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Tuesday, 8 January 2013

It's OK: Banks Are Happy With Their Business Lending Standards

Readers may recall that UK banks are self-regulated when it comes to lending standards.

As a result, we were recently treated to the farce of a self-congratulatory report by the banks' own so-called Lending Standards Board entitled:
Naturally, this grand tome of fully 6 pages neatly concludes that: 
"...no breaches of the [Lending] Code or management weaknesses were identified and no action plans were requested, indicating that standards of compliance and practice with the requirements of the Code are very good as they relate to micro-enterprise customers."
Not that we would be told about any breaches, anyway, since the Board explains that "As most Code breaches are of a minor nature, public disclosure of all Code breaches with the associated reputational damage would, we believe be a disproportionate response." A puzzling explanation, since you would not think that minor breaches would inflict much reputational damage...

At any rate, the report is so loose and shot through with so many holes that it's a wonder it could all be gathered into a single pdf.

The review only focused on five of the many 'subscribers' to the Lending Code, and only looked at their approach to credit assessment, credit card guidelines and the treatment of customers in financial difficulties. However, only two of the firms reviewed even offer business credit cards.

The Board also "acknowledges that the majority of concerns raised by the SME lobby [you can hear the sniggers] relate to commercial issues, such as [complete lack of finance] cost of credit and security". But the report ignores such concerns, claiming only that customers are warned of the costs up front. Business loans and overdrafts appear not to have been covered beyond credit assessment stage, nor the critical issue of how well firms are handling complaints.

Interestingly, all the subscribers require a current account to be held where loan facilities were sought, but the report rather carefully states that there was "no evidence in the file sampling to indicate that subscribers require the purchase of insurance products as a condition of sanction." Perhaps another PPI-style scandal lurks here?

Of course, the overall point is that it's much easier to comply with lending standards when you're barely making any new loans. Staff need something to do. Indeed, the report trumpets the "close, ongoing management of micro-enterprise accounts" by relationship managers - no doubt anxious to demonstrate the need for their continued employment.

If a further nail were needed in the coffin of cosy bank self-regulation, this report provides it.
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