Office of Fair Trading V Abbey National Plc

Office Of Fair Trading V Abbey National Plc

Office of Fair Trading v Abbey National plc and Others UKSC 6, EWCA 116, EWHC 875 (Comm) is a case about bank charges in the United Kingdom, concerning the situation where a bank account holder goes into unauthorised overdraft.

When a bank customer uses an unauthorised overdraft and then makes a payment request (whether by standing order, direct debit or using an ATM or debit card), banks generally make the payment as requested, and then charge fees (which may include "paid item" charges and unauthorised overdraft fees) which accrue on a daily basis whilst the unauthorised overdraft continues. The Office of Fair Trading ('OFT'), acting on behalf of consumers, challenged these fees under the Unfair Terms in Consumer Contracts Regulations 1999 ('UTCCR'), which implements European Union Unfair Contract Terms Directive. OFT claimed the sizeable fees charged were not a fair reflection of the banks' costs but were instead a penalty upon the consumer or bank account holder, hence unlawful. If these fees were confirmed to be a penalty for breach of contract then under UK law the amount that could be charged would be limited to reflect the actual (and considerably lower) costs which were incurred by the bank.

The High Court held that although the charges were not penal, they fell within the remit of the legislation and hence their fairness could be assessed by the OFT. The Court of Appeal agreed and held unanimously and emphatically that the charges could be assessed for fairness. But the UK Supreme Court reversed this decision, holding that the charges could not be assessed for fairness by the OFT, or the courts. They held that UTCCR 1999 r 6(2), as the United Kingdom chose to implement the European Directive, precluded any assessment of the "core terms" of a contract, and because overdraft fees related to a bank's remuneration, the fees charged to consumers could not be challenged. Baroness Hale asserted that while the court had no power to do anything, Parliament could have chosen to construe the directive more broadly, and it would be up to the legislature to decide differently. The Supreme Court denied any reference to the European Court of Justice (through art 234 TEC), so bringing to an end the litigation. The regulations could be challenged as failing to implement the directive through a separate case, but since any decision by the ECJ would be prospective only the government, and not the banks, would have to pay any compensation. This may be unlikely to succeed, since the Directive gives discretion to Member States to regulate all terms or non-core terms.