Office of Fair Trading v Abbey National Plc & 7 Ors

Regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999 excludes only an assessment relating to the adequacy of the price or remuneration as against goods or services supplied in exchange. It does not exclude assessment of every term connected with payment.

Bank charges imposed when customers make unauthorised payments are not, in substance, the price or remuneration for the banks’ services. They are charges triggered by particular circumstances. The charges therefore remain assessable for fairness. A term is in plain intelligible language only if the typical consumer can understand both its wording and its practical effect on the parties’ rights and obligations.

The Office of Fair Trading brought proceedings against eight banks and a building society concerning charges imposed when personal current-account customers made payments without sufficient funds or an arranged overdraft facility.

The OFT sought declarations on whether the relevant contractual terms were excluded from fairness assessment under regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999. The defendants also sought declarations concerning the common-law penalties doctrine and the meaning of good faith under regulation 5(1).

The court considered the construction of the Regulations, the clarity of the banks’ terms, whether the charges were penalties, and whether the charges were the price or remuneration for services supplied in exchange.

1. Plain intelligible language. Regulation 6(2) requires more than comprehensible wording. The typical consumer must be able to understand the term’s effect on the contractual rights and obligations. The test is practical and moderate: consumers need not understand every complexity of banking systems, but must understand the types of charges, when they may arise and the amount payable.

2. Terms of HSBC, Lloyds TSB, Nationwide and RBSG were in plain intelligible language. Terms of Abbey, Barclays, Clydesdale and HBOS were largely clear but failed that standard in specified respects. Lack of clarity meant that regulation 6(2) did not prevent fairness assessment of the affected terms.

3. Penalties. A charge can be penal only if it is payable upon breach of contract. The relevant terms did not impose contractual obligations or prohibitions whose breach triggered the charges, or the charges were not payable upon any such breach. The terms therefore could not be unenforceable penalties at common law.

4. The common-law penalties doctrine was not displaced where the 1999 Regulations did not protect the consumer. The Regulations established minimum consumer protection and did not remove additional common-law protection.

5. Regulation 6(2)(b). The provision requires a restrictive interpretation. The relevant charges were not charges paid in exchange for the whole package of current-account services, nor were they remuneration for lending or payment services supplied in exchange. They were imposed because those services were supplied in particular circumstances, namely when a customer made a payment without sufficient funds or an arranged facility.

6. The banks’ “whole package”, “specific services” and “specific contract” arguments therefore failed. The charges were not exempt from fairness assessment. The court rejected both the argument that refusal to pay supplied a service and the argument that an ad hoc overdraft charge was the price of a recognisable overdraft facility.

7. The court preferred the “excluded assessment” construction of regulation 6(2). Where the provision applies, it excludes an assessment relating to the adequacy of the price or remuneration, rather than excluding the contractual term from all fairness assessment.

8. The court declined to make the declarations sought concerning good faith under regulation 5(1). The question was fact-sensitive, the date when the relevant contracts were made or varied had not been argued, and abstract declarations would risk uncertainty.

9. The court did not decide whether the charges were unfair under regulation 5(1), or whether they were binding under regulation 8(1). Those issues remained for later determination.