The Stench of Corruption and Greed Overwhelms Britain's Financial Services Industry

Britain's tarnished financial services industry and banking sector seems intent on bringing about its own self destruction. Over the years there has been a litany of scandals eg:

- endowment mis-selling
- subprime mortgages
- PPI mis-selling
- LIBOR fraud
- NatWest computer meltdown
- Northern Rock, RBS etc etc to name but a few

However, it seems that the industry is determined to add to its list of self inflicted shame and dishonour. Step forward the usual suspects ie; Barclays (a familiar name), HSBC, Lloyds and RBS which have all admitted to mis-selling interest rate hedges to small and medium sized business customers.

Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have all agreed to immediately halt the sale of complex interest rate hedges to smaller businesses and have pledged to compensate potentially thousands of customers who have been screwed by them.

According to the Telegraph the FSA is of the view that about 28,000 businesses had been sold interest rate hedges.

Another nail in the coffin of the tarnished reputation of the UK's financial services industry.

The financial services industry is now fully immersed in its own self created shit, and quite clearly is on the verge of implosion.

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Ripping Off The Over Fifties

The Times reports that building societies are ripping off the over fifties wrt interest rates offered on ISA accounts.

As from yesterday anyone over 50 will be able to invest an extra £1,500 into their cash Isas, as their allowance will rise from £3,600 to £5,100.

However, "institutions have launched a wealth of accounts to attract older savers' cash — but some are offering poorer rates than their 'mainstream' deals".

Fair comment.

However, as we know, the financial services industry does not discriminate when it comes to ripping people off. The British consumer has been, and continues to be, ripped off by the financial services industry viz:

- bank charges
- PPI
- endowment mortgages
- interest rates
- mortgage charges etc etc

In the eyes of the financial services industry we are all "prostrate cows" ready for slaughter.

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The Banking Rip Off

As I have noted before, the financial services industry in the UK has an unfailing knack for digging itself deeper into its own shit.

Not content with foisting endowment mortgages, PPI, excess credit card rates, bank charges and other insults on its hapless customers it now seeks to milk them further by "imaginative" and outrageous profiteering charges on mortgage arrears.

Many thousands of homebuyers, many of whom are unemployed, face profiteering penalty charges on top of their regular monthly mortgage repayments.

The Council of Mortgage Lenders (CML) report that the number of mortgages in arrears by three months or more has reached 270,400 (compared with 152,700 at the end of the second quarter of 2008).

Moneysupermarket.com report that Lloyds Group is charging £206 for repayments three months or more in arrears.

GMAC and Abbey charge penalties of £50 and £40, respectively, when the borrower is only one month in arrears.

Halifax charges £35 for every call/letter wrt mortgage arrears, and then has the barefaced cheek to charge £100 for debt advice.

The FSA has a Code of Conduct that requires that lenders treat customers fairly sympathetically.

Evidently the banks haven't read that code, or simply do not care about it.

The Treasury Select Committee is not impressed with either the banks, or the hapless and hopeless FSA. It has attacked the FSA for sitting on its hands.

Britain's financial services industry is rotten to its core.

Until the FSA is expunged from history, and replaced with a more pro active assertive regulatory body, the hapless British consumer can only expect more of the same and continue to be ripped off.

Those who currently are enjoying the fruits of their profiteering should bear in mind the wise adage:

"What goes around, comes around".

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Dead Man Walking

The Tories have promised to abolish the hapless and hopeless Financial Services Authority (FSA) when, as seems likely, they win the next election.

The FSA was set up by Gordon Brown in 1997, as part of his much derided and failed tripartite regulatory scheme. It has had many "triumphs" since inception, eg:

- standing up for the life assurance industry against the hapless consumers who were conned into buying worthless endowment mortgages

- allowing the board of Northern Rock to destroy the company

- allowing RBS to come to edge of ruin

- allowing banks and credit card companies to charge extortionate rates of interest

- allowing banks, credit card companies and loan companies to sell ineffective and over priced PPI

- standing by as the banks operated the world's largest Ponzi scheme (bundling and selling worthless debt in a frenzy of greed)

- allowing the banks and mortgage companies to push Britain into an unsupportable level of consumer debt

More generally asleep at the wheel, and lacking any real pro active energy, the FSA will not be missed by the consumer; but may well be by its paymasters in the financial services industry (whom the FSA stood up for on numerous occasions).

