Banks will have to contact struggling customersBut new bank code could have done more to help

31 March 2008

Banks and building societies will have to do more to help customers who get into financial difficulties under the new Banking Code.

The new code, which comes into force today, contains an 'enhanced promise' that banks will treat customers fairly and reasonably.

It states that banks must proactively contact customers they think may be heading towards problems, based on the information they have on them.

People will also be encouraged to talk to their bank about their difficulties, with banks pledging to do all they can to help them, including assisting them in developing a plan.

People in difficulty

Banks must also be 'sympathetic and positive' when dealing with people in difficulties, giving them information on where they can get free independent advice and working with debt counselling groups such as Citizens Advice if customers ask them to.

The move goes beyond the provisions in the old code, which left the onus on consumers to approach their bank if they faced problems.

The new code also contains a commitment to responsible lending, under which banks must assess whether people will be able to repay their debt, before they are advanced new loans or given a higher credit limit.

Credit references

They will have to look at people's credit references when assessing all applications for credit.

They must also take into account a consumer's income and financial commitments, or a customer's previous financial behaviour or internal credit scoring techniques.

Banks must also make sure consumers know how they can decline an increase in the credit limit on their credit card and give them more information on credit card cheques, which usually carry higher interest rates and charges than credit cards.

The new code also says that banks must:

  • provide customers with important information about unsecured loans and savings accounts in a standard summary box before they purchase a product
  • give help to consumers switching their current account to another bank
  • provide customers with information on how they can trace lost accounts, including details on the forthcoming unclaimed assets scheme
  • give customers greater clarity on the time it takes for cheques to clear
  • offer customers the most up-to-date information on how to protect their accounts from fraud
  • inform customers about the alternatives to chip and Pin cards for people who are unable to use these because of a disability or medical condition.

It also prohibits banks from closing a customer's current or savings account simply because they have made a complaint.

This issue came to the fore in the wake of the first complaints about unauthorised overdraft charges, when a number of banks tried to close the current accounts of people who attempted to get refunds.

Missed opportunity

But Which? believes the new code is a missed opportunity; more could have been done to protect consumers at a time when many people are struggling with their finances.

They could have stopped companies from sending unsolicited credit card cheques

Vera Cottrell, principal policy adviser at Which?, says: 'A lot more could have been done to really benefit consumers, such as increasing minimum repayments on credit cards and stopping companies from sending unsolicited credit card cheques to their customers.

'It is encouraging to see new measures such as summary boxes on loan and credit card statements, which will help people to better understand the real cost of their borrowing.'

Fairness

Ms Cottrell added:'Which? has called for an overarching principle of fairness to be included in the code and we will judge the code's effectiveness on whether this is achieved.

'We want this to go further than the rules already in place - to be effective the new principle of fairness will have to add value to the code and not simply be window dressing.'

The banking code is voluntary and is reviewed every three years. The latest version follows a consultation with consumer groups, the Treasury, Financial Services Authority and Office of Fair Trading.