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10-June-2007
Is your bank working for you?
There has been a massive amount of publicity relating to our high street banks and pressure put on them by disgruntled customers in reclaiming bank charges. The whole premise of making the claims is that the banks have for some years been charging customers an unreasonably high amount for going over overdraft limits etc. In this age of consumer rights, it appears that the tide is changing.
A number of private individuals are now taking steps to address the balance which has previously been overwhelmingly in favour of the banks. This takes the form of customers writing to their banks requesting repayment and in some cases, the issuing of court proceedings. The most high profile example is one brought by a Barrister (on his own behalf) in the City of London County Court where he is claiming damages for the harassment that he received from his bank. One only needs to open any daily paper to see similar examples.
The basis of customers complaints is that the banks are penalising their customers but perhaps more importantly the banks are coming under more and more pressure to justify how the charges are made up. The banks are being asked to justify the losses that they say are being incurred and covered by the charges which are passed on to customers.
It is very difficult to see how the banks can actually justify these charges which would not represent their true loss. I suspect that the banks are taking commercial and pragmatic views of these cases and settling them without the need for going to court. This however has two potential implications.
Firstly, without a case being fought in the court, no precedent will be set. It is likely that for that to happen, a test case would need to be brought and the costs of both sides would be underwritten by the bank. The problem with this of course is that if the bank loses then this will open the floodgates to probably millions of claims and alternatively if they win, we will all suffer in more and more bank charges.
The second issue relates to changes in the regulations relating to companies. In October this year, company directors will have a new statutory code of duties that they must comply with. This is contained within the Companies Act 2006, part of which is already in force and further parts of which are coming into force later this year and next year. However, the background to the Act is an increase in social responsibility for businesses and for company directors to have regard to why the factors other than just short term profit. I suspect that the government did not specifically have the banks in mind when introducing this new code but this concept of enlightened shareholder value and social responsibility underlies much of the Act. It remains to be seen how this will affect companies generally but in terms of the banks specifically, the banks Board of Directors have to consider a number of factors when exercising their powers and implementing policies. These factors include the need to foster the company’s business relationships with suppliers, customers and others. There will also be a desirability for the company to maintain a reputation for high standards of business conduct. There are of course other factors to consider such as the interest in the companies employees and to promote the success of the company for the benefit of its shareholders. Directors therefore will need to balance these interests.
It remains to be seen how this will work in practice but the banks face an uncertain time and the new Act can only serve to increase the customer’s position.
ENDS
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