Responsibility for regulation of the financial markets will be given to the Bank of England, and a new consumer protection agency will be created with the necessary "clout" to make sure the public were treated fairly.

Not before time!

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FSA Tries To Pull Its Head From The Sand

Our ever "vigilant, pro active and respected" Financial Services Authority (FSA) has attempted to pull its head out of the sand and has proposed that financial advisers should no longer receive commission from selling investments, pensions and insurance products.

Doubtless this will come as welcome news to the millions of hapless endowment policy holders who were mis-sold these useless products in the 80's by commission hungry salesmen!

The FSA said:

"We propose to ban product providers from offering amounts of commission to secure sales from adviser firms and, in turn, to ban adviser firms from recommending products that automatically pay commission."

This being the FSA, even if the rule changes are implemented, they won't come into effect until 2012.

Given that millions of consumers (aside from the endowment holders) were also wrongly advised to opt out of occupational pension schemes, and were conned into buying precipice bonds and split-capital investment trusts, one wonders why it took the FSA so long to pull its head out of the sand and act.

Asleep at the wheel as ever!

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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).

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Banks Mislead Customers

As I have noted before on this site, Britain's financial services industry has treated (and continues to treat) its customers with absolute contempt.

The reputation of the financial services industry continues to plummet; endowment mi-selling, PPI, excess bank and credit chargres, high risk lending to the vulnerable, excess bonuses etc have all been nails in the coffin of its reputation.

Founded on the twin pillars of greed and arrogance the financial services industry, despite almost being destroyed by the current self inflicted recession, continues to fleece its hapless customers.

An inquiry by the Banking Code Standards Board (BCSB) noted that over 50% of bank and building society staff were feeding customers misleading information about when funds would be available for withdrawal, and when interest would start to be earned on cheques.

In other words, customers are being lied to.

When will the financial services industry be held accountable for its appalling behaviour and treatment of its customers?

Never, as long as the FSA has anything to do with it!

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The PPI Rip Off

The financial services industry doesn't seem to yet get the point that its reputation is in tatters; not just because of the recession brought about by the greed and stupidity of the banks, but because of a number of issues over the years that impugn its integrity and honesty eg endowment misselling, payment protection insurance (PPI), bank charges, debt collection, credit agreements etc.

Not content with having already severely tarnished its reputation wrt PPI, the insurance industry is seeking to further gouge its own self inflicted wounds by increasing the cost of PPI policies and reducing the actual cover provided.

The Times reports that millions are facing a 50% rise in the cost of PPI cover. Indeed the cost of some PPI policies has already increased by 170% over the last year. The Post Office has written to its PPI customers warning them that it plans to cut the maximum payment in the event of redundancy, and double the cost of some premiums.

Those who clamour for greater regulation of the financial services industry should remain calm, the addiction of those in the industry to destroying their own reputations will ensure that there will be very little remaining of the UK's financial services industry to regulate in ten years time.

By then people will have finally woken up to the fact that they have been ripped off on a continual basis, and will simply resort to putting their money under their mattresses as their grandparents used to do.

The financial services industry will be the author of its own downfall.

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FSA Asleep At The Wheel - As Per Usual

Yet again Britain's hapless Financial Services Authority (FSA) has been found to be asleep at the wheel.

It transpires that way back in 2005, the FSA was warned by Tony Shearer (CEO of Singer & Friedlander Group) not to give the go-ahead for the Icelandic bank Kaupthing's acquisition of Singer & Friedlander.

For why?

In Shearer's view the management of Kaupthing were not "fit and proper" to control a British bank.

Mr Shearer will repeat these allegations to the Treasury Select Committee tomorrow, and tell the committee that the FSA rushed through the approval of the change of control.

