Revision of UK Banking Code

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Revision of UK Banking Code

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It's not been a good couple of years for the banking sector. What with the backlash against unfair charges, alleged mis-selling of products such as Payment Protection Insurance and more recently the repercussions of what many experts are referring to as "irresponsible lending". High profile casualities such as Northern Rock and Bear Stearns have only served to confirm consumer suspicion and undermine consumer confidence.

In an attempt to repair their tarnished image the UK Banking Code has had a makeover. Although voluntary, most financial institutions are signed up to the Banking Code which sets out standards of good practice for banks and building societies when dealing with customers. It covers areas such as fair and clear advertising of products, a commitment to send customers regular account statements, treating personal data confidentially and clarity of product terms and conditions.

When it comes to unfair fees the banks have promised to stop closing accounts of customers who make a valid complaint - a revenge tactic criticised by the Financial Ombudsman last year. Hundreds of thousands of current account customers have been seeking refunds of charges which make banks an estimated £3 billion a year.

In addition the banks must no longer upgrade a customer from a free account to a fee-paying one without their permission and must give 12 weeks notice of a closure of an account or a branch.

The revised code also includes a new commitment to lend responsibly. This will mean the adoption of stronger credit- checking facilities. Before they approve new loans or credit cards, financial providers should now check whether people can afford to repay them by assessing their income, commitments and credit history. The Banking Code also specifies that the banks must be proactive in contacting and offering help to people facing financial difficulties. In the previous code whilst there was talk of the banks treating people in difficulties "sympathetically and positively" the onus was left on customers to approach their bank not the other way around. That will change.

The new code will mean that banks and building societies will now be more involved and will warn customers who are in danger of running into financial problems, informing them where they can find free independent advice. If people look as if they are sliding into trouble, bank managers must intervene before the problem gets worse.

In addition the banks will be required to give clearer information on their products, including providing consumers with a pre-sale summary box detailing terms and conditions for unsecured loans and savings accounts and to inform customers that they can decline applications for a rise in their credit card limit.

If a customer wants to switch accounts they should now be helped by the bank not hindered and institutions are being asked to provide greater clarity and transparency on cheque clearing time which, in an era of instant electronic transfer, can still take up to five working days.

But consumer groups remain unconvinced. Vera Cottrell, principal policy advisor with the consumer group Which? criticised the new code. "A lot more could have been done to really benefit consumers, such as increasing minimum repayments on credit cards and stopping companies sending unsolicited credit card cheques to their customers."

However the British Bankers' Association said the code, which was drawn up after consultation with the Government and consumer groups, gave "strong commitments" that banks would lend responsibly and help vulnerable customers.

The new pledges: