4â Bank accounts

A Bank account has been described as ‘a chose in action in which a customer deposits money with a bank and the bank recognises that money is credited to the customer’s account. The bank owes the contractual duties of creditor and debtor to its customer.’35 Cranston noted that the ‘most basic service a bank can provide to members of the public is to act as a depository for their money’.36 Cranston took the view that ‘these days multifunctional banks hold the people’s money in other forms– in various collective investment schemes, funds, and insurance products. In many senses these are functionally equivalent to bank accounts and may be economically more advantageous for customers.’37

(a)â The Current account

One of the most popular bank accounts in the United Kingdom is a current account, which is used by ‘customers for their regular financial transactions’.38 Hudson noted that ‘a current account is the ordinary account held between banker and customer’.39 Wadsley and Penn noted that ‘the current account is still regarded as a basic element in the banker customer relationship. It is thought of as supplying liquid funds, and is used for day to day payments in and out. Legally … it is a debt owing to the customer by the bank, not the actual money of the customer.’40 The purpose of a credit account is to enable the customer to pay for goods and/or services by ‘cheque, debit card, or other funds transfer, amounts due from him, and to arrange for the collection of cheques payable to him and other receivables’.41 Once the money has been deposited into the current account, it becomes the property of the bank, which means it has a contractual relationship with its customer.42 Current accounts play a pivotal role in the relationship between a bank and its customers: current accounts offer access to deposit-holding services (and potential access to savings services), money transmission through cheques and debit facilities and potentially act as a vehicle for credit through overdraft.’43 the money deposited in this bank account is ‘payable on demand, either by withdrawal or by the customer instructing the bank to make payment to a third party’.44 Furthermore, a customer is able to ‘use his current account for the purpose of discharging his

liabilities. This can be done either by drawing cheques that he dispatches to his creditors, by using a debit card that operates directly on his current account, or by using some other form of giro transfer, such as a standing order or direct debit.’45

The association between a bank and its customer via a current account is that of a creditor and debtor.46 The approach adopted by the common law to this relationship was outlined in Joachimson v. Swiss Bank Corp. by Atkin LJ:

The bank undertakes to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order for the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept. Whether he must demand it in writing it is not necessary now to determine.47

When faced with a prospective new customer, a bank must comply with a number of legal obligations.48 For example, a bank must perform certain ‘customer due diligence’ requirements under the Money Laundering Regulations 2007 prior to entering into a business relationship, which includes opening a current account and undertaking intermittent transactions for its customer.49 Additionally, a bank is required to comply with the Banking and Payments Service Regime, which comprises the Banking Conduct of Business

Sourcebook50 and the Payment Services Regulations 2009.51 The Payment Services Regulations 2009 were introduced as a result of the passage of the EU Payment Services Directive 2007/64/EC,52 and their implementation will be

49SI 2007/2157. For a more detailed discussion of the Money Laundering Regulations 2007, see C. Stott. and Z. Ullah, ‘Money Laundering Regulations 2007, Part 1 (Legislative Comment)’ (2008) 23(3) Journal of International Banking Law and Regulation, 175; ‘Money Laundering Regulations 2007 Part 2 (Legislative Comment)’ (2008) 23(5) Journal of International Banking Law and Regulation 283 and P. Snowdon and S. Lovegrove,. ‘Money Laundering Regulations 2007’ (2008) 54 Compliance Officer Bulletin (March), 1.

50For a more detailed discussion of the Banking Conduct of Business Sourcebook, see P. Cartwright ‘Retail depositors, conduct of business and sanctioning’ (2009) 17(3) Journal of Financial Regulation and Compliance 302.

51SI 2009/209.

52See R. Bollen. ‘European regulation of payment services: the story so far’ (2007) 22(9) Journal of International Banking Law and Regulation 451 and R. Bollen, ‘European regulation of payment

supported by the Financial Services Authority.53 Brandt and Graham stated that:

The Payment Services Directive began life as a European Commission legislative proposal in December 2005. The draft Directive was subject to a significant amount of negotiation. Political support from the European Parliament and the Council of Ministers was received in April 2007 with the Directive being adopted formally on 13 November 2007.54

