New Banking Code Fails Consumers
The banks' foremost propaganda piece 'The Banking Code' continues to be a non-event, particularly when it comes to its stated goal of 'treating customers fairly'.
In one of my first weeks at The Motley Fool, a journalist called and asked me to comment on the Financial Services Authority's Treating Customers Fairly campaign, which had recently been launched. My comment was that it would make absolutely no difference at all for consumers.
The total ineffectiveness of that campaign isn't the purpose of this article, although it's got many parallels with the following:
The New Banking Code
The Banking Code is equally useless. It is a voluntary code written and promoted by the bank industry's mouthpiece, the British Bankers' Association (BBA). It is intended to provide a minimum level of standards for customers. In particular, it's about treating customers fairly.
Today it renewed the Banking Code, saying it has 'enhanced' its promise of fairness. The thing is, either you're being fair or you're not. So how can you enhance it? They're effectively saying: 'This time we really mean it!'
Why I have no time for the Banking Code
The Banking Code is a series of promises about what banks will do for the customer to ensure fairness and high standards.
The first problem with it is that many of the promises don't make any concessions to customers beyond what the regulator would force them to do, if the banks hadn't chosen to create a voluntary code on their own.
Here's a relevant example: 'We will help you to switch your current account between financial institutions subscribing to this Code.'
Banks aren't allowed to make it deliberately awkward for customers to switch. If they prevented people from taking advantage of a competitive market, they'd get hammered for it. So this point in the Code is a non-event. The banks are merely trying to avoid stronger regulation in this area by making it a voluntary practice.
Furthermore, it's in many banks' best interests to make it easy to switch anyway, if they believe they can win more new business than they'll lose...
Another unhelpful reason for the Code
Which leads me to my second point. Another reason why banks include certain promises in the code is because it suits them for business reasons. Of course, that's not how they present it to us; they present it as a friendly and caring concession for customers.
Take for example the recent addition to start lending responsibly by actually assessing whether people can afford to repay before offering them a loan or credit card.
At present, with the credit crunch, it suits the banks for business reasons to lend more responsibly. Over the past decade they have loaned out far too much money to too many people who can't afford it. This has led to higher bad debt (i.e. more people are unable to meet their minimum repayments). This has caused banks to be wary about lending money to each other in case the other banks fail to pay them back. This means banks currently have access to less money, and that in turn means they have less money to lend to us.
As they have less money to lend, and as too many debtors are beginning to stop paying their bills, it's a sound business decision for the banks to batten down the hatches by being more selective of the people they lend to.
So promises like that one are entirely selfish. It's just coincidence that it's the right thing to do as well. If the banks wanted to put responsibility over profitability, they would have done this ages ago, at a time when it didn't suit them.
The third reason for the Code
There is a third and final reason that the banks include particular promises in the code, and that is public relations. The BBA is really a public-relations machine for the banks, and the Banking Code is the centrepiece of its work.
So promises that don't fit into either of the categories I've mentioned above fit into this third one. An example is:
'We promise we will treat you fairly and reasonably when providing you with products and services.'
This is very similar to political spin. I can best explain this with a quote from Yes, Minister. Sir Arnold explains that the reason the civil service called a policy document 'Open Government' is because: 'The less you intend to do about something, the more you have to keep talking about it.' And the civil service certainly doesn't want open government.
He also says: 'Either you can be open or you can have government.' Most bankers would probably say: 'You can treat customers fairly or you can run a bank.'
The BBA claims the driver for today's changes to the Code was consultation about what customers want. Clearly this is not the case. The driver is preserving bank profits and keeping the regulator happy, and it always has been.
However, if they really do want to treat customers fairly from now on, I look forward to the imminent withdrawal of these 12, nasty credit card tricks. They can also cancel the thousands of other small-print traps that are in all their products, including (just for example):
Banks Behaving Badly!Ten More Banking Tricks!Personal Loan Rate TricksThree Miserable Mortgage Rip-offs!Credit Cards With Small Print And Big FeesNew Credit Card Tricks!
But don't hold your breath.