Banks hold their noses for a new dose of self-discipline

Tighter lending rules could be on the cards as the industry code of practice is reviewed

Your bank is about to look again at the way that it deals with you.

The Banking Code, a voluntary set of rules devised by banks and building societies and governing their conduct towards customers, is up for review.

Held every three years, the review is a chance for the industry to analyse its behaviour and make sure consumers are being dealt with fairly. Last week saw the deadline pass for submissions.

Up to 30 documents were handed in to Mike Young, the code's independent reviewer, formerly of the Bank of England and the British Bankers' Association. Interested parties included the consumer body Which? and the Consumer Credit Counselling Service; the Treasury and Department of Trade and Industry; the Financial Ombudsman Service (FOS); the banks themselves; and even members of the public who take an interest in the way banks run their affairs.

While elements of the banking industry - mortgages, for example - are regulated by the Financial Services Authority, there is much that is covered instead under the Banking Code. It applies to current accounts, savings and deposit accounts, cash individual savings accounts, basic bank accounts for low-income earners, and debit and credit cards.

It includes the following pledge to consumers from the industry: "We will act fairly and reasonably in all our dealings with you by meeting all the commitments and standards in [the code]." This might come as a surprise to any regular reader of this section, in which punitive action by the regulator is frequently reported (see News, page 18).

Under the code, banks that behave badly can be publicly named and shamed by the Banking Code Standards Board. However, parts of the code remain contentious. For example, say the Bank of England raised its base rate by a quarter point but your own bank reacted by putting up the interest on your variable-rate savings account by just 0.2 percentage points. Under the current rules, the bank is not obliged to contact you about this.

The FOS sounds off about this in its submission for the review. Pointing out that in 2005 banks had indicated they hoped to tighten their "notification" rules, it writes: "We have [since] been disappointed to note that no real progress has been made."

One particular concern is found across a number of review submissions: the need for tougher rules to test the creditworthiness of individuals before banks lend to them. The existing code tells consumers: "Before we lend any money or increase our overdraft, or other borrowing, we will assess whether we feel you will be able to repay it."

The FOS points out that other codes - from the Finance and Leasing Association (FLA), for example - are far more stringent. The FLA code says: "We must make sure that all loan applications go through a sound and proper credit assessment."

Given the record billion-pound debt write-offs made by banks last year, the current rule "appears very light indeed", the FOS says.

Mr Young will publish his suggestions for revisions at the end of May, reporting to the three sponsors of the code: the payments body Apacs, the British Bankers' Association and the Building Societies Association.

They must publish their responses, but they don't have to agree with Mr Young's recommendations and can make their own amendments instead. The revised code must be implemented by March 2008.

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before