Brexit Threat to Consumer Protection For EU Purchases

After years of Brexit delay, suddenly every day brings news of another important detail missed. This one hits consumers just as directly as delays to goods at the border, and depends on the British government understanding the problem and agreeing a solution within the next 119 days...

Currently, if you have a problem with something you bought in EU country, Iceland or Norway you can get free advice from the UK European Consumer Centre. They'll explain your rights as a consumer, help you settle the dispute or put you in touch with someone else who can help.

In May 2020, for example, the centre saw a surge in consumer queries over Ryanair's mass cancellation of flights, and it received 7,067 queries during the COVID-19 lockdown from 23 March to mid-August. Hundreds of thousands of UK residents have been helped during the past 13 years.

The centre is the only service of its type available to UK consumers. It employs 11 specialist staff based at the Chartered Trading Standards Institute in Basildon, Essex, and is jointly funded by the UK and EU as part of a wider ECC network in the countries it covers.

Andy Allen, Service Director at the UK ECC, says that if an agreement is not reached "...this is not a tap that can be turned back on again at a moment's notice – these are specialist jobs. The UK ECC could face closure, the 11 staff could lose their livelihoods and thousands of UK consumers would have no-one to help them in their disputes with traders in the EU."

Let's hope negotiators can find a way to maintain this critical service...

Building Societies Abandon The Lending Code

A new version of the Lending Code has been released, simply omitting the name of the Building Societies Association which has ceased sponsoring the farcical idea that UK retail lenders should be allowed to regulate themselves.

Banks and credit card issuers still think it's a good idea though...

Banks Make A Mockery Of Their Self-regulatory #LendingCode

Readers may still be surprised to hear that Britain's retail banks remain self-regulated when it comes to their lending activities.

That means it's the job of their own Lending Standards Board to check that subscribers are complying with the self-regulatory Lending Code, not the Financial Conduct Authority (although there is a 'memorandum of understanding' between the two bodies written on the back of an envelope somewhere).

Of course, the Lending Standards Board tends to give its own members a clean bill of health...

Which is puzzling, because the LSB has just made the rather unfortunate discovery after reviewing complaints procedures that there is "mixed evidence to indicate that issues, once identified, [are] being reviewed specifically against the requirements of the Code."

In other words, the banks are blowing raspberries at the Code.

So, um, how could the LSB have given the banks a clean bill of health before now?

Does the FCA care? Or, in regulatory speak, "Quis custodiet ipsos custodes?"

It's been a farce from the very beginning.

The Old Fake Collection Letter Scam

I've read with fascination the UK banks' attempts to justify their decades-old fake collection letter scam. The RBS letter is here. The HSBC letter is here. The Santander letter is here and the Barclays letter is here. Lloyds also admitted to using the same trick. Despite the attempted justifications, all the major banks have stopped the practice. But how much will it cost them, and what other scandalous conduct is lurking in their processes?

News of the banks' scam followed uproar over the admission by Wonga that it had used a similar practice four years ago (probably borrowed from the banks). Even the Student Loan Company had been in on the act. Wonga had confessed the issue to the Office of Fair Trading, and agreed to pay customers £50 each in compensation, presumably to avoid problems with its consumer credit licence during the transfer of consumer credit licensing responsibility to the more aggressive Financial Conduct Authority.

Basically, the banks and others played on the idea that debtors are more likely to pay up when a creditor hires someone else to recover their money. The letters from the CEOs of Barclays and Lloyds stated that their debtors tended to ignore chasing letters on bank letterhead (the banks seemed oblivious to the idea that everybody dreads a letter from the bank - especially ISA customers).

Of course, the banks were reluctant to actually pay anyone else to chase their debts. So, instead of hiring independent collections agencies and law firms, the banks simply created their own firms and called them something different to create the appearance that a genuinely independent third party had become asked to chase the debt. Whether they also charged the same recovery fees as independent firms remains the subject of investigation by the FCA.

The major banks also pretended to the authorities that they weren't responsible for collecting their own debts. When the Office of Fair Trading consulted with the industry on new debt collection guidance in 2002, the banks didn't respond under their own brand names, as creditors. The list of respondents in the Annex to the consultation response only included the banks' pet collection agencies and law firms.

But as the OFT's Debt Collection guidance made clear (in section 1.9), it's the creditor who is expected to "abide by the spirit as well as the letter" of the guidance, not just its collections agencies, and ignoring the guidance could affect the creditor's licence to lend in the first place. The guidance goes on to state:

"2.1 It is unfair to communicate, in whatever form, with consumers in an unclear, inaccurate or misleading manner.
2.3 Those contacting debtors must not be deceitful by misrepresenting their authority and/or the correct legal position.
2.5 Putting pressure on debtors or third parties is considered to be oppressive.
2.7 Dealings with debtors are not to be deceitful and/or unfair." 

