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Saturday, 25 July 2009

Bank Lending To Remain Partially Self-regulated!

From 1 November 2009, banks will relinquish their self-regulatory control over deposit, savings and payments products. That's when the FSA (doomed, say the Tories) takes over from the self-regulatory club known as the Banking Code Standards Board, and we are led to believe we'll get some retail banking regulatory protection with teeth. Banks will be obliged - on pain of fines - to "treat customers fairly", amongst other things, which ought to raise some eyebrows.

However! The good ol' BCSB will not crawl away to die.

Instead, it is to be renamed the "Lending Standards Board" in honour of its role "to provide continued monitoring and enforcement of lending and credit card standards, including those governing the treatment of customers in financial difficulties."

So the same club of banks are to retain self-regulation of lending and credit standards who virtually drank themselves to death on a cocktail of subprime debt and eye-wateringly complex credit derivatives they didn't understand, and who are ferociously challenging the OFT's right to assess even their overdraft charges for fairness.

The FSA has long huffily sworn-off regulating consumer credit. On the surface, a lot of it is provided by non-banks, so they think it has nothing to do with banking. That siloed, blinkered attitude must end, since we have become painfully aware that the whole financial system is inexorably connected and all product providers are either bank group subsidiaries or otherwise obviously rely on bank lines or financial markets funding at some point in the chain. Besides, the Consumer Credit Act and regulations are a nightmarish quagmire of bitter complexity and foolishness, which the Office of Fair Trading has been unable to use to do more than a poor job of protecting the consumer. As noted, the OFT has fared little better in its attempt to use unfair contracts regulation on the banks.

Regulatory plans appear feeble on the consumer banking front. The proposed Financial Services and Business Bill merely heralds the government's long-overdue plans to ban unsolicited credit card cheques. The Consumer White Paper goes somewhat further, calling for a quicker solution to the saga of the bank charges litigation, promising the said ban on unsolicited credit card cheques, and threatening both restrictions on credit card issuers repricing cards after issuing them and the removal of the "negative payment hierarchy" (i.e. ensuring that credit cardholders' repayments are credited towards the most expensive aspect of their card bills first).

But let's not forget that small businesses in the UK are owner-operated by about 4.3m individual people. As regulation - or the threat of it - bites on bank credit products, SMEs are being required to take commercial credit cards that aren't regulated and on which interchange and other fees are much higher than personal cards. Unless these cards are brought within scope, these people will find themselves right back where they started as humble personal cardholders without any regulatory protection... a miserable experience.
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