New banking code seeks greater consumer protection

New banking code seeks greater consumer protection

The latest version of the voluntary code states that banks must proactively contact customers they think may be heading towards problems, based on the information they hold on them.

Previously, although this often happened in practice, the code puts the onus on customers to make contact with their account provider if they start to experience difficulties.

The code, which covers savings and current accounts and borrowing, except mortgages, still encourages people to talk to their bank about any difficulties.

In it, banks pledge to do all they can to help them, including assisting them in developing a plan to deal with their financial problems.

The updated code also contains a commitment to responsible lending, under which banks must assess whether people will be able to repay their debt before they are advanced new loans or have their credit limit increased.

Banks will also have to look at people's credit references when assessing all applications for credit, and must take into account a consumer's income and financial commitments, their previous financial behaviour or internal credit scoring techniques.

Banks must also make sure consumers know how they can decline an increase in the credit limit on their credit card, and give them more information on credit card cheques,.....continued below

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Code of commitments

Angela Knight, chief executive of the British Bankers' Association, said: "This new banking code gives strong commitments that banks will lend responsibly and will help customers who may be heading towards financial difficulties.

"The long consultation process, now complete, has shown clearly what customers want and expect from their banks. That has been the driver for these changes."

The code also sets out that banks must:• provide clearer information about products including, from October 1, presale summary boxes for unsecured loans and savings accounts• tell consumers how to find a lost account • give greater clarity of cheque clearance times• provide clearer information about credit cards and credit card cheques

The code also prohibits banks from closing a customer's current or savings account simply because they have made a complaint.

This issue recently came to the fore after the first wave of complaints about unauthorised overdraft charges when a number of account providers, including Nationwide, tried to close the current accounts of people who attempted to get refunds.

Banks are also prohibited from upgrading a customer from a free account to a fee-paying one without their permission, and they must give at least 12 weeks' notice before they close or move a branch.

The banking code is reviewed every three years and the latest revisions follow consultations with consumer groups, the Treasury, the Financial Services Authority and the Office of Fair Trading.

But consumer group Which? said it was a missed opportunity, and more could have been done to protect consumers at a time when many people were struggling with their finances.