Independent Banking Advisory Service 

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Banking News & UK Comment 2004

Fraudsters targeting Britain's 14 million internet banking customers are attempting to rob their online accounts. A huge increase in 'phishing' which is the use of often sophisticated e-mail scams is now rife in the UK. So far the banks claim to have paid out 4.5 million to victims but this is not guaranteed to continue as all the major bank's sites have been targeted - Good advice on how to avoid your online account being plundered and avoid online fraud problems in the future.

Watchdog to quiz Bradford & Bingley on debt tactics.  Britain's top consumer watchdog is to investigate complaints about "aggressive and oppressive" debt collection tactics used by Bradford & Bingley. The Office of Fair Trading (OFT) this weekend confirmed it had received a complaint from campaign group the Independent Banking Advisory Service. IBAS alleged the bank had been using heavy-handed measures in its attempts to recover unpaid mortgage debts. "We have spent a long time looking at Bradford & Bingley," said Eddy Weatherill, head of IBAS. "There are a number of cases in which it is not acting like other lenders. It seems to be out of step with the rest of the industry and its practices are more aggressive." Weatherill said the bank had regularly asked customers to repay debts which were well beyond their means. "Nationwide Building Society, for example, has a clear cut policy to act reasonably and to look at each case sympathetically," he added. IBAS claimed Bradford & Bingley's practices contravened OFT guidelines on debt collection which says lenders must not put debtors under undue pressure by, for example, forcing them to raise funds through selling property or further borrowing. IBAS has sent a number of cases illustrating its allegations to the OFT. "We want the watchdog to look at these situations to make sure its guidelines are being policed properly," said Weatherill. - Sunday Express - Your Money 20/06/2004

OFT to probe bank's debt collection drill.The Office of Fair Trading is to look at a complaint made against the debt collection practices of Bradford & Bingley, the mortgage bank. The OFT confirmed yesterday it had received a complaint from the Independent Banking Advisory Service, a campaign group, about the alleged tactics used by B & B when collecting outstanding mortgage debts. The complaints relate to customers whose homes were repossessed by B & B some years ago because of mortgage arrears. The Independent Banking Advisory Service wants the OFT to look at whether B & B adheres to OFT collection guidance, which requires companies to follow strict guidelines in recovering debts from consumers. The IBAS alleges that B & B "made unreasonable and unrealistic demands". It has submitted a number of case studies to the OFT. - Financial Times 17/06/2004

The Allied Irish Bank got its Euro exchange rates wrong (by a margin of 100%) for 8 years. It apparently informed the Office of the Director of Consumer affairs in 1996 of a wide range of foreign exchange charges and margins. Under pressure from Ireland's financial regulators last month - AIB set aside 25 million euros ($30 million) with the government controlled Central Bank to cover the estimated cost of repaying all the overcharged customers. This amount includes paying for the reimbursement of overcharging plus interest for  the overcharged foreign exchange customers. AIB also acknowledged last month overcharging some of it's mortgage and investment customers and has now also announced that the bank had uncovered evidence that 10 former and current executives had invested funds in tax-dodging offshore accounts between 1989 and 1998. The Tax-dodging is facing investigation by Ireland's tax collectors, the Revenue Commissioners. The IFSRA meanwhile investigates why AIB overcharged for so long and why incorrect information was given to the ODCA. One mistake on bank overcharging can be just a 'mistake' but widespread 100% margin overcharging for 8 years needs some very careful examination and investigation by the regulators and then afterwards some very public explanations. To admit further overcharging in mortgages and investments as well - indicates the regulators need to put a larger team into the AIB for a very thorough investigation. - 14/06/2004

NatWest is forced by a Sunday Telegraph investigation (30.5.2004) to compensate it's richest credit card holders who were overcharged by the Natwest using the wrong euro exchange rate. NatWest say the problem affects it's Black card customers who earn a minimum £70,000 per annum to qualify for this top of the market credit card. Two banks using the wrong euro exchange rate and overcharging their customers - who said that bank overcharging was 'overstated'? Certainly not IBAS - we know exactly how banks overcharge and how easy it is for them to do it. - 14/06/2004

A trend seems to be emerging - What you see is not what you get! Lenders offer a rate of interest to 'lure' you to go to them. This also gets them into the 'Best buy charts' and makes sure they get plenty of publicity and therefore lots of business.  Unfortunately, the rate you saw isn't available to you because when you make your application you are at the mercy of Risk Based Pricing (RBP). This 'smells' like a bad herring. It also means that 'out of sight' somebody can be inflating the rates just to suit their company profits. Will you know, of course not. But, if you have been told that the rate on offer is not available to you - what is the 'reasonable explanation' that is offered? Is it really reasonable, does it make any sense, or is it just 'gloss' and PR? If it's not a reasonable response then make a complaint to your local Trading Standards Office - advertised 'offers' which are not truly available need to be properly examined and this route may also correlate information nationally for transmission to the FSA - 01/06/2004