The OFT's 2003 guidance was updated in 2011 and has since been enshrined in the FCA's new consumer credit rules. Hence, like Wonga, the banks have becone increasingly anxious to clean up their act.

The narrow question is whether the banks will need to compensate customers affected and, if so, how much. 

The bigger question is how many more examples of banks' systematic disregard for customers are lurking in their processes?

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:

"THEMED REVIEW OF COMPLIANCE WITH THE LENDING CODE PROVISIONS FOR LENDING TO MICRO-ENTERPRISES". 

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.

"Show Me The Money!"

This week's 'technical issues' experienced by RBS/NatWest have been quite revealing. While the financial crisis has shown people how banks can suddenly fail to have enough money to pay depositors, this week has demonstrated how a bank could fail even when it's solvent. 

Solvency concerns are what led the UK government to own 85% of RBS in the first place. But systems failures add a more insidious dimension, especially in relation to high volumes of transactions. Securities trading system issues have tended to get most of the press in recent times - like the 2010 'flash crash', the cause of which is still worryingly uncertain. And we have seen poor record-keeping cause 'fraudclosure' problems in the US, when banks couldn't prove they had the right to force the sale of homes when borrowers defaulted on the underlying mortgages. RBS has also been among the banks fined for gaps in compliance processes. But the technical issues this week strike at the very heart of retail banking.  

Contrary to popular terminology, your bank does not hold 'your money'. The bank takes the money that is paid into your account and treats that money as its own. Your current account or business banking account is just a record of what you paid to the bank, what you asked the bank to pay out to whom, and the remaining figure - the 'balance' - which is the amount of money the bank owes you. The bank can pay that debt to you from whatever source it chooses to offer you (e.g. cash in an ATM or by transfer to others). In other words, at its heart retail 'banking' is really an accounting service, with payment services bolted on. And that accounting service - like, say, an email account - is really only useful if it is kept up to date - so you can see how much money has been paid in/out or is owed to you at any time.

But each bank's accounts don't exist in a vacuum. The entries in your account need to tally with the account records of other banks' customers you deal with, so all the individual debtors and creditors in the network know where they stand at the same time.

This makes RBS/NatWest's failure to process certain payments data last Tuesday and Wednesday nights completely unforgivable. It seems to have led to payments received not being recorded, and later payments not going out due to an apparent lack of funds. They say they "want to reassure customers that no one will be left permanently out of pocket as a result of this." But this misses the point of a bank account, both for its customers and the customers at other banks they deal with, and so on throughout the entire retail banking system.

Personally, I switched from NatWest years ago, when they wanted to charge me £12 for my current account. But perhaps RBS/NatWest call centres are receiving calls from others that go something like this:

Rethinking... Financial Services

How time flies when you're having fun. When not engaged in rethinking personal data, I've been experiencing the deep joy of rethinking financial services regulation, now that the Financial Services Bill has reached the House of Lords.

As I've explained in the other place, this is not about flogging a dead bank. This is about enabling the growth of new facilitators - the same kind of evolution towards cost-efficient and transparent financial services that we have already seen in other retail markets. The same evolution that Andy Haldane of the Bank of England has advocated - or Lord Young, for that matter.

My experience so far leaves me optimistic that the UK's creaking regulatory framework can be successfully overhauled. Unlike the MPs in the House of Commons, the Peers are less interested in the politics and more interested in the detail of what works and what doesn't. For that reason, the passage of the Financial Services Bill through the House of Lords provides a rare and invaluable opportunity to confront the government - and the Treasury - with all those gripes and suggestions that have been ignored for years.

So please take that opportunity - whether it's via comments on media stories, through the blogosphere or any contact you may have with the powers that be.

Next stop: Europe.

Image from The Philosopher's Magazine.

HBOS Complaints: A Nice Little Earner

There's a loooong way to go, but it's nice to see the FSA chipping away at all the 'revenue' banks have made through various nefarious means. The latest in the saga is HBOS's trick of wrongly rejecting half the complaints it received over investment products.

Their spokesman is quoted as saying:

"We recognise we have fallen short of the high standards of service our customers should be able to expect of us and we apologise to them for this."

Yeah, yeah. Just show us the money. We want our £17m in taxes back where they belong.