The Role of The FSA

The Financial Services Consumer Panel (FSCP) has given the Financial Services Authority (FSA) a public spanking for the "unrealistic" emphasis on consumer responsibility outlined in the FSA's consultation paper on consumer responsibility.

The emphasis on consumer responsibility, already ingrained in the FSA's philosophy, is being used by Britain's "rip off" financial services industry as an excuse for avoiding their responsibilities to consumers.

The FSCP said that the consultation paper risked shifting the focus on consumer protection away from regulated firms.

The FSA has been more than happy in the past to blame the consumer for financial product failings (eg endowment policies).

Doubtless blaming the consumer makes the FSA's job easier, not least because it is funded by the financial services industry. However, it should remember that its role is to protect the consumer from the unscrupulous financial services industry who seek to sell on products that are over complex and shoddy (eg PPI, endowment policies etc).

Read More

Greed

Britain's utility companies are to be congratulated on being even more greedy than banks, insurance and credit card companies, in their brazen fleecing of the consumer.

E.ON added its name to the list of shame by raising prices this morning, electricity up by 16% and gas by 26%.

Similar recent increases were imposed by EDF and British Gas.

Time that the sleepy old watchdogs, that are allegedly looking after the interests of the ripped off British consumer, to wake up and earn their pay.

Read More

Consumers Encouraged To Litigate

The Office of Fair Trading (OFT) has decided to encourage consumers, who have been cheated, to litigate against the miscreants.

The OFT has stated that it believes that the public should have wider access to litigation, if they have bought goods from companies that operated cartels or otherwise colluded to fix prices.

The OFT has also committed to becoming more proactive in helping consumers bring private claims.

Lat year consumers were given the right to sue companies that have engaged in anti-competitive. However, the costs of mounting such a lawsuit has prohibited many from taking them to court.

The OFT has stated that it will address the costs of consumer based litigation. It intends to introduce new forms of "no win, no fee" arrangements.

Matthew Levitt, a competition law expert at Lovells, is quoted as saying:

"The OFT will be sensitive to the need to avoid the 'excesses' of the US system. One of the key features of the US system - triple damages (where consumers are awarded compensation equal to three times their loss) is not part of the OFT's proposals."

However, quite how long the process of taking this forward to practical reality will take is anybodies guess.

Read More

NatWest Caves In

Congratulations to the unnamed businessman who took a principled stand against the excess bank charges levelled by NatWest, and succeeded in getting them to refund him £36K.

This is believed to be the largest sum ever refunded to an individual customer, since the start of the consumer revolt against excess bank and credit card charges.

NatWest caved in rather than face Justice in court, where it would have had to explain the reasons for its bank charges.

The anonymous Norfolk businessman challenged NatWest over the £26,010 worth of charges he was levied between January 2001 and February 2003. These fees were mainly for cheques and direct debits that bounced. He also claimed £10,280 interest and £400 costs.

Quote:

"The bank said it was my fault that the company grew too big too quickly - ie didn't have enough cashflow."

However, he claimed that his business had a turnover of over £1M, no mean feat, yet NatWest refused him an overdraft above £10,000.

A case management conference had been due to be held next month, in which he had planned to ask the judge to order NatWest to disclose the real cost of bouncing cheques and direct debits.

NatWest blinked first, and decided that it was less expensive to pay him rather than to rack up legal fees and publicly admit the true cost of bouncing a cheque.

However, before everyone reaches for the champagne, consider this; the banks will find other ways to make their living from their hapless customers. Should they be forced to lower their charges for bounced cheques etc, they will simply start charging for other services previously taken for granted as being free.

This is only a victory in battle, not a victory in the war against greedy banks.

The Guardian has created two proforma letters that you can use to reclaim excess bank charges, they can be accessed here Guardian Letters.

Read More

FSA Reviews Subprime Sector

The Financial Services Authority (FSA) is to launch an investigation into the subprime mortgage sector.

Specifically the FSA will examine whether customers who get into financial difficulty, after taking on a subprime mortgages, are being treated fairly by banks.

Yet another indication that, following on from the endowment shambles, the mortgage industry in Britain has something of an image problem.

