when a penalty charge has no defence.

[Maxie]

I don't know if this has been mentioned before, if it has I wasn't able to find the thread so apologies!

 

Banks will always say that the charges are fair, clear in the T&C etc, but as we know are unenfoceable at law. However, they always try to come up with something and make a settlement.

 

However, when the charge is greater than the value of the breach, this is clearly a penalty charge and can not be defended, even by saying it is in the T&C. So, if you go overdrawn by £20 and the bank charge you £30 as the penalty charge is greater than the value of the breach it can be nothing by a penalty - period and this has been unpheld in court on every occation.

 

Secondly, say you have a direct debt to go out of your account for £30 but you only have £25. The bank bounce it charge you £35, putting your account £10 overdrawn, than charge you another £30 for an 'unauthorised overdraft' puting your account £40 they can not charge for a breach when they are responsible for the breach - again will always win this case.

 

Just thought it might help, although I susoect many of you know this!

[BankFodder]

I don't know if this has been mentioned before, if it has I wasn't able to find the thread so apologies!

 

Banks will always say that the charges are fair, clear in the T&C etc, but as we know are unenfoceable at law. However, they always try to come up with something and make a settlement.

 

However, when the charge is greater than the value of the breach, this is clearly a penalty charge and can not be defended, even by saying it is in the T&C. So, if you go overdrawn by £20 and the bank charge you £30 as the penalty charge is greater than the value of the breach it can be nothing by a penalty - period and this has been unpheld in court on every occation.

 

 

I am afraid that I disagree with this. Although it seems very unfair - and the penalty appears to be out of proportion to the breach, the test is not really one of proportionality (although the 1999 regs have not been tested in court). the test relates to the losses suffered, in this case by the bank. If the bank could show that £35 really was what it cost them to deal with the bounced DD regardless of the value of the DD, then the penalty would not be recoverable as it would be a legitimate penalty

 

Secondly, say you have a direct debt to go out of your account for £30 but you only have £25. The bank bounce it charge you £35, putting your account £10 overdrawn, than charge you another £30 for an 'unauthorised overdraft' putting your account £40 they can not charge for a breach when they are responsible for the breach - again will always win this case.

 

I agree with this in principle. But I don't think that it is as clear cut as you suggest. This one is a little conundrum and needs to be worked out in discussion. It could be the basis for a good argument in court but one would have to get a clearer idea of the logic. It will depend on how the train of events can be expressed

[Maxie]

Sorry to disagree, and I don't want to appear confrontational, but what I have told you is the law. It has been set in case law and would be held as correct 100% by a court.

[ispartacus75]

but what I have told you is the law. It has been set in case law and would be held as correct 100% by a court.

 

Interesting post. Can you expand on this at all? Can you quote the case law for us as this would be very useful in court. I dont know how many times Ive gone £10 overdrawn and been charged £28 for it. Theoretically your arguement would apply to about 95% of my charges

[Maxie]

I think I need to qualify my point and give more detail.

 

It comes from a law Commission Repoty I read - I can dig out the exact reference if people want it.

 

Issue is this. Banks makes these charges and make statements that these charges they make are a genuine pre-estimate of loss. However, when thet get to vourt they tend to settle as they do not want to be 'put to proof' to evidence how the can account for every penny. E.g. you go overdrawn, you get sent a letter and charge by the computer, add together the cost of a stamp, peice of A4 paper and envelope - what £1.50. So for a £30 charge what is being costed for the other £28.50? Hence the failure to robustly defend 'our' actions. So in this case, Bankfodder is correct, if they can show a charge of £30 is a pre estimate of costs they it will stand, but they never have. Also, you may note, that since this Law Commission Report questioned the issues of charges being greater than the actual breach, some banks chaged there policy. E.g. if your breach was under £30 you wolud be charged £10, if you breach was greater than £30 you would be charged £30. HSBC have such an active policy.

 

As for my second point, you go overdrawn and are charged for it - this could be argued in court by the bank that it was a pre-estimate of loss and if they proved the point you claim would fall. However, then to argue that the banks second charge was exclusivly because you went into the red and therefore were charged again is incorrect. Who was responsible for the breach of cotnract. In the first instance you were, but you can not be held for to actions of the bank making you go overdrawn - this would be a 'double whammy' and you as the customer can not be liable for there loss, when the loss was a direct result of there failure, not yours. Yes, they are entitled to charge a genuine pre-estimate of costs for the breach of the bounced chqeue or DD, but if following that charge your account is now overdrawn, that is a result of there actions. You have already 'paid' for your mistake by being charged for going overdrawn the second mistake is wholly theres.

