’s banking system had the Supreme Court rules against them last month, were so large that they were a matter for financial stability.

The FSA ordered banks to ‘stress test’ their balance sheets on the assumption of massive multi-billion pound payouts for years of historic refunded bank charges.

This fact is admitted to by John Fingleton, the head of the Office of Fair Trading, in an interview with me today.

Why does this matter? It shows that the scale of plausible payouts was massive.

The banks may well have paid out ‘goodwill gestures’ worth £559million to quick-off-the-mark complainants before the claims were frozen, but had generic illegality been established then payouts could have cost ten or twenty times that figure.

So the Supreme Court ruling, and the subsequent abandonment by the OFT of a claim over historic ‘unfair’ bank charges has been a material support to the banking system.

Yes, there is much being said today about a new voluntary system of fairer bank charges for the future. But it’s the mass of past charges that are the crux of the issue.

Today’s OFT surrender means that most of the identikit letters downloaded from the internet campaigns have little chance of success. But it’s notable that the OFT were it pains not to dissuade individuals from bringing their specific cases to court.

John Fingleton pointed to instances of incomprehensible terms and conditions, for example.

And here is the rub: the actual Supreme Court ruling repeatedly passes the baby to the government.

Indeed they said:

Lady Hale: ‘… is the proper solution to find some way of forcing the suppliers to compete with one another … that is for Parliament and not for this Court’

Lord Walker: ‘Ministers and Parliament may wish to consider the matter further’.

One of the Supreme Court Justices even blamed Gordon Brown’s era of ‘light touch’ regulation for a failure to strengthen a key European directive that would have protected bank customers more.

So undoubtedly the government could have made changes to the law. Indeed if politicians really wanted aggrieved bank customers to be refunded their historic charges, I’m convinced they could make the necessary legal moves.

But they haven’t. Perhaps they are privately rather happy about this backdoor boost to financial stability.