I’m not sure exactly when it happened that the British public decided that Bankers were agents of the devil, but it certainly seems to be the case judging by headlines this week. Well, maybe the press is on to something…
And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name. Here is wisdom. Let him that hath understanding count the number of the beast: for it is the number of a man; and his number is Six hundred threescore and six.
Revelations 13: 16-17 (King James Version)
A sad day today: in the case of The Office of Fair Trading versus The Minions of Satan (aka the High Street Banks) a decision was found in favour of the banks, ending several years of legal uncertainty. Well, for now…
Aleister Crowley, who declared himself the Great Beast. I'd prefer to have a cup of tea with him than sign a credit agreement with a high street bank any day!
Of course I do not literally think the British High Street Banks are the Beast prophesied in the final book of the Bible ; do they look like a lamb while speaking like a dragon? Um, well, now you mention it… That they are anti-christ seems quite clear: I mean usury (the lending of money at interest) is a mortal sin anyway isn’t it? So I like the term “minions of Satan”, and encourage people to treat them just as you would if Old Nick appeared and asked you to sign a paper in exchange for a pile of hot gold – if you must sign, sign in blood. This usually gets you chucked out of the bank before proceedings get nasty. Trust me, I know. 🙂
CJ applies for an overdraft facility.
Better you get chucked out or an ambulance or the police called than you lose your soul by dealing with the Devil.
What profiteth a man to gain the whole world, and yet lose his own soul?
Luke 9: 23
Yes I’m joking – I’m just mightily sore at this decision, and yet I can’t argue with the legal logic. It was the correct legal decision – but there are wider issues at stake…
The Reverse Robin Hood
So what is the Reverse Robin Hood? Something I found in the Anne Summers Guide to Improbably Acrobatic Acts? Not quite!It’s actually a memorable line from the Supreme Court ruling today
though Mr Sumption QC (for the banks) vigorously disputed Lord Mance’s suggestion that his clients were engaged in a sort of “reverse Robin Hood
exercise”
The phrase amused me, and lies at the heart of the controversy.
Banks exist to make their shareholders a profit. This is actually the responsibility of any publicly floated company, and therefore one can not blame banks for trying to make profits, no matter how many billion that may be. What is actually at stake here is not if bank fees are appropriate – I think it entirely appropriate I pay for the service provided; the question is how that payment should be taken.
At the moment we have ‘free banking’ in the UK – well 80% of people do. The remaining 20%, the villains, in fact subsidize the free banking by paying these charges, which make up 30% of the revenues gained by the banks from their Current Accounts.
The villains who go overdrawn without proper authorisation pay many times the actual cost incurred to the banks by their indiscretion – and as a result, the 80% of good folks pay nothing. Fair enough?
Except — those 20% are the poorest members of society on the whole. People with enough money to live rarely go in to these unauthorised overdrafts simply for fun. OK a few do, because they have failed to watch their spending, or because a £25 fee is no big deal to them, so they would rather pay it than delay gratification. Unfortunately, for those who are actually in the bread line, an emergency like sickness means one often has to make the decision between going over and paying £25 fee to get the seven pounds fifty for a prescription charge, or not getting the pills. And trust me I know -I have a drawer full of prescriptions I have never collected. A job interview? Same problem. I have lost all my savings I had amassed and bunt through my disposable income and had to borrow heavily just to get to an interview for a position I really wanted – the train fare alone was two weeks income for me. And I did not get the job, again…
Now to be fair, much of this is NOT a problem if you are on the dole, Income Support or similar. I know it’s hard, but I honestly miss the luxury of knowing I would get my bi-weekly giro. And free prescriptions! Unfortunately the only state benefit I receive does not give on exemption from that or Council Tax for example, and a helluva lot of other people are in the same boat. It’s really mainly a problem for the working poor – those who actually do work, but are on low incomes. No amount of financial planning or savings can protect you against some of life’s disasters when you have £17.50 a week after rent & council tax to live off, and these people make up that villainous 20%.
