Independent review of Banking Code

[Nattie]

http://www.bba.org.uk/content/1/c6/0...eview_2007.pdf
This is the review and responses of the subscribers to the Banking Code which will be brought into the arena on March 3rd 2008. The Daily Mail has stated that the banks have largely ignored his recommendations. I am not sure that I would agree with that argument. Certain aspects of the review are crossing various lines which cross over with the CCA 2006.

[Nattie]

Re: Independent review of Banking Code

Page 12 point 15 on debt collection data is certainly interesting to read.

[argentarius]

Re: Independent review of Banking Code

I hadn't looked at the new banking code, or the independent review document, until today.

There certainly are some interesting points.

I've used the term "banks" throughout for ease, not because it only affects banks. The Code uses "subscribers" which is IMHO confusing.

Credit Assessment

The independent reviewer suggested that, as well as using Credit Reference Agency (CRA) data, banks should use at least two other methods including (inter alia) any security provided, and the purpose of the loan.

The banks, IMHO, rightly said that this was a bit weak and that those reliance on those two options (without any others) wasn't adequate as it didn't assess ability to pay. So far so good. But then the banks have instead adopted a requirement to use CRA plus at least one of a set of options including "how the customer has handled existing accounts".

That's ridiculous. That isn't a meaningful measure of ability to pay.

That means that someone who constantly "robs Peter to pay Paul", rolling debts over from one bank to another, but is good at it, will not have a problem getting more debt, even if they don't earn anything at all.

Settling other debts

The independent reviewer suggested that the Code should require banks to ensure that consolidation loan proceeds are used to settle debts, rather than (presumably) spent elsewhere.

The Banks claimed this was too hard and hence didn't implement the recommendation.

Again, I don't think that's a convincing argument. How hard is it for them to ask what debts the consolidation loan is to settle, and then to pay the money direct to the other institutions involved?

Age of credit applicants

The independent reviewer suggested it was wrong to discriminate against credit applicants on the grounds of age.

The banks disagreed, and so do I. It's ridiculous, for example, to grant a 40-year mortgage to someone who is 95 years old. It used to be common practice for lenders to refuse mortgages which would go past normal retirement age, and I don't think that was a bad principle. Obviously there are specialist products for the elderly, but it is not unreasonable for "standard" products to be restricted on an age-related basis.

Savings account introductory bonus rates

The independent review suggested that banks should notify customers a few weeks before bonus rates expire. The banks disagreed on cost/benefit grounds.

I agree with the banks, although for a different reason. Cost/benefit is fairly spurious. More important is the fact that pricing of savings accounts is based on a proportion of borrowers not moving their money out when the bonus expires. If the recommendation were implemented, the proportion of customers leaving their money in the accounts would decline, and therefore banks would be less able to fund high rates during the bonus period.

The recommendation would simply level out bank account interest rates - making them lower for those who are prepared to keep an eye on the rate they are receiving, and higher for those who are too lazy to bother. I don't see any merit in favouring the lazy in this way.

Credit Card direct debit payment

The independent review suggested that direct debit should be referred to in the up-front information, as a means of ensuring payment on time. The banks agreed.

I think this was a feeble recommendation. He should have recommended that banks be required to enable customers to set up direct debit agreements at the time of account opening, as this is the best way to avoid late payment charges. Many banks don't allow customers to set up direct debit arrangements until after the card has been issued, meaning there is a significant chance of the first payment being accidentally missed.

Glossary: 'Online' debit cards vs 'full' debit cards

This was a sensible recommendation from the independent reviewer, as this issue seems to cause a lot of customer confusion and annoyance. The banks' response on this was rather vague, but the intention seems to be there to do something.

Risk-based pricing - credit referencing footprints

The independent reviewer suggested that differentiation should be made between customers seeking quotations and customers actually applying for credit, presumably because people who are more marginal may seek quotations from many credit providers and this makes their credit history appear worse than it actually is.

The banks fobbed this one off. I am not surprised. I can see where the independent reviewer is coming from, but his thinking is flawed. Applying for a "quotation" for a risk-based product is, effectively, applying for a loan as the customer would almost invariably accept if they were accepted at the typical rate.

The fact that one lender has been asked for a quote, and has applied a risk-increased price, and the customer has consequently rejected the offer, is useful and relevant underwriting information for another lender.

The idea that showing such "quotation" searches differently to other searches would make any difference, is what I think is flawed. Lenders currently draw their own conclusions from credit searches which are not taken up and this wouldn't change.

Cheques written to financial institutions

The banks themselves proposed changing the Code to specify the new requirements (implemented in 2006) for cheques written to financial institutions, and to state that cheques not written in compliance with these requirements may not be cleared.

This is a good change. As things stand, whilst cheques should be written with details of the account holder (as well as the institution) on them, if they are not correctly written the fraud risk remains as it originally was.

There was a complaint letter published in the Telegraph about this a few months ago. The complainant couldn't understand that posting a cheque made out to "Halifax plc" (or whichever bank it was) could be misappropriated and thought it was Halifax's fault.

It will be a lot more transparent if the clearing bank involved would simply refuse to clear a cheque made out to "Halifax plc", or to verify the appropriate destination of the funds before doing so (although I imagine that would be fairly impractical).


All in all, I think that most of the changes proposed were sensible, and the banks have been reasonable in implementing the sensible changes. Where the changes were a bit doubtful, they've been rejected (and rightly so). There are a few things I would have changed which the reviewer didn't propose, or which the banks have fobbed off, but not that many.

I think the Mail's comments were completely wrong - suggesting that the recommendations have largely been ignored is untrue.

[Nattie]

Re: Independent review of Banking Code

argentarius, I am gonna pick up on points you make as I read this so this post will be edited by me until I have gone through it.
I agree with you on the term subscribers because it is a vague term to use rather than naming those institutions that subscribe or maybe in this day and age giving a web address for subscribers to the banking code.
I am done

[argentarius]

Re: Independent review of Banking Code

LOL, Nattie. You sounded like you were going to make lots of points, and then you fizzled out.

I hope that's because you agree with most of what I say.

I just thought the word "subscribers" was a bit poncy and preferred to simplify it to "banks" when I was typing it lots of times.

[Nattie]

Re: Independent review of Banking Code

Ok, you are right and I was going to do this but I literally fizzled out but I will return to this soon.

[argentarius]

Re: Independent review of Banking Code

It was good to review it and express my opinion ... I'd love to hear what others think too.