Justice for victims of bank fraud – learning from the Post Office trial

In London, this week, a trial is being held over a dispute between the Justice for Subpostmasters Alliance (JFSA) and the Post Office, but the result will have far-reaching repercussions for anyone disputing computer evidence. The trial currently focuses on whether the legal agreements and processes set up by the Post Office are a fair basis for managing its relationship with the subpostmasters who operate branches on its behalf. Later, the court will assess whether the fact that the Post Office computer system – Horizon – indicates that a subpostmaster is in debt to the Post Office is sufficient evidence for the subpostmaster to be indeed liable to repay the debt, even when the subpostmaster claims the accounts are incorrect due to computer error or fraud.

Disputes over Horizon have led to subpostmasters being bankrupted, losing their homes, or even being jailed but these cases also echo the broader issues at the heart of the many phantom withdrawals disputes I see between a bank and its customers. Customers claim that money was taken from their accounts without their permission. The bank claims that their computer system shows that either the customer authorised the withdrawal or was grossly negligent and so the customer is liable. The customer may also claim that the bank’s handling of the dispute is poor and the contract with the bank protects the bank’s interests more than that of the customer so is an unfair basis for managing disputes.

There are several lessons the Post Office trial will have for the victims of phantom withdrawals, particularly for cases of push payment fraud, but in this post, I’m going to explore why these issues are being dealt with first in a trial initiated by subpostmasters and not by the (far more numerous) bank customers. In later posts, I’ll look more into the specific details that are being disclosed as a result of this trial.

It has long been recognised that there is a problem with access to justice in the UK, and this is particularly felt in disputes between banks and their customers. Court cases are expensive, and few customers have the means to afford the legal and technical expertise necessary to challenge a bank effectively. The expense is further increased due to the loser of a UK court case typically being required to pay for the costs of the winner. If the customer wins they’ll get the disputed amount back (usually a few hundred pounds) and be reimbursed their costs. However, if the customer loses they could be liable for hundreds of thousands of pounds for the bank’s top-tier legal team. Even a customer confident in the strength of their case would see that the numbers don’t add up.

In the US, each side of a case typically pays their own costs, and so there is less risk to a bank customer taking their dispute to court. Furthermore, US law permits a “class-action” where many claimants with similar cases can pool resources to afford adequate legal and technical expertise. The UK Civil Justice Council proposed that a variant of the class-action be permitted for disputes regarding financial services, and indeed arrangements for collective-action were included in the draft Financial Services Bill. Unfortunately for UK bank customers, this provision was dropped in the version that became law.

What allowed the Post Office trial to go ahead was a group litigation order, which has superficial similarities to a class action but is quite different – it is just a collection of individual claims with shared issues, but each claim must still be considered separately. Participants in the group must opt-in (a class action can be opt-out), and participants may still be liable for the costs of the winner should the judgement go against the group’s claim. Therefore what was also needed is financial backing for the group’s case, and this came from an investment fund. Presumably, this fund contributes to the group’s costs for legal and technical expertise and takes on some of the risks should the group’s case fail, in exchange for being entitled a share of the payment should the group’s case succeed or be settled. Taking into account the constraints of group litigation, the large sums in dispute and pool of claimants all disputing the same system makes the subpostmasters a more attractive target for investment than bank customers.

The costs are substantial – over £10 million before the trial even started – and the Post Office’s share will be picked up by the British taxpayer due to it being a state-owned firm. The trial can hardly be said to be speedy, with a result not expected until 2020 – a decade since the JFSA started its action – and several well-paid lawyers will become richer along the way. This situation might not make everyone happy, but the end result is the Post Office’s assertions are now being openly scrutinised and rigorously challenged for the first time, despite determined efforts over the years by the JFSA, the press, and a Parliamentary committee.

Effective scrutiny of a bank’s rules and processes is critical in the context of the Payment System Regulator’s proposed code stating that victims of push payment fraud should only be reimbursed if they had met some difficult-to-assess criteria. These criteria include whether the customer took “appropriate actions” in response to instructions, whether the bank made such warnings sufficiently “effective” or took “reasonable steps” to prevent money laundering. It’s for this reason that in my response to the consultation on the draft code I proposed collective action, combined with a financial arrangement which provides for the cost of legal and technical expertise, as a way to get fairer outcomes to disputes.

The combination of factors that allowed the Post Office trial to go ahead is unlikely to recur any time soon, and so it is important to capture the case’s broader lessons. Effective media coverage is one way to achieve this result but detailed contractual disputes that, at first glance, appear to affect only a narrow slice of the population don’t fit the typical criteria for good TV. I’m pleased that Nick Wallis has successfully crowd-funded his coverage of the trial and if you find this case interesting, I’d encourage you to follow his blog and consider contributing to his on-going efforts.

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