According to Ellinger et al. this system of regulation is twofold. First, the ‘[current] account can be used by the customer as a means of satisfying any payment instructions that he gives to his bank and is, therefore, the means whereby a bank can provide payment services to its customer’.55 Secondly, ‘a current account enables a bank to receive deposits made by, or on behalf of, its customer’.56 The Payment Services Regulations 2009 stipulate that once the customer deposits cash into the current account, the funds must be attributed to the account and made available to the customer immediately.57 If the cash is deposited by a different type of customer, the account must be accredited ‘no later than the end of the business day after the receipt of the funds’.58

(b)â Deposit account

A deposit account is often used for ‘longer term deposits’ 59 and they are often referred to as savings accounts or extra interest accounts. Hudson noted that ‘a deposit account can be an account in relation to which the deposit can be withdrawn, in relation to which the deposit can only be withdrawn on specified notice, or in relation to which the deposit can only be withdrawn after the effluxion of a period of time’.60 Wadsley and Penn noted that ‘funds in deposit accounts may be withdrawable on demand, but are often withdrawable only on specified notice or after a fixed time; it depends on the terms on which the contract is made. Because they are less liquid than current accounts, deposit accounts attract higher rates of interest.’61 Traditionally, a cheque book is not provided for a deposit account as outlined by J. Mocatta in Barclays Bank v. Okenarhe, who also took the view that ‘I am quite unable to accept than an overdrawn deposit account is a concept known to the law’.62

surpasses his overdraft limit without the bank’s prior agreement, banks often charge higher rates of interest and extra bank charges. Davies stated that ‘banks regularly levy charges for unarranged overdrafts. Even if a customer’s attempt to become overdrawn on an account without prior arrangement is blocked by a bank, the customer may still incur a charge.’74

The issue of bank charges was recently tested in the Supreme Court in

Office of Fair Trading v. Abbey National plc,75 where the ‘Office of Fair Trading attempted to challenge some of the charges levied by the high street banks under the Unfair Terms in Consumer Contracts Regulations 1999’.76 Mulheron took the view that this case was also influenced by the furore involving allegedly unauthorised bank charges, which involved over 46,000 claims to the Financial Ombudsman Service, and approximately 53,000 claims filed against defendant banks between March 2006 and August 2007 (including almost 9,000 county court claims commenced in May 2007 alone).77 At first instance and in the Court of Appeal, the OFT successfully contended that the bank charges could be challenged under the Unfair Terms in Customer Contracts Regulations 1999, SI 1999/2083, because they were ‘collateral or subsidiary to the main price of the contract’.78 The Supreme Court determined that the bank charges were not subject to the Regulations because they were ‘part of the price paid for the services provided by the banks’.79 In particular, the Supreme Court ruled that ‘regulation 6(2)(b) covers any price or remuneration terms and that unarranged overdraft bank charges, being price terms, are thus exempt from the unfairness assessment’.80 However, Lord Phillips stated that the ‘OFT could still try to scrutinise bank charges under other parts of the consumer protection regulations’.81

Montague noted that:

This decision, described as ‘sensational’ and ‘unexpected’ in the media reports, has been much misunderstood. In the wake of the banking scandals of the past year, it has been generally viewed as further proof of the establishment’s protection of the banks’ profits. However, the Supreme Court was not saying that charges of up to £39 a day were acceptable, but only that there was no legal ground to challenge them via the route chosen by the OFT. The view of the Supreme Court was that the lower courts had over-complicated a relatively simple question of interpretation.82

74P. Davies, ‘Case comment: bank charges and unfair terms’ (2008) 67(3) Cambridge Law Journal 466.

75See above n. 73.

76J. Montague,. ‘Case comment: Office of Fair Trading v Abbey National Plc: contract– bank levies unfair terms– Office of Fair Trading’ (2009) 14(2), Coventry Law Journal, 44.

77R. Mulheron. ‘Recent milestones in class actions reform in England: a critique and a proposal’ (2011) 127 Law Quarterly Review (April) 288, 298–9.

78 Montague, above n. 76, at 44.â 79â Ibid.

80Chen-Wishart, M. ‘Case comment: transparency and fairness in bank charges’ (2010) 126 Law Quarterly Review (April) 157.

81B. McDonnell, O. Bell, J. Butler, D. Crehan, E. Heaton and N. Lindsay, ‘Annual review’ (2009) 72

Compliance Officer Bulletin, (December/January) 1, 38.

82Montague, above n. 76, at 44.