IBAS Report on Bank Customers in litigation was written in 1997. In 2004 with the Courts having now adopted the various amendments and further alterations to CPR Rules and guidelines there appears to be a bigger gulf than ever between lenders and the individual facing litigation with a major lender. Having textbooks of rules and guidelines (CPR) which even appears to mystify lawyers, any individual facing a lender intent on litigation is even more disadvantaged than was the case in 1997. If the new rules were meant to make courts more user friendly it has certainly worked for the major user's benefit - the lenders. As for the individual they have no better chance of Justice now than they did in 1997. The Law it seems has been intentionally further 'fine tuned' for those with 'deep pockets' and Justice is now virtually unavailable for any individual facing litigation without any prospect of obtaining Legal Aid. - 01/06/2004 

Most UK lenders have agreed that from November 2004 they will not use third party information when assessing loans. This is good news for those with a family history of poor credit but who themselves have kept a good payment record. Many lenders decisions have been influenced by credit records of family members living at the same address. Also, applicants can currently view information about their family members when they obtain their own credit file - Hopefully the breaking of the Data protection Act after November will be penalized heavily by the Information Commissioner - 21/04/2004

'Fat Cat' bankers are already planning their next year's pay increases, it seems. Not content with the fantastic increases they have already given themselves this year - they are looking for even more for themselves next year - Will the 'bubble' burst or will government continue to stand on the sidelines whilst the consumer goose lays golden eggs for 'Fat Cats'? - 02/04/2004

'Fat cat' bankers are alive and very well indeed. They are also considerably richer. Recent pay increases for bank bosses and directors outstrip any normal incentives and pay increases. Whilst the majority of UK bank customers have to put up with pay increases which only keep up with the cost of living top bankers laugh at the rest of us and fill their own 'coffers' to overflowing as a reward for plundering their customers. Is the government blind? Can they not see that this exhibition of profiteering and 'Fat Cattery' can only be a bad example for the rest of the UK? Incentives are one thing, but the banks have abused a dominant and safe trading position (how much safer business is there than a bank protected by the Government? Can your business get away with profit margins of 500% plus?) to plunder obscene profits from all UK consumers and then the top 'brass' have also collected obscene pay packets for themselves as well. No wonder the banking unions are upset - so are the rest of us! How 'upset' do we need to get before this government takes any notice? - 26/03/2004

Britons run up almost 75% of Europe's entire plastic debt with their 64 million credit cards. France and Germany by comparison have only 2.8million and 2.3 million credit cards in use, due to their preference for debit cards and cash. Britons spend more on their credit cards than the rest of Europe put together. Last year that was £120billion on plastic. the other 14 nations in the EU spent just £45billion between them. OFT figures show that 71% of adults now carry a credit card with 37% holding 2 or more. 53% can't afford to pay their balance off in full each month and 21% have debts of more than £1000. OFT have found that 20% of the adverts for credit cards break the law. Trading Standards are now to carry out further investigations to establish the scale of the problem and to put a stop to abuses such as "0 per cent interest" introductory offers containing hidden pitfalls.

IBAS Comment - It's about time credit card rip-offs were exposed and also penalized. Minimum payments only hurt the borrower in the end by creating more debt interest for the bank's profits. Minimum monthly payments on credit cards should be for the interest due - at least - to stop interest building on top of interest. If this were the case it might then also create reality in the borrower's mind and make them realize just how much interest is actually being charged. - 22/03/2004

£26bn profits by the big 5 UK banks and Stephan Lewis's suicide over £70,000 credit card debts  - is there a lesson here for us all? Stephen Lewis had 19 credit cards with total debts of over £70,000 on a wage of £22k! This is not prudent and responsible lending and nobody appears to have been interested in how many cards Stephen Lewis actually used or if he could really afford them. Now after massive public interest in Stephen Lewis's suicide the lenders are interested in finding out how this was possible but isn't that just 'knee jerk' activity and just a bit too late? IBAS has for a number of years consistently warned that the bank's irresponsible lending was fuelling a debt time-bomb and severe social problems. The UK government has allowed lenders to 'self regulate' for far too long and the result is that many more consumers are now being driven into greater misery by 'heavy handed' debt collection tactics to obtain even larger and more obscene profits than already obtained. Stephen Lewis was an apparently ideal bank customer in that he carried a high balance on his cards, withdrew cash (triggering huge charges) and made only minimum monthly payments (which meant the interest was spiralling on the debt). Withdrawing cash and only paying the minimum monthly payments are a clear sign of financial distress, a distress which was further compounded by the extremely large interest accumulating to the original debt. Of the total amount of £71,913 owed by Stephen Lewis it estimated (Daily Mail of 11.03.2004) that interest and charges amounted to £50,000. This is an horrendous figure for charges.

