I’m at the European Commission’s Consumer Summit in Brussels, which has a focus on bank fees, and reluctantly, I’m beginning to accept that the villains of the Noughties will simply walk away from the mess they've created.
Let’s lay out the charge sheet covering the major sins of the last decade:
* Casino banking was a major contributor to the economy-wrecking credit crunch;
* Banks, and other lenders, pushed loans and mortgages to those unable to repay – on a grandscale;
* Banks aggressively ramped up the cost of banking for those most likely to be in financial hardship: the applying of penalty charges (sometimes more than £35 a pop) for millions of customers;
* And so as not to leave any group of customers feeling left out in the exploitation stakes, bank ‘advisers’ flogged high-risk investments to customers looking to avoid risk.
How not to treat customers
So, we have bank account customers, borrowers and investors all wronged to varying degrees.
It’s not exactly something out of the Tesco manual of how to keep your customers happy.
But hey, why should they care? The banking industry remains massively profitable, bankers continue to collect enormous bonuses and there’s little evidence of any over-arching force bringing it to an end.
For some bankers, it feels like the party’s only just begun. After all, some of the competition has disappeared at a time when there’s more business to be done: countless recession-hit companies have been forced to turn to banks to help them raise money by issuing extra shares or bonds. And the cherry on the cake has been that central banks have generously slashed rates and therefore borrowing costs for banks.
But don’t get me started on investment banking.
Instead, let’s focus on the banks’ consumer sins for a moment (putting aside the casino banking that bought about the worst recession in 80 years – that’s the last time I’ll mention it. Promise).
Credit cards, loans, mortgages
Banks lent to people who couldn’t afford it. On loans, they also added expensive insurance (payment protection insurance) that customers often didn’t need, or disguised the true cost of repaying the debt. They also sent enticing ‘cheques’ that added expensive debt to their credit cards of those cashing them. These, of course, were mostly cashed by those least likely to be in a position to repay. On mortgages, loans that were more than five times bigger than annual income were common. Some of those people are now in arrears or have had their homes repossessed.
The result: As the borrowers fail to repay all of the money lent out, the banks simply pass on the cost to other borrowers. That’s why rates on loans and credit cards have soared relative to the base rate in the past two years.
Action: The EC passed laws in 2008, which now force banks to make rates clear from the start. That doesn’t help those already lumbered with expensive debt. Today I asked the EC consumer department’s head of financial services and redress, Dirk Staudenmayer, whether banks can be trusted to make individual lending judgements. He preferred to put the emphasis on financial education: teaching the next generation how to manage money. But what about those in trouble today?
Investments
If you have a pot of cash, the last thing you should do is ask your bank what to do with it. That, at least, is the conclusion you could make from reading the countless tales of mis-selling in recent years. Our sister title Money Mail has done an incredible job in exposing this dubious practice. Basically, bank staff were able to earn better commission by selling a risky investment when a safer product may have been better,
Result: Sadly, many of the victims were elderly people looking to place their money somewhere safe where it could pay them an income. Some lost most of their money. Some Barclays customers were inspired to set up a website: http://www.barclaysinvestmentvictimsclub.co.uk/
Banks claim to be phasing out dubious bonus schemes.
Action: The FSA, which regulates the industry and makes up the rules, and the Ombudsman, which decides on compensation, are being urged to work together more closely to spot when problems arise. But there are no new rules in place to stop banks doing this again once the dust settles.
Bank accounts and charges
The banks began steadily increasing penalty charges – fees on exceeding overdrafts or bouncing cheques, etc - in the early Noughties as an easy way to make more money. But they overcooked it, and some shrewd consumers hit back. They found a law that suggested penalties should only cover the costs incurred by the bank. The industry ran scared, paying out millions in refunds until a two-year test case that repeatedly found against the banks got turned round on appeal, with the UK Supreme Court ruling late last year finally killed off the refund party. This week the Office of Fair Trading, previously feisty on the issue, tamely admitted that banks had done much to reduce fees..
Result: Many bank customers are unlikely to get back fees at a time they could really used them - the banking industry-induced recession may have left them struggling. They can still attempt to get back unfair fees by putting a case to the ombudsman. But in the end, the banks will probably keep most of the rip-off charges. Meanwhile, charges are lower but there’s no rules to stop them rising again – only consumer and media coverage could stand in the way.
Action: The OFT will continue to look at the issue, but don’t expect much given that the Supreme Court ruling clipped its wings on the issue. As for Europe, surely there’s good news around the corner if the EC’s consumer bods are focused on bank fees? I asked the top man on consumer issues John Dalli - the new EC Consumer Commissioner. He wants to provide the means for consumers to compare bank accounts on the full price (all bank fees included). He believes transparency and comparison is the answer then it can be ‘left to the market’. If this comparison could be extended across borders, then that would help further, he says, increasing competition and decreasing costs.
I like the theory, but the full 'harmonisation' of banking services across Europe is unlikely to happen in my working lifetime.
What’s more, Britain’s online banking comparison industry is far more advanced than in Europe. But the EC’s study of the cost of banking in nation states last year ranked the UK a pitiful 17th, with customers paying nearly £100 a year, on average. Conclusion? Widespread access to bank comparisons has not made banking cheaper in the UK.
The issue in the UK is the lack of competition (consider that the recent banking licence granted for Metro Bank was the first for a start-up in 150 years).
And that’s why bankers will get away with it.
P.S. Feel free to use this blog post to urge the EC and UK authorities to get tough on any of these issues. I’ll make sure they see it. Then write to your MP and tell them how you feel.
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