And they pay everyone’s bank costs, covering the 80% who actually are never going to need to worry about having to go suddenly overdrawn. Hence “reverse Robin Hood” – not a sex position, but actually the way UK banking works – “robbing from the poor to pay for the rich” 🙂
The Sheriff of Nottingham ponders the size of his bonus as he prepares another Credit Card launch - so much easier than the olde methods of oppression!
This was NOT the issue at stake in the court case. In fact the Court Ruling goes some way to making clear that in fact the ruling was on the appropriateness of the tool used by the Office of Fair Trading to pursue the demonic horde – er sorry, I mean High Street banks – and that the tool in question, an EU directive, was incorrect. The OFT has gone off to lick it’s wounds, and I expect an announcement shortly – there are still plenty of legal options if they have the will to continue the fight. There is actually a FAR more dangerous legal threat to the banks lurking in the wings, but I shall ignore that for now as it has nothing to do with bank charges.
My Situation
I have just been hit for £100 by my bank for bank charges – puzzling, given that I have only one direct debit or other agreement, no standing orders, only one payment goes out – my phone bill – which I had funds to cover and have not gone over my agreed overdraft as far as I can see – until the charges came in last month, pushing me over. Now i have been charged for being in debt cos I could not clear the last charge before this month. That charge was equal to 10 days disposable income for me – the new charges represent six weeks disposable income. I am now locked in what will rapidly become a spiral of charges, which will eventually result in my ending up with a huge debt to my bank – all from one £25 charge, the cause of which I am still not aware of.
I have written to my bank, and had some correspondence – and was interested by what was said. I noted that I had signed up for a current account on the understanding that I could not actually go overdrawn, and that my solo card prevented me spending money I did not have. I was informed that in fact I can now go overdrawn, the contracts T&C’s* having been subject to change, and that they as a bank can in fact not stop me doing this, and can not allow me to put some block on my account so I can’t spend what I don’t have. I can NOT have a limit by which I can not go outside my overdraft. I asked why, and my understanding is this “service” is provided by a third party company. I need to look in to this, as it could have quite serious ramifications in terms of the legality of my original contract, subsequent variation,and Data Protection regarding sharing of my personal data with subsidiary or affiliated groups.
The End of Free Banking?
And here is the big bogeyman – the fear that like America, most of Europe, in fact most of the World we might have to pay a small charge for our banking. The righteous 80% are positively frothing when you suggest that actually everyone paying the ACTUAL cost of their banking services would not really be unreasonable, rather than the poorest subsidizing everyone else. The fact such an arrangement would be in agreement with principles of natural justice does not seem to bother them – they are terrified the bank might take their money. Yet to the poorest the current arrangement is crippling, little more than loansharking. Why do I say this?
As you may have gathered I resent paying bank charges beyond my usual debit interest and the odd small fee, like the £9 which I used to be charged when I actually signed up to my contract if I did something dumb. That is today £25. So when I needed money last month (and I have just been scraping around to get change off the floor to buy a loo roll – I get my money on Saturday) I decided that I would be a good responsible citizen, and extend my overdraft by fifty quid. It’s £200. I did not think £250 would break them. I had not been overdrawn beyond my limit in three years. I have no CCJ’s against me, and a small but regular income. So applied online for a one month £50 extension.
And they said it would cost me £25 for arranging the overdraft. Er what? It costs me £25 to go “informally overdrawn” – and £25 if I do it properly too? SO I phoned up, they confirmed the charge, and refused to extend my overdraft anyway. I ended up borrowing off friends, who ar every long suffering but realise my situation. Thanks to everyone who has helped so often!
Now the bank’s defence on their practices is that if you make an arrangement with them you will not incur the charges. I tried to make an arrangement – and the charges were still there? No less – exactly the same fee. So if i actually went overdrawn illegitimately, or legitimately, it would cost sthe same. And what is worse, they refused me anyway. So the bank has clearly decided I’m a bad credit risk – yet when I put my card in to try and get my last fiver out, it asked me if I wanted to pay £25 for the privilege of an “informal overdraft arrangement”.
I declined, and added another prescription to my collection.
