Lies, scams and threats – banks are condemned

Saturday, July 28th, 2007

GraÍnne Gilmore and Elizabeth Colman

Britain’s banks and building societies have lied to and threatened customers who complain about overdraft charges, the Government’s financial regulator said.

The Financial Services Authority (FSA) has rebuked current account providers for making “false or misleading statements” to customers. The City watchdog said that some institutions had lied to account holders to deter them from reclaiming unauthorised overdraft charges.

It said that some banks and building societies had closed or threatened to close customers’ accounts to punish them for making a claim.

In a letter to the chief executives of every bank and building society, the FSA said: “Whilst there may be some circumstances that warrant the termination of the commercial relationship, we would expect this to be a relatively rare occurrence . . . and not as part of a standardised (and seemingly punitive) policy towards those who have merely exercised their right to complain.”

Customers who have their bank accounts closed are often forced to miss mortgage payments and other important direct debit deadlines. This can harm their credit rating. The FSA has taken enforcement action against two firms, which could lead to hefty fines.

Deficiencies identified by the FSA from a sample of banks and building societies, and set out in the regulator’s letter, include:

— A failure to respond to complaints fairly and consistently, to address adequately the subject matter of complaints, or to ensure that complaints are resolved at the earliest possible opportunity;

— Unfair closure of accounts, or threats to do so;

— False or misleading statements made to complainants.

Hundreds of thousands of account holders have reclaimed more than £200 million in overdraft penalty charges this year, complaining that the fees are illegal. Some banks charge £39 for slipping into the red without permission. Four million template letters used to reclaim the charges have been downloaded from consumer websites.

Overdraft charges boost the coffers of banks and building societies by around £1.7 billion a year.

The British Bankers’ Association (BBA) brushed the watchdog’s findings aside. A spokeswoman said: “This is part of what the FSA do, the FSA do these periodic reviews. We’ve worked entirely hand in hand with the FSA.”

Only last week, a report from the BBA praised Britain’s banks for their transparency and value for money.

The FSA has refused to name the two companies that have been referred to its enforcement division.

Lloyds TSB, Barclays, RBS/Natwest, HSBC, HBOS and Abbey between them control more than 80 per cent of the current account market, according to figures from Datamonitor, the business intelligence provider.

The FSA letter came on the day that the regulator agreed to give banks and building societies a reprieve from refunding bank charges to customers. The watchdog granted the waiver as eight institutions, including HBOS, Nationwide, Barclays and Lloyds TSB, began legal proceedings in conjuction with the Office of Fair Trading to establish the legality of unauthorised overdraft charges. The OFT has been reviewing overdraft charges since last year.

Customers who have made a claim or who are intending to do so will have to wait until the court case is decided before their complaint will be dealt with by their bank or building society. The case is expected to be heard before the end of the year.

Some customers have been forced to go to court to seek a refund, but these cases have been heard in county court and do not set a precedent. If the ruling goes against the banks, they could be forced to repay more than £10 billion of penalty charges dating back six years.

The BBA spokeswoman said: “If the FSA believed there had been a problem they wouldn’t have granted a waiver.” But consumer groups were unhappy at the FSA decision to stop refunds. Martin Lewis, of MoneySavingExpert, the consumer website, said: “The FSA may have slapped the banks’ wrists but I suspect the banks are jumping for joy. What they have done is stop people reclaiming money.”

Doug Taylor, of Which?, the consumer organisation, said: “We call on the FSA to name and shame the worst offenders and give consumers all the facts on which to base their banking decisions. Switching current accounts is a lot easier than people think. Vote with your feet and show the banks who is boss.”

John Howard, chairman of the Financial Services Consumer Panel, said: “The wide range of criticisms in this letter to chief executives, especially in relation to closing the accounts of customers who complain, suggests that some banks are having difficulty making judgments about the fair treatment of customers.”