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Banks have new duties to protect consumers – so why can’t consumers sue for breach?

Posted: 18/06/2024

Fairness to consumers, and the integrity of the financial markets, underpin the new duties being imposed on financial institutions in 2024. But is it fair that a consumer can only seek redress for breach from an ombudsman, and not the court? And why do consumers not have a private right of action for breach of these duties, when such a right exists for breaches of other Financial Conduct Authority (FCA) rules?

In an article for the New Law Journal, Michael Brown and Harriet Campbell consider the new duties on banks, the apparent policy shift away from the private right of action, and look at the potential consequences for consumers and financial institutions.

Their practical analysis of the topic focuses on the following key points:

  • What is the status of decisions by the Financial Ombudsman Service and is there a potential for a parallel line of authority developing away from that of the court?
  • Does the restriction on a private right of action in these cases operate as a block on the availability of class actions for consumers? 
  • Why has the FCA concluded that increasing the availability of civil litigation under s138D of the FSMA would encourage defensive rather than beneficial behaviour by financial institutions?
  • What is the likely impact of the new mandatory reimbursement rules devised by the Payment Systems Regulator for victims of APP fraud? By not providing a private right of action, have these new rules effectively cut out the courts from determining any consumer cases where there is a dispute about their implementation? 
  • What lessons can be learned from the recent decision in CCP Graduate School Ltd v National Westminster Bank plc & Anor [2024] EWHC 581, in which the High Court considered the scope of a bank’s ‘retrieval duty’ once on notice of a fraudulent transfer?

For the answer to these questions and an overview of the issue and likely future developments, click here. For non-subscribers, complete the relevant fields for access.

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