[Maxie]

I've currently got a case in Burnley County Court where part of my pleading are that the my breach was less than the charge so therefore it follows that the charges is unlawful but default. i am relying on the points above.

 

I will e-mail my particulars to any moderator who would like to see them, but ask that they be kept in confidence until the case is consluded.

[BankFodder]

 

I will e-mail my particulars to any moderator who would like to see them, but ask that they be kept in confidence until the case is consluded.

 

yes please. In confidence is fine

What stage are you at. Have they defended?

[BankFodder]

I think I need to qualify my point and give more detail.

 

It comes from a law Commission Repoty I read - I can dig out the exact reference if people want it.

 

Issue is this. Banks makes these charges and make statements that these charges they make are a genuine pre-estimate of loss. However, when thet get to vourt they tend to settle as they do not want to be 'put to proof' to evidence how the can account for every penny. E.g. you go overdrawn, you get sent a letter and charge by the computer, add together the cost of a stamp, peice of A4 paper and envelope - what £1.50. So for a £30 charge what is being costed for the other £28.50? Hence the failure to robustly defend 'our' actions. So in this case, Bankfodder is correct, if they can show a charge of £30 is a pre estimate of costs they it will stand, but they never have. Also, you may note, that since this Law Commission Report questioned the issues of charges being greater than the actual breach, some banks chaged there policy. E.g. if your breach was under £30 you wolud be charged £10, if you breach was greater than £30 you would be charged £30. HSBC have such an active policy. .

Is this the case? I didn't know that HSBC have a policy of attempting proportionality in their penalties. I don't think that I have seen it referred to by any of our Users. Do you have some reference document for this?

 

Of course the Law Commission would suggest some kind of proportionality in penalties - in the same way as it has been hinted at in the 1999 Unfair Terms in Consumer Regs. This is because actually no one really likes the existing principle of insisting on an "expenses only" system of penalties - at least not at the consumer level. It is for this reason that the OFT is expected to announce merely a cap to charges - and I expect that there will be a reference to proportionality as well. The existing law goes back at least as far as 1894. It was intended for big contracts and large sums of money which could disrupt business. Consumers were never affected by penalty clauses in those days.

However, proportionate penalties as opposed to "expenses only" would require a change in the law. You can be certain that the banks and others are privately lobbying for it and I am sure that they are being assisted by the OFT and the Law Commission.

But it isn't the law yet.

 

 

As for my second point, you go overdrawn and are charged for it - this could be argued in court by the bank that it was a pre-estimate of loss and if they proved the point you claim would fall. However, then to argue that the banks second charge was exclusivly because you went into the red and therefore were charged again is incorrect. Who was responsible for the breach of cotnract. In the first instance you were, but you can not be held for to actions of the bank making you go overdrawn - this would be a 'double whammy' and you as the customer can not be liable for there loss, when the loss was a direct result of there failure, not yours. Yes, they are entitled to charge a genuine pre-estimate of costs for the breach of the bounced chqeue or DD, but if following that charge your account is now overdrawn, that is a result of there actions. You have already 'paid' for your mistake by being charged for going overdrawn the second mistake is wholly theres.

 

Once again, I agree in principle with this but it needs to be rendered into a succinct test which elegantly expresses the logic. To do that one has to deconstruct this explanation and reproduce it in a short generalised form. Then one takes the resulting formula and one applies it to several real situations to see what answer is produced. If it works everytime, then you have a powerful legal argument.

However it would take some time and discussion to understand fully the mechanism in your explanation. It would be worth doing, though.

[Spiceskull]

Well, I have to say that in principle, Maxies logic stands up. Therefore I am going to have a look at her quote, break it down by sentence, and apply logical steps and counter steps to it.

 

I'll post my results early next week, and let others apply the test to see if it works. If it doesn't, well, at least we know.

 

See the steps I took to get my bank charges back.

Spiceskull v HSBC.

Thank you Consumer Action Group.

Read my blog.

 

[Maxie]

Well, I have to say that in principle, Maxies logic stands up. Therefore I am going to have a look at her quote, break it down by sentence, and apply logical steps and counter steps to it.

 

I'll post my results early next week, and let others apply the test to see if it works. If it doesn't, well, at least we know.

 

Just FYI maxie is a he not a her

 

My real name is Nigel, but Maxie is my dogs name as the first thing that came to me when asked for a uername!

