Independent Banking Advisory Service 

Banks Penalize Bank Customers in financial difficulty

Banks inevitably penalize bank customers in financial difficulty or those experiencing difficult financial problems often by adding even further penalty charges and fees to their debt – that has been our experience from case files over the last 14 years. The bank penalty charges debate continues - meanwhile banks continue to levy penalties without mercy, if payments cannot be made by customers. We trust that the OFT court case in February 2008 will provide a judgment which will determine if and how consumer contract law will affect such bank ‘penalty’ charges and fees in the future. But, Banks have been extorting penalty fees and charges for a very long time from bank customers. Life has become more difficult for them now due to the sub prime mortgage problems in the US and that factor alone will mean the banks will collectively fight hard (by using the BBA to lobby and spread banking propaganda) to keep all they have and all they can get in the future. Time will tell, but don’t ‘hold your breath’ for a result which is just or which provides justice for banking customers.  

Of course, this makes a complete nonsense of the Banking Code which states that banks should treat customers with financial problems with sympathy, but then what real use is there for a voluntary code which isn’t properly or effectively ‘policed’? Of course banks do not want enforced legislation. That’s why a voluntary code is ‘clung to’ by the banks. A voluntary banking code, which is amended to suit them and which is also poorly ‘policed’ is much easier to circumvent or to completely evade when necessary.  

In our opinion, after 14 years investigating bank complaints and disputes, it will only be properly drafted legislation with effective and determined policing by regulators, which will protect bank customers from shabby, unfair treatment and bank excesses and profiteering in the future. The banks have always used which ever parts of the Banking Code suit them best when dealing with bank customers. Even different departments within banks decide whether or not the Banking Code will be evaded in dealing with bank complaints or disputes.

Those with problem bank debt inevitably face the bank’s ‘medicine’ of continuous pressure to pay together with more and higher charges, plus further fees, therefore increased debt. This is opposite to what the customer needs if they are to regroup, reorganize and plan their finances in an orderly fashion.

Whether personal or business bank customers, when poor income or cash flow becomes a problem it is virtually impossible to immediately stop all expenditure, no matter how desirable that may be in theory. Some degree of common sense is necessary in preventing debt from becoming uncontrollable. Intransigence from banks does not assist those facing debt problems. Bank short term thinking and profiteering will only drive more bank customers deeper into debt and fuel higher levels of personal bankruptcy. 

During 2007 we have seen some movement towards protecting bank customer’s interests but there is a long way to go before the UK has an effective and worthwhile banking regulatory system which does not protect banks for the wrong reasons. At the end of 2007 the Northern Rock fiasco stands out clearly, making history for the wrong reasons and illustrating yet again how badly banking regulation has served us all. -  4^th January 2008