The FSA will also look into lifetime mortgages, and related matters.

Subprime mortgages, aimed at people with poor credit ratings, have caused chaos in the USA as the number of repossessions and defaults rockets.

The FSA will publish its findings this June.

There are approximately 40 companies in the UK that handle subprime business. They account for approximately 6% of the UK mortgage market.

Dan Waters, director of retail policy at the FSA, is quoted in the FT as saying:

"This next stage of the mortgage effectiveness review will focus on more specialised sectors where we think there is greater risk of consumer detriment.

We will also look at the treatment of customers in arrears. The findings of the review will help inform our thinking about how we might apply a more principles-based approach to our mortgage rules."

It shall be interesting to see how principles and mortgages can be "married".

Read More

OFT Backs Down

Proving once again that the financial regulatory bodies in Britain are "pussies", when it comes to standing up to vested interests, the Office of fair Trading (OFT) has baoked down on imposing limits on bank charges.

The OFT tried its best to save face by shrouding its decision in the thin, and flimsy, veneer of initiating an in depth review.

Stating:

"The banking industry is not straightforward and that a more detailed examination is needed".

However, the reality is that the OFT has faced sustained and intense lobbying from the banks and they have a greater sway with the OFT than the consumer.

Some banks have threatened to end free accounts, were there to be a regulatory move against excessive and unjustifiable bank charges.

Needless to say, consumer groups see the OFT decisions for what it is (a total climbdown).

Which? said:

"We agree it's crucial the OFT investigates retail bank pricing. But today's announcement still leaves people in the dark about unfair bank charges.

Before the end of the year consumers could be charged up to £3.5BN by their banks in unauthorised overdraft charges. So we are telling consumers not to be put off claiming back their charges while the OFT is looking into this - claim them back now."

In 2006 Which? calculated that bank customers pay £4.7BN each year on default charges. No wonder the banks like to make these charges.

John Fingleton, OFT chief executive, said:

"The UK retail banking market performs well in many dimensions, especially relative to international norms. However, the issue of bank current account charges is a matter of real concern to the banks' customers, and raises wider questions about competition and transparency of pricing."

However, just because the OFT are "pussies" doesn't mean that the consumer has to be one. Consumers should challenge every single unreasonable charge levelled on them by banks, as a matter of course, in many cases these challenges result in refunds being made.

If nothing else, at least it annoys the hell out of the banks and might make them think twice about "drinking the well dry" (ie overcharging consumers).

Read More

Hamper Schemes Ring-Fenced

Following on from the collapse of Farepak, the Christmas hamper company, last year the government has finally got its act together.

It has been announced that payments to Christmas Hamper schemes will be ring-fenced, so that savers will be protected from suffering the same fate as the victims of the Farepak collapse.

Consumer minister, Ian McCartney, said that payments to similar schemes should now be placed in separate accounts, run by independent trustees on behalf of the customers.

The money would only be released to pay for the customers' orders for Christmas hampers and vouchers, not for other business activities.

This of course, in any well run business, should have been happening already.

Quote:

"The companies are now working to introduce these accounts over the coming weeks.

We think that effective safeguards of this type will provide the reassurance consumers are looking for in this industry".

This action was in response to one of the recommendations of a review into Christmas hamper savings schemes collapse by Brian Pomeroy, chairman of the Financial Inclusion Taskforce.

Pomeroy has also called for more to be done to offer consumers better choice within the market, and to educate people about the best options available to them.

Quote:

"This is a market which has operated for many years and provides as many as 700,000 families with a useful way of saving.

However it is vital that more is done to protect its customers and ensure genuine choice for those who want to save for Christmas."

The government's response, whilst being welcome, is somewhat late in the day for the victims of Farepak.

Read More

British Gas

British Gas have announced that they will not be introducing a £5 late payment fee for recalcitrant customers.

This change of heart is due in no small measure to the pressure applied by consumers, who were upset at facing what they viewed as price rise by stealth.