So if Free Banking is threatened, I won’t cry too much. I’ll still pay, but you can be certain that te 80% will make sure that they are not ripped off, as they have the voices and power, and I don’t think it will happen anyway. Why? People are getting used to shopping around for the best bank account deals. They are realising that when a bank changes the rates or charges, they can move their money elsewhere. Credit Cards (which I don’t have) taught people the esoteric joys of balance tranfers. We are not like our parents who stayed with the bank down the road for life. Competition would reduce bank charges immediately once they are moved from those who can’;t afford them to those who can.
Furthermore, the government is the biggest stake holder in many of the High Street banks now. The bail out, what was it £62 billion or whatever, saved the economy. From my reading Gordon Brown actually did save the world, well at least the global economy while the Americans dillied and dallied. Good on him! I’m no fan of New Labour, but it was a beautiful bit of political intervention. So maybe the political will exists to actually stop this nonsense, and stop the increasing gap between rich and poor in our society?
There is something pathetic about an administration legislating to end Child Poverty, yet not looking at the causes of that poverty, of which ruinous bank charges on the parents of said kids must come high in the causes. The government controls the banks – and can promise free banking on the banks they are major stakeholders in.
And the banks: the banks can stop this now. All they have to do is cap unauthorised spending – stop people taking money they have not got out of the cash machine, and charge what it actually costs to bounce a direct debit or whatever, not some exorbitant fee. Sure people would suffer, as I do, because they can’t lay their hands on cash at the end of the month – but if you put them in a cycle of bank charges like this they will soon have no money by the middle, then the start of the month. So stop selling debt to third party companies banks, and make your limits stick. And get rid of the ludicrous charge on AGREED overdrafts.
Yes, profits might fall a little. Yes shareholders in the banks might get slightly lower dividends. But how many bank shareholders actually have kids in poverty? And aren’t we all shareholders when we pay tax since the bail out? Are we not entitled to join the party?
I fought the Beast – and the Beast won – for now. Yet it will not continue forever…
cj x
* and before anyone says – bet you did not read the Terms and Conditions carefully – oh, how wrong you are! I actually read them and understood them fully, and in fact far better in light of the relevant legislation than my bank appears to have. I wonder why they do not hire solicitors to read their own T&C’s, rather than apparently just copy them from each other and earlier agreements? One day very soon this could cost them so much that a lot of banks might go under… I find it incredible that many Banks seem unaware of the statutory requirements of the Consumer Credit Acts…
"And sometimes he's so nameless" 
Whoa there. Unauthorised overdraft charges, and other charges associated with what is essentially a breach of contract on the customer’s part, are not levied upon “the poor”. They’re levied upon four groups; the disorganised, the irresponsible, the dishonest and the stupid.
I know a lot of “poor” who are perfectly able to function without being disorganised, irresponsible, dishonest or stupid. To paraphrase, you don’t have to be stupid to be poor (but it helps).
Now I have a lot of sympathy with the stupid. I’ve been through MENSA tests and am in the fortunate position of knowing, like yourself CJ, that I am many standard deviations above average intelligence. My concern is that banking contracts are written with an assumption that the customer has a level of intelligence also significantly above average. This is NOT a realistic assumption (I take the bus to work everyday; I have sufficient empirical evidence). If there is an injustice here, it is the misalignment between the requirement to write contracts in legaleese (paragraphs of very long single sentences without commas or parentheses, for example) and the inability of many people, who are expected to agree to these contracts, to actually understand them.
Signing up to, and understanding, are very different things. I’d argue there is a case for the taxpayer to provide free or heavily subsidised legal advice to people with an IQ below, say, 120, to assist them with understanding contracts.
In the mean time, there’s the Plain English Campaign’s Crystal Mark, which is a good start.
For the other three categories – the disorganised, the irresponsible and the dishonest – I have no sympathy at all.
How can a direct debit, a cheque clearing or a credit card bill come as a surprise, or have unfortunate timing? Utter rubbish. Payments are not random Acts of God; you cause them to happen. They are predictable, solid, dependable, reliable. Unless the direct debit was made illegally (in which case it is refundable along with any charges), the customer must have been disorganised or irresponsible – or have been unsuccessfully dishonest – for it to come as a surprise.