Kaupthing recently hit the headlines when it was nationalised by the Icelandic Government, after the UK Treasury seized Kaupthing Singer & Friedlander to protect the interests of depositors and taxpayers.

The FSA deny Mr Shearer's version of events. They are quoted in The Times:

"In such circumstances the FSA always conducts checks and only approves the change [of control] if we are satisfied our requirements will be met. In this instance, we do not believe the statement made to the Treasury Select Committee represents an accurate summary of the events."

The trouble is this is but one of a long list of instances whereby the FSA has been found to be asleep at the wheel (eg Northern Rock, endowment compensation, PPI, bank charges etc)

The FSA:

- Hopeless
- Hapless
- Useless
- Toothless

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London's Reputation Tarnished

London's reputation as the world's leading financial centre was further tarnished yesterday when the London Stock Exchange suffered its worst systems failure in eight years, forcing it to suspend trading for seven hours.

To add to the woes of those trying to trade yesterday the crash happened on what would have been one of the busiest days of the year, hot on the heels of the news over the weekend that Fannie Mae and Freddie Mac had been bailed out.

A cynic might argue that the system was deliberately shut down, so as to avoid a massive spike in bank shares occurring.

Reuters quoted one trader as saying:

"We have the biggest takeover in the history of the known world ... and then we can't trade. It's terrible."

Another said:

"This halt today clearly has once again damaged (the LSE's) reputation as a leading exchange, especially on a day like today, highlighting that it may have been unable to handle the volumes this morning."

The LSE have not given an explanation for the crash, traders though are demanding an explanation.

LSE Chief Executive Clara Furse wrote to the FT on Monday, somewhat ironically, and said that the system used by the LSE was "the cutting edge".

This is just one of a string of issues that has tarnished the City's reputation. Other include; the endowment scandal, fat cat bonuses for failed executives, Northern Rock, excess bank and credit card charges, the mortgage drought, mis-selling of mortgages, PPI mis-selling etc.

The great and the good of the City should bear in mind that reputations are hard to earn, but easy to lose.

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The PPI Scandal

The British financial services industry seems to have a death wish as far as it reputation with the consumer is concerned. Not content with foisting underperforming and useless endowment products on the unsuspecting public in the 1980's, it managed in more recent years to do the very same thing with PPI (Payment Protection Insurance) products.

The payback from this wanton mis-selling is now coming back to bite them.

Brunel Franklin, a claims specialist, has written to the Financial Services Authority (FSA) highlighting a number of serious problems in the PPI mis-selling sector, including what it believes is a deliberate statistical manipulation of the mis-selling figures by the PPI vendors.

According toe Brunel Franklin, Lloyds TSB and Welcome are some of the worst offenders and are offering gestures of goodwill across the board.

Anthony M. Sultan, managing director of Brunel Franklin said:

"We believe that vendors are using gestures of goodwill to mask the true scale of PPI mis-selling from the regulator. If the significant percentage of complaints are being dealt with as gestures of goodwill, how do we know that these are being declared to the FSA as complaints and showing up as incidences of mis-selling?

Lloyds TSB are pretending that there has been no mis-sale and no formal complaint, and are hoping to sweep thousands of complaints under the carpet under the guise of gestures of goodwill.

Our suspicion is that they are not being declared to the regulator and never appear in any FSA statistics on PPI mis-selling.

This mis-selling crisis may be bigger than endowment mis-selling in terms of the numbers of people affected and the total amount of compensation due, so it is perhaps not surprising that the vendors want to play it down in the hope that it will go away.

It will not go away and we are determined to get people the compensation they are entitled to."

As if endowments and PPI were not enough, the financial services industry also has "blood on its hands" wrt extortionate bank and credit card charges, credit refusals for people with good credit ratings, excess bonus payments to underperforming directors, excess management fees for underperforming investment funds and the destruction of Northern Rock.

Hardly a "stellar" performance so far!