However, before the champagne corks are pooped, the gas consumer would do well to remember that this is in effect no more than a Pyrrhic victory:

1 Pay your bill on time, and you would never have suffered the late payment fee

2 The cost of recalcitrant customers will be met by all of British Gas's customers, in some form or another.

Read More

5,000 Complaints A Day

The financial ombudsman is receiving up to 5,000 complaints a day from angry bank customers, in respect of high penalty charges.

It seems that, as the numbers of complaints are rocketing, there is something of a "customer revolt" over bank charges.

A year ago the Ombudsman received about 100 calls a day from the public over bank charges.

The FOS said the number of complaints it is receiving is unprecedented.

A spokesman said:

"It has even eclipsed mortgage endowment complaints. We usually get 200 to 250 of them a day, so it has well surpassed that."

Martin Lewis, financial pundit, said:

"The campaign to reclaim has been given huge impetus this week by the angry response of UK consumers to the enormous profits being reported day after day by Britain's banks, who are taking money unfairly from people's accounts.

This week it hit tipping point, as a whole new band of Britons grit their teeth to get their money back."

The banks are also waiting for the results of an investigation by the OFT on the issue of charges.

Earlier this week Barclays posted £7BN in profits, and analysts predict the "big five" alone will report more than £38BN in profits from last year.

Whilst the "consumer revolt" gathers momentum, those who manage to reclaim their charges should remember that banks are not charities. In the event that the banks are blocked from making money by levying charges for unauthorised overdrafts etc, the banks will find other methods of making money, such as abolishing free banking.

Read More

Administrations Jump

Deloittes have published figures that show a 26% jump in UK business administrations, when comparing 2006 with 2005.

Neville Kahn, reorganisation services partner at Deloitte, said:

"Many businesses have shown signs of distress over the past year. Our research shows that the worst hit were in the financial services, hospitality & leisure and recruitment and business support services sectors. The overarching theme of increased costs appears to have hit a large number of the businesses.

In the financial and recruitment sectors we have seen an increased regulatory burden and in hospitality & leisure - a typically high cost environment – we have seen businesses punished by their thin margins when volatility occurs. Overall, the figures suggest the economy is not as healthy as it might seem on the surface."

The main sectors which saw increases in administration levels from 2006 to 2005 are:

-Recruitment and business support services saw an increase of almost 90%
-Hospitality and leisure businesses saw an increase of over 50%
-Financial services businesses saw in increase of nearly 50%

Lee Manning, reorganisation services partner at Deloitte, said:

"The costs associated with running an independent financial advisory business, such as FSA regulation and professional indemnity insurance, have increased significantly in recent years making it more difficult for the smaller businesses to absorb these costs."

Whether the culling of small firms is good news for the consumer is questionable.

Read More

Britain's Growing Debt Crisis

Britain saw an unprecedented rise in personal insolvencies in 2006, with a massive surge of 59%, according to figures released by the department for Trade and Industry (DTI).

Individual insolvencies in England and Wales were 107,288, the figure for 2005 was 67,584.

The Bank of England, by raising interest rates, has lessened the threat of inflation but has of course increased the costs of borrowing; this in turn creates an upward pressure on the number of insolvencies.

Louise Britain, head of personal insolvency at Baker Tilly, is quoted as saying:

"People are blindly taking on debt without thinking about how they'll repay it.

As a nation, we have totally binged. I think the numbers of insolvencies will continue to rise."

Total outstanding debt reached £1.3 Trillion in December.

The surge in bankruptcies has been helped by the use of individual voluntary arrangements (IVA's), which allow individuals to write off most of their debt and make gradual repayments on the remaining amount.

The banks are fighting back, and are starting to reject more debt plans. Needless to say, as with many other financial products, some IVA's have been marketed to the wrong people.

However, the Bank of England's governor, Mervyn King, says that it's not very likely that debt will become a significant problem.

"It's a minority of households.

It's a major social issue, but the numbers aren't large enough to amount to a major threat to the overall level of consumer spending."

I can't but help wonder what Britain he is living in.

Read More

GE Capital Bank Fined For Mis-selling

GE Capital Bank (GECB) has been fined by the Financial Services Authority (FSA) a record amount of £610K, for failing adequately to protect customers from being sold insurance products that they might not need.