It all comes down to a very, very simple rule. Don’t commit to spend more than you can afford. In order to live by this, you need to be fully aware of only two variables; what you are spending and what you can afford.
This is basic addition and subtraction. Get your bank statements, bills and receipts for the last year and write down a monthly budget planner. I do this about twice a year. For non-monthly costs, spread them out over the year and plonk that money into a savings account every month.
Nothing that moves through your bank account should EVER come as a surprise or an unfortunate timing.
If you want a good quote about this, then it isn’t the Bible or Crowley you want; try Hamlet, Act 1 scene 3, Lord Polonius’ first speech. If you must ignore Lord Polonius’ advice, I strongly recommend sticking to a few rules.
Firstly, understand that banks are after profit, so do your borrowing and lending with something which is not a bank (DUH!!!). For example, family or a genuine mutual building society (yes, this is Andy Tory encouraging you to sign up to socialist constructs; I’m with the Nationwide). Secondly, limit any non-essential borrowing to one third or less of the equity of a secured loan (prerequisite: a secured loan. If you don’t have a mortgage, non-essential borrowing is probably not for you). Third, credit cards are ONLY for expenses for a salaried job where your contract states that expenses will be reimbursed within your interest-free period (typically 30 days); you should NEVER use credit nor store cards for any other purpose. Fourthly, all other loans should be SECURED upon something, and if you need to extend these loans, restrict it to one third or less of the remaining equity (eg. mortgage of 100k on a house worth 121k, limit your additional borrowing to 7k). No equity? Don’t borrow any more! Finally, as an absolute last resort, if you must get an unsecured loan then this should be ONLY for the MINIMUM items necessary for you to get a salaried job. An interview suit, bus pass for the commute, maybe a 300 quid old banger car if there’s no bus. And that’s it. No more borrowing. Under any circumstances. Ever.
In the mean time, I have a very clear conscience about letting the disorganised, irresponsible and dishonest pay for my banking.
As someone who does not have a credit card, store card or cheque book , and yet still got hit with a £100 in bank charges, I’m going to argue strongly here. Sure i have a direct debit for my 02 bill – and I know that means i need the funds to be in my account two working days before it goes out. But given o2 give me three weeks notice of my bill and when it will be taken that is hardly an issue – and I have always had sufficient funds to cover it.
So what happened for me to incur these charges? I don’t know. More disturbingly, neither do my bank local branch, who have referred the matter to Head Office. As many people can attest I am VERY good at getting my bank charges back – I simply nicely ask “er, why did you charge me this?” Most of the time they express concern and say, er “ok, here is your money back”. Even if the first charge was legitimate for some reason, I have now been hot with four this month – one is an unauthorised overdraft fee because I still have not paid the last one – the other three are a mystery.
Now I have a lot of time on my hands, a lot of time to check my bank balances, and an almost pathological aversion to paying a revised set of charges I never signed up to. When I finally took an overdraft, after years of avoiding it, it was a major step for me – I loathe being in debt, and have never entered in to any consumer credit agreements (not least because they tend to be dismally drafted) I can handle banks. If they annoy me, I take pretty drastic action – like demanding they pay me interest on the charges refunded, and getting lovely letters marked “without Prejudice” where they grovel and offer me money to stop bothering them. Unfortunately an awful lot of people don’t have that advantage.
I agree on lack of clarity being an issue. Here is the EU directive at the heart of the case yesterday, which the 1999 Regulations provide the UK application of –
“Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain
intelligible language.”
Article 4(2)which forms basis for Regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations
1999 SI 1999/2083
I find that paragraph beautifully ironic. “Plain intelligible language”? The Supreme Court had to review the other EU nations translations to try to work out what was intended by it. The High Court and Appeal Court had previously upheld the OFT’s reading. So if the High Court judge could not understand it, then pending a Judicial Review, what hope is there for the average bloke in Whaddon?