The credit cards interest rates ranged between a reported APR of 24.9% down to a minimum of 13.2% - The Bank of England base rate was held at 4% on the 4th March. This means that the margins for profit over the actual base rate for the credit card suppliers are between 230% to 522%. How many actual manufacturers and producers of merchandise can obtain a margin of this magnitude on their stock? How many more like Stephen Lewis will there be? Isn't it time that Usury was dispatched to where it belongs and responsible ethical lending for the common good reinstated?

HSBC announced a record profit for 2003 of £7.7 billion - a new UK record for bank profits. These were up 37% on 2002 which was itself a record. It all sounds familiar. Only Abbey National who managed to make a pre tax loss of £686 million 'stands out from the crowd'. 03/03/2004

Royal Bank of Scotland announced a record profit from 2003 of £7.15billion - the biggest yet by a British bank. The big banks are set for a bumper profit harvest of £25billion from the last years trading. The Daily Mail outlined what this profit figure represents in real terms:-

This is only one big bank's profit! This is what that profit could buy for all of us.

2p cut in basic rate of income tax - £113 handout to every Briton - 677 schools or 67 hospitals - 10m cataract operations - 677,000 heart bypass operations - 1.3m hip replacements - 9 new Wembley stadiums - or 284 David Beckams?

IBAS has been calling for a Windfall Tax for several years because it's the only way everyone can obtain some benefit from the big banks profiteering. Each year since the last recession the big banks have increased their profits whilst the UK slides further under a debt mountain and ordinary consumers struggle to save or buy homes. Chancellor Gordon Brown has a hole in his finances and needs more money what better place to get it? Let's see some Government action instead of inaction and some consumer support by stopping the big banks profiteering off their struggling customers. Date 20.2.2004

Personal bankruptcy is also at a record level now - is this coincidence?

Barclays Bank, the first of the big High Street banks to report this year have showed profits are up by 20%. Analysts say that the UK banking industry will report record profits of £25billion this year.

Robin Down, analyst at Morgan Stanley, said: "If one or two banks say they are making these sorts of returns, you could say it is due to a particular expertise. But when the whole sector is saying it, that is suggestive of excess profits."

That comment is true and IBAS continue to say that the banks are ripping customers off.

How many more £billions is this Government going to allow banks to take from their customers by profiteering. Will the Government ever act, or are they in the pocket of the bankers? Is it too much to expect some consumer protection from institutional profiteering? Date 16.2.2004

Bankruptcy rates are now at ten-year high. Personal bankruptcies are up by 28.9% on the same period a year ago! DTI figures out today (6.2.04) confirm IBAS views as stated in our article earlier this month. The increase in personal bankruptcy up to 10,271 was an increase of 12% on the previous quarter. Whilst personal bankruptcies were climbing business bankruptcy dropped by a massive 22.5% on the same period a year ago.

The drop in business bankruptcies may well be due to the Enterprise Act 2002 and revisions of corporate insolvency procedures which came into effect on 15th September 2003. Administration Orders and Company Voluntary Arrangements (CVA's) should aid businesses by enabling companies in financial difficulties to come to a binding agreement with their creditors and other streamlining arrangements introduced in the Enterprise Act will also allow companies in some instances to be dissolved without recourse to liquidation. Date 6.2.2004

What a surprise interest base rates moved up by a quarter of one percent yesterday at 12.00 and at 12.01 Abbey National raises its own mortgage rate by the same amount! Therefore, making £547,945 more each day on it's home loans worth £80bn. Barclays Bank, Woolwich, Northern Rock and Nationwide all followed suit. Savings rates will not rise to match borrowing rates. Banks say that saving accounts are more 'complicated' and that it takes longer as there are many different rates. How convenient that they are able to move so quickly to raise rates and plunder borrowers yet they cannot reward the savers who provide funds for them to lend. Date 6.2.2004

Personal Bankruptcy is set to rise dramatically this year and IBAS believe irresponsible lending is part of the equation that will provoke many more personal bankrupts in 2004.

Experts believe that the increase will happen due to a mixture of various ingredients. High levels of personal borrowings on credit cards and re-mortgages to free up cash for other non-essential spending (including the Christmas period) seem to be the main factors. Many also believe that lenders have not been responsible in lending to those who will be unable to repay their borrowings.

In January 2004 alone it is predicted that 4,000 people in the UK will be forced into bankruptcy. Many will find that the experience of previous bankruptcy in the early 1990s will also come back to haunt them as the DTI revisit old bankruptcy cases. This is due to the introduction of measures within the Enterprise Act, which is coming into force in April 2004.