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The FSA's Light Touch

The BBC's Panorama programme last night exposed the precarious foundations of Britain's housing price bubble and credit boom, as it highlighted a number of "criminally" negligent cases of mortgages being provided to people who had no hope of ever affording them.

One such case being that of Emmanuel Blango, a psychiatric nurse who earns around £25K per annum. He was awarded a a sub-prime mortgage from the Alliance and Leicester for £300K, and another mortgage for £200K from Platform which is part of the Britannia Building Society.

Unsurprisingly Mr Blango is having trouble paying the interest, and has had his second flat repossessed.

Panorama noted that around 70% of the 7000 repossessions over the last 3 months are down to sub prime lending.

The reasons for this boom in "risky" (for want of a better word) lending are as follows:

• The commissions earned by the mortgage salesmen, who target the financially naive, are distorting their "ethical" principles when they advise their clients.



• The lax checks performed by banks and building societies on mortgage applications.



• The bundling of the debt by City institutions for immediate resale, thus paying off the first lender and eliminating the original lender's risk.



• The light touch of the FSA in regulating the market and enforcing its rules.

The extent of sub prime mis-selling is reminiscent of the endowment scandal of the 1980's.

It is regrettable that despite the lessons that the FSA should have learned over the endowment mis-selling scandal, it appears not to have taken them on board in its regulation of the sub prime mortgage market.

The UK faces the very real threat of a housing price collapse, and economic chaos, as the number of defaulting sub prime mortgages increases.

Why has the FSA allowed this to happen?

Clearly the FSA, in its current form, is not fit for purpose.

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The Banana Republic of Great Britain

Richard Lambert the Director General of the CBI put the boot into Britain's financial services industry yesterday, by likening the regulatory system's failure in its handling of the crisis at Northern Rock as akin to something from a "banana republic."

Quote:

"Outside the movies, a run on the bank is something that happens in a banana republic.

That one should have happened, under our noses, in a mature and prosperous country like the UK, is almost unimaginable."

He poured scorn on the tripartite system, whereby financial regulation is split between the Treasury, Bank of England and the Financial Services Authority, saying that it had "failed to deliver the goods" and needed to change.

Adding that the Bank of England's lender of last resort facility should be reassessed, and rules governing how deposits are protected must also be overhauled.

Quote:

"No institution will ever go down that route again if it remains unchanged. What happened to Northern Rock is just too grim a precedent."

It all comes down to confidence in the system, regrettably as a result of numerous scandals (endowments, pensions, bank charges, over zealous lending etc) people in Britain have totally lost in the financial services industry.

It will take more than a revamp of the tripartite system to restore that confidence.

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Northern Rock

Monday morning is proving to be a "grey day" for shareholders in Northern Rock, as they saw the share price plunge by 29% in early trading to 311 pence.

Friday saw the price fall by 31%, as the Bank of England agreed an emergency lending facility for Northern Rock.

Whilst it is clearly bad news for shareholders and those wishing to take a mortgage out with Northern Rock, the fall in shareprice and liquidity issue should not worry savers with money sitting in Northern Rock accounts.

The fact that the Bank of England has agreed to cover Northern Rock's liquidity means that savers will not lose their money.

The reality will be as follows:

1 Northern Rock will be taken over at a bargain basement price

2 The mortgage market, and hence housing market, will be adversely impacted.

That being said, people are still queuing to withdraw their savings from Northern Rock, why?

1 The herd instinct of fear

2 The sadly British lack of understanding of how the financial markets work

3 A complete lack of trust in the financial services industry.

The blame for the latter can be laid fairly and squarely at the door of the financial services industry, which has foisted on the hapless British public a plague of disasters including:

-The endowment crisis
-The pensions crisis
-Excess bank charges
-Irresponsible lending
-Conspicuous greed (eg mind boggling bonus payments to senior bank executives)
-Offshore call centres
-Impersonal banking etc

Who can blame the public for no longer trusting the financial services industry?

The financial services industry will now have to work very hard indeed to regain the public's trust, I wonder if they have realise quite how hard they will have to work and whether they will ever regain the public's trust?