And it gets worse. When the Consumer Credit Act 2006 which came in to effect in 2007 came out, banks suddenly noticed that for years they had not actually been meeting the provisions of the Consumer Credit Act 1974 in their Terms & Conditions – a classic problem being failing to mention that they would use a Credit Reference Agency on an application and seeking permission as required. However the real problem is that many completely failed to meet the prescribed terms, which are VERY clearly delineated in law –see BBC news for brief mention
http://news.bbc.co.uk/1/hi/business/8365018.stm
People have known this for a good few years, and a good few people have been able to argue that their loans were illegal and get them written off. As of last month there is a precedent. This will really mess the banks up. The thing is if the BANKS could not get the T&C right (even when warned by honest minded folk) what hope is there for anyone?
As to your comment on getting a salaried job as a legitimate reason to borrow – sure, if you can borrow the money. I can’t. The banks won’t touch me. And when I did try, I found the charge was the same as if did it by the famous “informal overdraft arrangement” – £25. That is frankly ridicolous! I simply told them I was not interested, and borrowed from friends – but a lot of people do not have that luxury andy…
Ah, and I do know Polnius’ speech by the way. I am after all a mad Dane sent in to England – so I know Hamlet well. 🙂
Might I counter with a Biblical precept which seems even more apt – Proverbs 22: 7?
It says
“The rich ruleth over the poor, and the borrower is servant to the lender.”
Quite…
cj x
You had some incorrect charges levied against you, you complained and they are in the process of refunding you.
That isn’t news, and it isn’t relevant to this week’s OFT story about *correct* contractual bank charges being ruled perfectly legal.
If you want to rail against bureaucracy, I’m with you all the way (and I’d point you to http://berglas.org/Articles/ImportantThatSoftwareFails/ImportantThatSoftwareFails.html which is an excellent treatise on the importance of allowing bureaucracy to collapse under its own weight). Both customers and banks lose out from overly complex bureaucracy, as you have demonstrated from your experience of a bank that doesn’t even know how to apply its own charges.
But correctly applied charges, which is what this week’s OFT case was about? I don’t see the problem.
I just don’t agree that, for the majority, these charges are somehow difficult to understand. Most banks provide very clear summaries which have been vetted by the Plain English Campaign and have received the Crystal mark. If you want to pick a fight over the small print, fine; if you’re right, I hope you win.
But most banks are very clear that if you go into unauthorised overdraft, you rack up big charges. They don’t hide this. What this week’s OFT story is about, is hundreds of thousands, possibly millions, of people complaining about bank charges that were correctly applied and which they were fully informed about in advance.
It just reminds me of the typical infant school scenario where Jimmy swaps his new toy for Billy’s lunch, and then complains after he’s eaten the lunch that Billy won’t give his toy back. Those kinds of people just need to grow up.
Chris, you say the banks won’t touch you. Could this be linked to all those “Without prejudice” letters they have had to send you?
I’m not sure why you think the 80% are somehow doing OK – they get virtually no interest on current accounts while the banks are lending it out at a profit (gits). They may not be handing money over but they do pay.
Are you registered as a student? There are student accounts with a free overdraft. Would be worth looking into.
Andrew – your world seems very well ordered, but some expenses are unanticipated, like when the fence blows down and needs replacing asap, or there’s a problem with the boiler and it’s below zero, or even just the need for a new pair of shoes etc. On a low income even minor setbacks can be catastrophic.
Tom – if you were on a low income, you’d be renting, so the fence blowing down or boiler failing would be the landlord’s problem, not the tenant’s.
The need for a new pair of shoes is not an unpredictable event; shoes usually last 1-2 years, it can be budgeted for. Also, having a spare pair of shoes is not unreasonable even on a breadline income. You can buy a reasonable spare pair of shoes for less than the cost of two packets of cigarettes – one if you shop around.
Again this comes down to disorganisation, rather than poverty. Many disorganised people are poor, but not all poor people are disorganised.
