The two banks that may be secretly spying on you

Robert Powell takes a look at two banks that are phoning up customers to tell them to spend less on themselves and more on their mortgage...

Whatever happened to old fashioned bank managers?

Gone are the grumpy curmudgeons, peering over their spectacles and tutting at your account statement. In their place; anonymous websites, cash gushing holes in the wall and – if you can find a local branch and endure a lengthy queue – fresh-faced, graduate cashiers.

Unsurprisingly, many have drawn a direct line between this depersonalisation of banking and the credit crunch. After all, Captain Mainwaring – the miserly bank manager from Dad’s Army – would never have issued any of his Walmington-on-Sea customers with credit cards he knew they wouldn’t pay off.

But despite the distinct lack of modern over-informed bank managers, some lenders are now learning the lessons of the credit crunch and getting to know their customers’ finances in a more detailed way. However the method in which they are carrying this out has not been met with universal approval...

Warnings of repossessions

Last week, officials from two tax-payer owned banks – Northern Rock and Bradford & Bingley – admitted that they had been secretly credit checking their mortgage customers to identify high risk home owners. Following on from these checks, the banks will now phone up the customers in question and warn them to cut their spending on nights out, mobile phones, Sky TV and gym memberships and focus on repaying their mortgage.

Over 30,000 risky home owners were picked out by UK Asset Resolution (UKAR); the parent company of Northern Rock and Bradford & Bingley. The organisation identified these home owners as borrowers who could have trouble repaying their mortgage when the Base Rate rises from its historic low of 0.5%.

Over 2,000 customers are now being contacted every week and warned that their home could be repossessed if they cannot keep up with repayments.

All banks will carry out a credit check before lending money to any customer in order to gauge the risk of a repayment default. However lenders must obtain the permission of the customer before carrying out such checks. Banks are able to use secret credit checks thanks to small print regulations in mortgage contracts stating that future credit checks can be legally undertaken.

But is it right for banks to snoop around their customer’s finances at will?

Sensible or invasive?

Unsurprisingly this move by UKAR has provoked a mixed reaction concerning the extent to which banks should be allowed to stray into the finances of troubled borrowers. UKAR defended their actions, saying that secret credit checking was designed to help homeowners by advising them to alter spending patterns before mortgage repayments ballooned to unmanageable levels.

In fact, this form of ‘early warning system’ for risky customers is nothing new. Banks have utilised ‘risk triggers’ for a while now. These triggers are basically set-alerts that watch for certain ‘financial events’ within your spending. Some credit scoring agencies will look out for over 250 of these ‘events’, which may include missed mortgage and credit card repayments or unpaid utility bills. The idea is that if you do miss a repayment, other lenders can act quickly in order to minimise any financial risk you may pose to them. This may involve reducing a credit card limit or slashing an overdraft.

Banks also use ‘collection triggers’, a similar system that watches for any improvements in your financial situation. This allows the lender to put in requests for further repayments or even send out marketing targeted at your new financial situation.

Head over to How your bank manager is spying on you to read about some further techniques used by banks to keep tabs on your spending history.

Credit crunch hangover

This latest moved by Northern Rock and Bradford & Bingley is another example of the banking sector’s lingering hangover from the credit crunch. Granted, most people’s purse strings may be a touch tighter today than they were five years ago; but still, the criticism remains that if customers cannot afford their mortgage now, why were they granted it in the first place?

The current abnormally low Base Rate doesn’t help matters. Those on variable mortgages have seen their rates hit rock-bottom. While a decreased expectation of a rate rise has also brought down fixed deals. Banks are justifiably worried that these low interest rates have lulled borrowers into something of a false sense of security. And as a result they are looking to avoid a sharp jolt back into reality when the Bank of England does eventually up the Base Rate.

The same hangover traits are observable in the credit card sector.

As I reported back in January, rate-jacking is now a common occurrence in the world of credit card borrowing. The current fragile economic state is causing many lenders to take a second look at their borrowers and up the interest rates of those who pose a risk to them. So if you snapped up a credit card back in the boom years despite having a far from perfect credit record, you could find your interest rate rocketing in the near-future.

Fortunately there are a few things you can do to fight back against these unfair hikes. Read The secret trick you can use against your credit card provider to find out more. And for some more tips on reigning in your spending and sprucing up your credit history take a look at our how-to guides looking at setting a budget and sticking to it and improving your credit rating.

Your take

Is it fair for banks to snoop around in their customers’ financial records?

Let us know what you think using the comment box below.

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