CMA announces possible behavioural remedies in retail banking market investigation

The Competition and Markets Authority (CMA) has stated its preference for behavioural remedies in its interim findings in the ongoing retail banking market investigation.  This represents a sharp contrast to the tougher structural remedies that it has been urged to consider.

The CMA has provisionally found that there are features of the markets for personal current accounts, business current accounts and SME lending in Great Britain and Northern Ireland that give rise to adverse effects on competition.  The features that it has identified relate to themes that have been the subject of scrutiny in the numerous market and sector inquiries that the sector has faced over the years, including low levels of customer engagement, barriers to accessing and assessing information, barriers to switching, incumbency advantages and linkages between different lending products.

The CMA’s proposed remedies are designed to influence customer behaviour and particularly switching, as well as make it easier for SMEs to shop around.  The proposed remedies include a requirement that banks should be required to prompt customers to review banking services at various ‘trigger points’ such as the closure of local branches and changes to terms and conditions.  In relation to SMEs, the CMA proposes that customers should be reminded to switch at the end of free banking periods.  The CMA has also decided not to recommend ending free-if-in-credit banking where there are no account operation charges but the consumer does not receive any interest.  The CMA did not find that this practice distorted competition even though challengers said that this presents an obstacle for switching.

Over the course of the CMA’s inquiry which was launched in November 2014, it has found little shift in the market shares of the four largest banks which account for roughly 75% of personal and SME banking services.   The statistics cited by the CMA make rather dismal reading.  In SME banking it found that half open their accounts with their personal account provider and 90% remain with the same provider after the initial free banking period expires.  Nearly 60% of consumers have remained with their personal account provider for over a decade.  Last year, only 16% explored alternatives and only 3% switched.

The remedies proposed by the CMA generally reflect the trend of informational remedies that the CMA and its predecessor the Competition Commission have adopted in other consumer-focused and financial services markers (e.g. store cards, PPI, Northern Ireland Personal Current Accounts, Home Credit, the list goes on…).  The remedies, inspired by behavioural economics, are essentially aimed at empowering the consumer with the tools to take action. 

The move away from structural remedies is a stark contrast from the pleas to adopt more draconian solutions in the form of divestiture remedies and which reached a high-water mark in the months preceding the launch of the inquiry.  However, far bigger questions perhaps remain as to where challenger banks will come from.  This does not necessarily imply structural remedies but it does put a focus on the existing regulatory barriers such as capital requirements that can hold back such new entry. In fact, some challengers would argue that stimulating competition in the sector is not so much about selling off bank assets but lowering regulatory barriers to entry. 

The CMA invites comments on the provisional findings and proposed remedies by 20 November.  Although there is likely to be some tinkering with the remedies, the broad direction of travel seems clear and for now, at least, radical remedies such bank break-ups are off the table.

Robbing Peter to pay Paul - limitation post-Consumer Rights Act

There are high hopes for the Consumer Rights Act 2015 (CRA) with the expectation that it will remedy the blatant defects of the old style private damages regime.  But the rules on limitation raise complex questions which could deprive the reforms of many of their intended benefits – for some years to come at least.

The content of the reforms is covered in my previous posts.  Essentially, with effect from 1 October 2015 the CRA confers on the CAT the power to hear standalone competition law actions (previously only ‘follow-on’ actions could be brought in the CAT) and introduced new procedures for collective proceedings, including both opt-in and opt-out proceedings.

The limitation ‘problem’ derives from new Rule 119 of the CAT Rules 2015 which, in respect of certain claims arising before 1 October 2015, sets in stone the old limitation rules and provides narrow gateways out of them.  These old limitation rules were intended to cater for follow-on actions and essentially provide that the limitation period expires two years after the later of the date an infringement decision (has become definitive) or the date the cause of action accrued. 

Specifically, Rule 119 preserves Rule 31(1) to (3) of the CAT Rules 2003 so that this continues to apply where the relevant claim arose before 1 October 2015 for the purposes of determining the limitation period which would apply in respect of the claim if it were to be made on or after 1 October 2015. 