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FSA To Warn on Sub Prime Market

The Financial Services Authority (FSA) will this week issue a warning about the UK's subprime mortgage market, which lends to people with poor credit records.

The FSA will criticise both lenders and brokers, when it publishes the results of its investigation into the mortgage market.

The FSA has reportedly found poor record-keeping at some brokers, showing that they are unable to demonstrate that they sold customers mortgages that were suitable for them (echoes of the endowment mortgage scandal, don't these people ever learn?).

The FSA's report comes amid the continuing collapse in the US subprime market, partly due to a sharp rise in borrowing costs in the past three years.

Another nail in the coffin of the tarnished reputation of the UK's financial services industry.

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Mortgage Effectiveness Review

The Financial Services Authority (FSA) is to up the ante on its investigation into the UK mortgage market, with a new focus on those consumers considered most at risk from mis-selling.

This will be the second stage of the FSA's Mortgage Effectiveness Review, and will focus specifically on sub-prime lending and lifetime mortgages.

This shift in emphasis comes at a time when there is increasing concern that lenders are engaging in irresponsible lending to consumers, who might not be able to afford repayments if circumstances change.

These doubtless would be the same lenders who gorged themselves during the endowment mortgage heyday in the 1980's.

Vernon Everitt, the FSA's director of retail themes, said:

"Although there are signs that the UK housing market is coming off the boil, the question is, to what extent are consumers prepared for the consequences of a weaker economic environment?

With recent base rate rises, the ratio of payments to income is creeping up and many fixed-rate deals are coming to an end, potentially increasing the vulnerability of both borrowers and lenders.

So given this climate, all the players in this market clearly need to think through their decisions very carefully indeed. We are, as you would expect, taking these issues seriously and have made debt and affordability one of our priorities.

Initially we are looking at this in respect of more vulnerable groups: the sub-prime market, interest-only mortgages and those taking a mortgage into retirement.

We want to make sure that consumers are not being offered sub-prime rates when they could be eligible for much better prime rates."

In other words, the level of consumer debt, and the rise in the housing market, make some people desperate and vulnerable to the actions of less than scrupulous lenders.

The question is, what does the FSA intend to do once it has completed its review?

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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".

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Money For Old Rope

Much like sharks, when they detect blood in the water, some claim recovery firms are quick to rush in when they see an easy way to make money.

Such seems to be the case with some firms, who have been handling claims for endowment mis-selling, who are now entering the market to help people recover excess bank charges.

Needless to say, they don't provide their services for free and expect a cut of around 25% of monies recovered.

The question that the man in the street ought to be asking himself is this:

"Why do I need to pay for a service that I can do myself?"

Read more about the issue here FT.

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Mortgage Exit Fees

The hapless home owners, screwed by the endowment mortgage scandal and high mortgage exit fees, may be forgiven for thinking that the banks and loan companies merely regard them as a cash cow to be slaughtered for their personal consumption.

However, after some considerable pressure from the Financial Services Authority (FSA), there may at least be a some respite for those home owners who have suffered from unreasonably high mortgage exit fees.

In January, the FSA told lenders that they would need to justify raising mortgage "exit" fees.

The FSA said if they could not do so by 28 February, then they would have to agree to charge no fee at all, or keep with their original fee.

It seems that has produced a positive result. Robin Gordon-Walker, an FSA spokesman, said:

"Certainly the impression we are getting as we go through the responses is that most lenders have gone for the original mortgage exit administration fee option."

Many of the fees charged by lenders have doubled to between £200 and £300.

People who have paid the raised charges will now be able to go back to their former lenders, and ask for some of their money back.

Ray Boulger, from John Charcol, told the BBC:

"Around 10 million mortgages have been redeemed in the last four years.

But the number of people who claim compensation will no doubt be largely influenced by the amount of media coverage this topic receives.

However, I would estimate that the total compensation payable will be at least £50m and probably in the region of £100m."

However, before people start popping champagne corks, remember that the banks and lenders will find other ways to part you from your cash.

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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.

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