 

Her......the cheek

[Spiceskull]

Oops...and I am a person who lives by the rule that assumption is the most dangerous weapon of all. My apologies.

 

See the steps I took to get my bank charges back.

Spiceskull v HSBC.

Thank you Consumer Action Group.

Read my blog.

 

[Maxie]

No worries; my girlfriends still chuckling at it!

[gothicf0rm]

maxie is right about this, ive seen it happen in business when ive gone after people. advice from my lawyer on the claiming of damages and the level to set them at -

 

"In that case in the High Court of Appeal Civil Division, Irvine provided evidence that his minimum endorsement fee was 25k. The judge Hugh Laddie stated that he considered the particular instance to be much smaller scale than anything previously endorsed and that Irvine would have only asked for 2K and Irvine got messed for costs because 2K was less than a rejected settlement. On appeal the higher court said that was all wrong overruling Laddie, that all the evidence was that would be asked was owed and so that it totaled 25K not 2K. This is legal decision still stands today.

 

A couple of parts of the ruling really spell out why the implications that they should only pay what they would normally is wrong -

 

105 - "It is clear from Lord Wilberforce's speech in General Tire that a reasonable endorsement fee in the context of the instant case must represent the fee which, on a balance of probabilities, TSL would have had to pay in order to obtain lawfully that which it in fact obtained unlawfully (see in particular the passage from the judgment of Fletcher Moulton J in the Aluminium case, quoted by Lord Wilberforce). It is not the fee which TSL could have afforded to pay: hence the judge was correct to conclude (in paragraph 16 of the second judgment) that TSL's financial situation is irrelevant."

[martinwhite]

I am afraid that I disagree with this. Although it seems very unfair - and the penalty appears to be out of proportion to the breach, the test is not really one of proportionality (although the 1999 regs have not been tested in court). the test relates to the losses suffered, in this case by the bank. If the bank could show that £35 really was what it cost them to deal with the bounced DD regardless of the value of the DD, then the penalty would not be recoverable as it would be a legitimate penalty

 

Ford Motor Co v Armstrong (1915) says that It is also a penalty where the consumer is to pay a larger sum due to failure to pay a smaller sum. So the size of the breach in relation to the "damages" is very important. Or I might have this out of context with what you were saying, BF.

 

I have had £10 s/o and DD bounced and then charge £28.50 for them!!

[maestro451]

Ive read through the cases and tbh im not sure about this one, whats exatcly does this mean?

 

"a clause will be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is greater than that which ought to have been paid"

 

Does this mean that if I owe my credit card comp £10 and dont pay then are entitled to to charge a fee of upto £10 aswell as the original £10 I owed them originally?

[Bookworm]

No, it means -in theory- that if the charge is higher than the sum owed, it is deemed a penalty.

It does not follow that it is NOT a penalty if the charge is lower than the sum owed.

[ThulsaDoom]

Trying to make sense of this thread, have a few questions:

 

1. I have a DD/SO for £60

a. it puts me o/d by £60.

or

b. it puts me o/d by £20.

 

2. I goto Tescos and pay for shopping (£100).

a. it puts me o/d by £70.

or

b. it puts me o/d by £20.

 

I would receive a £30 charge for each of the above, plus the £28.

 

Based on what I've read I could argue for a refund on 1b and 2b but not 1a and 2a.

Or have I misunderstood?

[lee6370]

I think you have misundestood.

 

As i understand it, your claim is on the ground's that the bank can only recover the amount it has lost (i.e. the cost of paying or bouncing your DD), since it's costs will remain the same regardless of whether it bounces a DD for £10 or £1000, it does not matter how much your DD is for and this has no effect on your claim.

 

The point that is being made is you can argue your claim on a 2nd ground, as follows;

 

If the charge exceeds the amount that would have been paid it's a penalty. e.g. the DD was for £10 they didn't pay it and charged you £30 for not paying it.

 

At the end of the day you can have a 2 pronged attack, which can only help, it doesn't mean you can't claim certain charges, it means you can only use both arguements for certain charges.

 

Hope that helps.

[ThulsaDoom]

OK.

Your example is when they don't pay a DD and charge you.

 

My example is when they do pay a DD, and it puts you into the red by more/less than the amount of the DD.

 

But I think you have answered it by saying

"your claim is on the ground's that the bank can only recover the amount it has lost (i.e. the cost of paying or bouncing your DD), since it's costs will remain the same regardless of whether it bounces a DD for £10 or £1000, it does not matter how much your DD is for and this has no effect on your claim."

[Maxie]

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