How do we rebuild trust in British banking and secure a fair deal for consumers?
The Parliamentary Commission on Banking Standards examined this question earlier this year and its Changing Banking for Good report sets out clear and significant solutions. These are being taken forward in the Financial Services (Banking Reform) Bill, nearing completion in its parliamentary process.
These reforms are at the heart of rebuilding trust in our banking system and are fundamental to ensuring customers get a fair deal from their bank. But solutions and problems start at the top, which is why the Commission proposed a new Senior Persons Regime, replacing the Approved Persons Regime, to ensure that the most important responsibilities within banks are assigned to specific, senior people.
This is necessary so they can be held accountable for decisions and the standards of their banks in these areas. The new criminal offence of reckless misconduct by Senior Persons underlines the political consensus that the buck has to stop with our senior bankers. The legal emphasis on senior leadership and accountability can be seen as an opportunity to lead by example; change past cultures and damaging practices; and as an opportunity to reconnect with the customer.
There is so much to change. The hangover from payment protection insurance (PPI) mis-selling endures: £11.5bn refunded since January 2011, with around one-third of consumers' money hoovered up by claims management firms. We have had mis-sold Card Protection Plan insurance for customers activating new debit or credit cards and the interest rate swaps debacle for small businesses, which has a compensation fund of £3bn.
The final bill could be much higher. All of these costly and damaging mistakes were to do with bad selling practices. This brings us back to where I started: the need for a change in culture and leadership from the boardroom. Last week the Financial Conduct Authority (FCA) published data on complaints and redress for the first half of this year. Encouragingly, complaints to firms fell by 500,000 from the second half of last year; still a colossal figure of 2.9 million. But when we consider the latest data from the Financial Ombudsman Service this month all is not well. Complaints to the Ombudsman about current accounts alone rose by 34% during this period.
If we exclude PPI, the top four subjects for complaints were credit cards, current accounts, mortgages and consumer credit. The uphold rates (when the Ombudsman finds in favour of the consumer) were more then one-third for credit cards and current accounts, more than one-quarter for mortgages, and 50% for consumer credit products; such a troubling figure that the FCA, the City regulator, has launched a review of complaint handling in big financial firms.
Bank charges are a major source of complaints in the consumer world. Yet, while the spotlight shines on payday lenders with their eye-watering telephone number rates of interest, in truth they are kissing cousins with overdraft charges. Borrowing £100 with an authorised overdraft will cost £30 with Halifax or £20 with some Santander accounts while QuickQuid or Wonga costs between £20 and £37. Borrow £100 on an unauthorised overdraft and it will cost £100 in bank charges. The banks are worse than pay lenders on this issue. Where is the outcry?
Mis-selling has continued in the investment advice space, along with a litany of other significant sources of consumer detriment. Stronger regulatory action is needed to force banks to treat customers fairly. But the best cure has to be prevention.
If we are to significantly reduce the high level of complaints against banks, and rebuild trust, we need to change the culture within firms. I have no doubt the reforms of the Banking Reform Bill and the new consumer protection and competition duties of the FCA are key to progressive change; but the responsibility for change and success rests with our senior bankers.
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