The introduction of a three-year limit on any action to sell the home of a bankrupt rather than being able to do so at any time (as is presently the case) will have a ‘knock on’ effect. The three-year limit will apply to all old cases once the Enterprise Act is activated in April 2004.

What this actually means is that the DTI will need to reassess all old cases where a bankrupt was allowed to remain in their home. Where a future realization of the asset (sale) by the Insolvency Service to satisfy the previous debts was still ‘active’ on any individual case they will now be at risk from a demand for payment by the DTI, which will be based on the new inflated value of their property.

Substantial rises in equity mean that many homes can now provide the DTI with an asset that is worth realizing. Unless the home can be re-mortgaged by the owner repossession is likely to be contemplated by the DTI to obtain a realization before the new three-year limit is passed.

IBAS say that too many of the big lenders 'ripped off' and plundered loyal customers by overcharging them on overdrafts, loans and mortgages and that the Cruickshank Report proved it.

When IBAS met and discussed bank overcharging issues with the Cruickshank Report review team IBAS wanted lending facts and figures to be easily available for all consumers to be able to make comparisons on any of the  lender's financial service products. IBAS also wanted 'plain English' in sales literature and brochures so that consumers were not so easily cheated by 'small print' or legal phrases and terminology.

IBAS had seen the frustration and lack of information with which the UK consumers were faced, whilst at the same time they were being bombarded with slick and glossy sales brochures, backed up by often totally misleading 'advice' from employees of lenders attempting to meet targets, whilst promising rates and APR's which didn't match reality.

We totally support the idea of 'switching' because we want to see more customers obtain true value and service from lenders. This can only become possible for the majority once the lenders realize that they no longer have a large percentage of 'captive customers'!

Unfortunately, lenders love having 'captive customers'. They can be sold all manner of highly profitable  products (at least for the lender) and  'captive customers' can be 'punished' repeatedly. This can be done in a number of different ways but obvious examples are by lenders charging the 'captive customer' more for their borrowing, for example charging mortgage interest annually (because that was the way it was done in the past), or at a higher rate than for 'new' borrowers. The punishment can also be seen to be working where 'captive customers' are given less, or indeed nothing, for the use of their own money, as with some long term savings accounts.

It would be reasonable for any 'outsider' to assume that UK consumers and particularly those who can be recognized as 'captive customers' must enjoy all this 'punishment'. What else could possibly explain the apathy and apparent lack of interest in obtaining a fairer and better deal for themselves?

From IBAS case files it is obvious that loyalty does not work in both directions. We have seen many loyal customers who have been relentlessly plundered by their lender just because it was possible. It was also made possible by the customer. The customer didn't ask the right questions or obtain any comparison for any service or product that they were being sold.

Customers have often made the mistake of trusting what they were told as being true. This has been a common problem for consumers. How do they identify what is true and what is not? A further problem has been that many financial products are not easily understood and a full and  detailed explanation can seem very plausible, even when totally untrue.

If the last 14 years has taught us anything it is that any financial service product now requires very careful examination and consideration by any consumer before a purchase is actually completed, whether it is a mortgage or a 'flat pack kitchen'. Any product or service which spreads the payment over time, needs careful examination and true comparisons need obtaining before accepting and signing any legally binding agreement. Our case files prove that consumers have found to their cost that a legally binding agreement once signed will be used by the lender as proof of acceptance, regardless of what the customer was told before signing.

The campaign for switching banks makes sense for many people. IBAS would advise everybody to examine their long term borrowings, particularly after the Cruickshank Report on Banking Services in the UK. The Cruickshank Report proved how easy it had been for the lenders to overcharge on 'everyday' services that we all took for granted. Cruickshank was scathing in his report on the many issues detrimental to UK Banking consumers, including cheque clearance and the lack of money transmission competition.

The majority of the competitive information which IBAS was seeking at the time of the Cruickshank Report is now available. It's easy to understand and it's easier to compare what lenders have to offer. If lenders do not provide what is advertised then the lenders are liable for investigation by the FSA or the OFT. Consumers now have the 'tools' with which to work. Will they use these 'tools' to obtain better, fairer, cheaper and more consumer friendly products? Only time will tell.

If UK consumers use the 'tools' now available to good effect they will make lenders sharply aware of the pressure that can be exerted by consumers and that itself may also provide a really competitive UK financial services market.

Independent Banking Advisory Service (IBAS) National, independent, unique, experienced, specialist, non-profit, banking customer membership organization which investigates and resolves business banking disputes & has since 1992 campaigned on UK Banking issues - providing business banking editorial for BBC TV News, ITV News, Sky News, Radio and all national newspapers.