Andrew, I don’t agree with the equation low income = renting. It is perfectly feasible for homeowners to be on low incomes, and not just the people who foolishly borrowed more than they should have because banks made it too easy and asked too few questions. People face all sorts of situations that can make their budgets look like fantasy – unexpected interest rate hikes (for home owners), food bills, transport costs and the rest of it. I suppose you could argue that people should budget for the worst case scenario and put money away for that, but who knows what that is going to be? It can be hard to put away what you need today.
I don’t believe that all people who are below the poverty line are there because they smoke, drink and buy ready meals instead of cheap nutritious vegetables from the market. I think you are saying that it is people’s own fault. I would say that it more complex and poverty has a variety of causes, not all within a person’s control.
Tom, I would agree that it would be in the taxpayer’s interest to assist less intelligent people in planning their lives so that they can live healthily within their means. But I don’t agree that all poor people are stupid, nor that all stupid people are poor.
I also do not think that the taxpayer should support the disorganised where they possess the intelligence to correct their own actions, nor should the taxpayer support the dishonest or the irresponsible.
The key word here is “budget”. You can budget whether you are rich or poor. The concept of living within your means is not an unrealistic fantasy.
As a society we seem to have lost the art of budgeting, especially the concept of saving up for a rainy day. You can do this no matter how poor you are. Our modern society has lost respect for the “house spouse”, the keeper of an estate who was responsible not only for domestic duties but also for household finances.
Instead, it seems to have somehow become the norm that, if you fail to budget and save for a rainy day, that this is somehow the bank’s fault, or the welfare state’s fault, or indeed anyone else’s fault except the individual concerned. I don’t agree.
Even more daft, today’s society seems to think that it is then the bank’s duty to lend money to people who have clearly demonstrated an inability to manage their own finances. Welfare benefits, charities and co-operatives should be supporting these kinds of people, not banks.
Meanwhile… I note that nobody has discussed the difference between retail banking and investment banking. High street retail banks should have never been allowed to let their cash/equity reserves dwindle to such a point that they were almost entirely reliant on investments (essentially, gambling) to fund their day-to-day personal banking operations. We should have clear regulations to insist upon far higher ratios of instantly-liquidable assets for retail banks. Any retail bank that does not accept that, should find another country to operate in – the risk and burden placed on our national reserves is too high; good riddance to them.
It might be worth looking at the Pendragon RPG as an example of the value of the “house spouse” in household budgeting. The game simulates estate management in feudal times. Due to the sexist prejudiced nature of that society, and lack of contraception, it was traditional for the females to adopt the stay-at-home role, where they would be valued for their arithmetic and accountancy skills, whilst the menfolk toiled or fought.
Today we seem to have thankfully won the battle to allow females to toil and fight; but there seems to be very little traffic in the other direction, there is very little focus on training people to manage their own household accounts.
Despite being a Tory, I highly valued the two hours a week of social education that I received at my bog standard comprehensive school. They taught us all manner of household skills, from ironing and cleaning through to first aid and budgeting.
I worry that in our focus on pushing everyone towards qualifications for the world of work, we have lost the art of homemaking.
Work-life balance seems to be a key concern in the workplace, and yet training for home life seems to have no place at school. Employers have begun paying for “Employee Assistance Programmes” to make up for this educational shortfall; see http://www.axa-icas.com/eapconnect_about.php as an example.
Our schools should teach people not merely to add up, but how to run a household budget. Applied arithmetic, if you will.
Sorry for the delay in replying — I have been composing a post on a slightly more ‘heavy matter’ (the Flynn Effect) and skulking around depressed at not getting another studentship – no Tom I’m not a student, I’ve been trying to find PhD funding on and off for 15 years now. Yes absolutely Tom, this can happy to anyone – you don’t have to be poor to suffer from a disaster. I’ll reply properly to you and Andy in a blog post x
Andrew, thanks for that very clear expression of Tory principles. I hope anyone thinking of voting Conservative next year will read what you have written, reflect on the attitudes it encapsulates, and then decide what sort of society they want to live in.
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Hey chaps, I have continued the discussion in a new post here – https://jerome23.wordpress.com/2009/11/27/the-undeserving-poor/ – it was too lengthy for a follow up, and had drifted off topic. Thanks for the discussion, do comment on the new piece!