National Westminster Bank - Litigation

Litigation

The so-called NatWest Three — Giles Darby, David Bermingham and Gary Mulgrew — were extradited to the United States in 2006 on charges relating to a transaction with Enron Corporation in 2000 while they were working for Greenwich NatWest. It has been argued that the alleged crime was committed by British citizens living in the UK against a British company based in London and therefore, any resulting criminal case falls under the jurisdiction of the English courts. However, the Serious Fraud Office decided not to prosecute due to lack of evidence. There has been criticism that the Americans do not have to produce a prima facie case, or even a reasonable one, to extradite British citizens, whereas no such facility exists to extradite US citizens to the UK. On 28 November 2007 the three admitted one charge of wire fraud after a plea bargain. On 22 February 2008 they were each sentenced to 37 months in prison.

Following discussions between the Office of Fair Trading, the Financial Ombudsman Service, the Financial Services Authority and the major banks, proceedings were issued on 27 July 2007 in a test case against the banks to determine the legality and enforceability of certain charges relating to unauthorised overdrafts. It is argued that these are contrary to the Unfair Terms in Consumer Contracts Regulations 1999; Schedule 2(e) of which gives a non-exhaustive list of terms which may be regarded as unfair, such as a term requiring a consumer who fails in his obligation to pay a disproportionately high sum in compensation. Penalty charges are irrecoverable at common law. The precedent for this was Dunlop Pneumatic Tyre Co. Ltd. v New Garage and Motor Co. Ltd. AC 79 along with Murray v Leisure Play EWCA Civ 963, where it was held that a contractual party can only recover damages for an actual loss or liquidated losses. The Royal Bank of Scotland Group maintained that its charges were fair and enforceable and stated it intended to defend its position vigorously. On 24 April 2008, the High Court found that although these charges could not constitute penalties, they are challengeable under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999. On 26 February 2009, the Court of Appeal ruled that fees for unauthorised overdrafts and bounced cheques are subject to regulation by the OFT under these rules.

In September 2009, NatWest and RBS both announced dramatic cuts in their overdraft fees. The unpaid item fee was reduced to £5 from £38 and the card misuse fee was reduced from £35 to £15. The cuts came at a time when the row over the legality of unauthorised borrowing, estimated to earn current account providers about £2.6bn a year, had reached the House of Lords.