GECB was found to have insufficient safeguards against mis-selling payment protection insurance (PPI).

This is the largest PPI fine that the FSA has imposed to date, more are expected to be announced in the coming weeks.

GECB has said that it will now honour any PPI claims made by customers from 2005 onwards, even if they go against contract exclusion clauses.

Critics claim that the product is overpriced, difficult to claim on and mis-sold.

GECB's main business is providing credit finance through branded store cards, credit cards and sales finance. Its clients include Laura Ashley, Mothercare, BHS and Halfords.

Therefore it has somewhat of a captive market for selling the PPI add on.

In 2005 over 850,000 insurance policies, included PPI, were sold on its behalf to consumers.

In spite of the fact that the FSA had noted that GECB had failed to review and amend procedures for selling insurance, despite its own evidence of widespread non-compliant selling practices.

Margaret Cole, director of enforcement at the FSA, said:

"Millions of people take out store cards every year. They need to know that PPI is almost always optional and should consider whether they need it before signing up.

Our focus on payment-protection insurance will remain very high this year. We are determined to see significantly better practice in PPI sales, and will crack down where firms fail."

The fine against GECB was going to be £870K. However, it qualified for a 30% discount by agreeing to settle early.

GE Capital Bank said:

"The main finding of the FSA relates to GECB policies sold in stores by sales staff.

GECB designed the sales procedure but failed, in light of emerging evidence, to fully review, amend and then effectively operate it.

As a result, relevant information about the insurance product was not provided to some customers at the time of sale.

In certain cases, the FSA found that staff had not followed the correct sales procedure by drawing customers' attention to the importance of reading the policy's summary of cover. GECB fully accepts responsibility for how the policies are sold.

GECB is continuing to take steps to ensure that no customer has lost out financially, and is honouring claims that would otherwise be rejected because of an exclusion."

In the short term, this shot across the bows of the financial services industry may be seen as a victory for the consumer. However, in the long term, you can be assured that the financial services industry will find other ways to separate the consumer from his/her money.

Be vigilant!

Read More

Banks' Underhand Methods

Banks were accused by Which? of using underhand methods to dissuade customers from seeking refunds, after they have been charged "unfairly" for exceeding their overdrafts.

Which? said that banks have threatened to close accounts, pass details on to debt collectors and charge for statements when customers challenge their overdraft fees.

Which? claims that it has heard of charges of up to £5 per page for duplicate statements. The law permits a maximum charge of £10.

One bank tried to charge £30 an hour labour charges to send duplicates, with a total bill of £360.

Doug Taylor, the personal finance campaigner at Which?, said:

"Banks are employing increasingly underhand methods to avoid their responsibility to treat their customers fairly and refund the charges."

Angela Knight, the chief executive designate of the British Bankers' Association, said:

"Which? is clearly trying to exploit its position as a consumer body by sensationalising what could be a useful piece of research.

The banking industry handles over seven billion transactions a year and occasionally something will go wrong that's human nature.

But the way in which Which? has approached this is also personally insulting to the front-line bank staff who do an excellent job serving their customers."

As I have said before, banks are on this earth to make money they are not a charity. Try to stop them making money in one way, and they will find another way to charge you.

Customers would be well advised to help themselves lessen the banks' avenues for charging, by keeping their bank statements for at leastr 6 years.

Read More

FSA Chief Quits

John Tiner, the CEO of the Financial Services Authority (FSA), announced his resignation yesterday.

He will leave in July 2007, having held the post for four years.

Tiner said that he was leaving because he wanted to take up a fresh challenge in the private sector, before thinking about retirement.

He joined the FSA in April 2001 as managing director of the consumer, investment and insurance directorate and was appointed chief executive in 2003.

FSA chairman Callum McCarthy said:

"He has been a leader in developing international regulation through his work in Europe. Within the FSA, he has been invaluable in developing and leading a management structure with discipline and enthusiasm."

Rather bizarrely Tiner will remain an employee of the FSA until January 2008, during which time he will be excluded from any work within the financial services sector or for any UK listed company.

Read More