The immediate problems appear to be the following: 

(1)   Given the clandestine nature of cartels the transitional rules will hamper the claims that have already crystallised since the trigger point is when the cause of action accrued.

(2)   The continued application of Rule 31 (1)-(3) calls into question the bringing of a true standalone claim in the CAT since that rule – which presumes an infringement decision – was predicated on the basis of old style follow-on claims.

(3)   Follow-on claims accruing in the transitional period will be subject to the old rules.  An important consequence is that claimants will need to seek the CAT’s permission to bring a claim before an infringement decision becomes definitive.

(4)   Collective proceedings may be rare for the next few years, not least since they appear to suffer from the same restrictions which cannot be cured by transfer of proceedings to the CAT.

Claims relating to losses that straddle 1 October 2015 and hybrid claims combining multiple causes of actions will no doubt require more limitation period gymnastics. 

The rationale behind the saving provisions – the text  of which was not consulted on – was apparently to preserve the position of parties who had let usual limitation expire in anticipation of bringing a claim when an infringement decision became definitive.  So, rather like the idiom of ‘robbing Peter to pay Paul’, in seeking to keep open the avenues to compensate those persons the transitional rules may have strangled many other claims in the pipeline.

Possible ways around this conundrum have been suggested such as interpreting the new limitation rules without regard to the need for an infringement decision.  The CAT’s 2015 Guide to Proceedings provides further detail on the time limits for bringing claims but stresses that these are merely general guidelines, and it is beyond the scope of the Guide to provide definitive advice.  It states that determining whether a particular claim is still in time can be a complex matter, and potential claimants should seek legal advice at the earliest available opportunity.  That’s probably right. 

Dust settles on new UK antitrust litigation regime

With the Consumer Rights Act 2015 competition law provisions coming into effect on 1 October it is time to reflect on what the reforms, including the new opt-out collective actions regime and enhanced role for the Competition Appeal Tribunal (CAT), will mean in practice.

As observers of the reforms will be aware, the CAT will now provide a forum for bringing both standalone as well as follow-on claims.  Claimants will also be able to bring a collective action where their claims raise similar or identical issues of fact or law.

A key test of the new regime will be the readiness of the CAT to certify persons to act as class representatives, where it is satisfied that it is ‘just and reasonable’ for them to do so.  The CAT must also certify that the classes are properly defined, and that the various interests of claimants are linked.  If the case passes the certification threshold, the action must be advertised so as to allow potential members to opt out.  Non-UK claimants will have to expressly opt-in.

The CAT has also updated its procedural rules originally adopted in 2003 and revised its Guide to Proceedings.

The reforms have been heralded as an antidote to the challenges presented by the old opt-in regime, but there are likely to be some early issues to work through before the new rules bed down.  The framework is in place but it is untested.  It is probable that there will be litigation around satellite issues such as class certification given the discretion accorded to the CAT to decide the suitability of class representatives.  It is also conceivable that defendants will seek to challenge whether a class should have been certified.  Conversely, claimants may appeal against the rejection of a claim as suitable for collective proceedings.

Another change is the ability of the CAT to hear both standalone as well as follow-on claims.  Standalone or hybrid claims were formerly the preserve of the High Court in England and Wales.  Although the High Court would usually stay the proceedings pending the determination of any administrative case before a competition authority, this did allow for limited disclosure which was attractive to claimants.

Another innovation is the settlement regime which will allow the CAT to approve settlements that bind the entire class where this is ‘just and reasonable’. 

Defendants may also enter into voluntary redress schemes to compensate consumers in return for a reduction of up to 20 per cent on the administrative fines.  The Competition and Markets Authority will be able to certify such voluntary redress schemes, which will be supervised by independent third party boards.  The rules on settlement and compensation provide an incentive for defendants to mitigate some of the effects of the more aggressive enforcement machinery and allow them to draw a line under the litigation.  However, it remains to be seen how much of an incentive the new voluntary redress mechanism will prove to be in practice.