While MSE and I tend to focus on the mainstream and mass elements of reclaiming, CAG tends to be more radical (our different approaches have been a good fit, hence why we jointly founded the bank charges fighting fund.
As he raised some interesting, though challenging, points, I thought they were well worth sharing – so with his kind permission I’ve reproduced some of the note below.
- Reclaiming for a much longer period.
- Restitutionary Damages
The general wisdom is you can claim back six years of charges, though since the FSA hold this is now six years from the date the hold was imposed (ie eight years now)… However, CAG believe there’s an argument for going further…
“New limitation period – 1995
There is an important new element which affects the refund period very seriously. Bank charges are probably recoverable back to 1995.
The basis of the 1995 limitation period is as follows: —
The banks say that they are entitled to charge what they like, because their charges are not subject to the Unfair Terms in Consumer Contracts Regulations. They also say that their charges are fair.
We all say CAG, MSE, the whole world, — and the OFT says — that the banks are mistaken. So far the courts are agreeing with us. If it is finally established that the charges are susceptible to UTCCR (ML – the laws that say fairness count) and that they are unfair, then the banks’ mistake will have been confirmed.
The contractual term which requires payment of the charges will have been invalidated. It will then be clear that all the bank charges which have been paid over by customers will have been paid over on the basis of their mistaken belief that they were obliged to pay it and on the basis of the banks’ mistaken belief that they were entitled to levy the charges at this excessive rate.
In law money paid over in this way is described as “money paid under a mistake”. The limitation period for a legal action to recover money paid under a mistake is six years (the same as a normal contract limitation). However in the case of mistake, the limitation period begins from the time that the mistake could reasonably have been discovered. In the case of bank charges, the limitation period has not even yet begun to run.
It will only begin to run from the time that the OFT litigation is concluded, the charges are declared to be unfair, and the banks have accepted the situation. That date will be the date upon which the mistake has been discovered.
Why back to 1995? Although The Unfair Terms in Consumer Contracts Regulations were introduced in 1999, they actually gave retrospective effect to a European directive which came into force on 1 January 1995. This means that if a contractual term is invalid under UTCCR, it is invalid all the way back to 1 January 1995. UTCCR affect any contracts which were entered into after 1 January 1995.
This may seem quite extraordinary but it is not at all fanciful. It is completely settled and very basic law. I don’t know if you noticed that the during the House of Lords hearing in June, Jonathan Sumption QC acting for the banks actually told their Lordships that if the banks lost the case that there was a possibility that their customers might start claiming back into the 1990s.
He didn’t say anything more about this, (I think that he didn’t want to alert the public too much) but the limitation period and the 1995 liability period is what he was referring to. I think that it is our job to alert the public.
You might think that your viewers and listeners should know about this when you talk about bank charges.”
This is a fascinating argument, due careful consideration – though it is of course unproven. In the MSE guides we suggest people ask for charges back at least as far back as six years before the hold on charges starting – I decided not to add these arguments in for the time being.
For our ‘everyman’ guides this adds a level of complexity that is as yet unnecessary – while it would allow people to claim more – it is a tougher argument and most MSE users are looking for a straightforward route (evidenced as we sadly know by issues such as people sending unaltered template letters).
My own view is while this is an important legal principle, the core aim is to get a formalised system of reclaim recompensive (I hope for automatic payback– see the Nick Clegg letter – but suspect it will need application). I doubt that will go back as far as Marc’s hoped 1995, meaning people may have to take further court action to test that. Therefore for the moment I think a wait-and-see situation is best for MSE (though if you want to go for it – the template letters are available on CAG).
The second concept is further along the revolutionary spectrum…
“The extent of the banks liability in respect of the amount which they should refund to their customers is far greater than is generally thought.
At the moment, when customers begin court actions for the refund of their charges, they expect to recover their charges plus a statutory 8% interest.
As I have already suggested, UTCCR operates to invalidate an unfair term. This means that there is no longer an action for breach of contract. Instead bank customers must sue for the recovery of money paid under a mistake.
Where money has been paid over mistakenly, the courts take the view that the beneficiary of a mistake has been unjustly enriched. The idea of unjust enrichment applies whether or not the beneficiary deliberately took advantage of the claimant or whether it was entirely innocent mistake.
The action which is brought to recover money paid under a mistake is the action for restitution. People tend to think that this only means getting your money back. It means far more than that. Where a litigant is successful in a claim for restitution, they are entitled to restitutionary damages.
This means that they are entitled to receive compensation. However the compensation award is not calculated on the basis of the claimant’s loss but instead it is calculated according to the defendant’s gain. It is sometimes known as “gain stripping”. The idea is that the defendant is to be divested of their unfair gains. Any profits which they have made out of the mistake are to be disgorged and handed over to the claimant.
The way this works is that the court will order the unsuccessful defendant to disclose all the profits which they have made on the back of their customer’s unlawful charges. The court then orders that those profits are paid over to the customer. The customer is not required to make any representations as to how much profits the bank may or may not have made. This obligation falls upon the bank.
I don’t know what your view is of this but I find it is breathtaking and frankly rather frightening because the full-scale of the banks’ liability is stupefyingly large. Going back to 1995 I can imagine a bill for restitutionary damages well over £150 billion — but who knows.
However, if the banks manage to get away with merely handing out refunds and 8% interest, then they will have done very well from their customers’ money because I’m quite sure that they have been able to lend out their bank charges money at the very high commercial rates of interest. I think it would be very unfair if they were permitted to keep this money — especially in view of all the hardship, misery, broken homes, broken families, broken businesses, broken homes and broken dreams that they have caused by their greed. I think that their customers are entitled to a proper recompense.
If you are struck by the enormity of what I am saying — then you may feel incredulous about it, as I do as well. However I have been juggling this legal logic in my mind for a considerable time and I come to no other conclusion.
What finally confirmed it to me was that in his arguments to the House of Lords, Jonathan Sumption QC also warned their Lordships that if they found against the banks that there was a danger that they might be faced with claims for restitution. He actually said this! Once again, he didn’t go on to detail what he meant. However I’m sure that their Lordships understood his dire warning very clearly and I recognised it immediately as an indication that the banks themselves are fully aware of the true scale of their liability and that they are very frightened about it.
On the Consumer Action Group we have already published template Particulars of Claim which include restitutionary damages as part of the claim. We have played it safe though and the templates also asked for 8% statutory interest in the alternative.”
Again a fascinating option but not one to encourage in the mainstream as yet. The Tom Brennan case (see my old blog on it) was one of the more difficult moments in bank charges history. By asking for punitive damages risked both losing the sympathy of the general public and as it eventually lost – sadly it meant some lost faith in reclaiming.
Given the current state of play, my view is it’s best to focus on the bigger issue of getting people to get their claims in quickly and en masse, rather than pushing. However I wanted to bring it to the site for discussion and so people can see the options.