New onus on banks to help customers escape the debt trap

A new version of the UK Banking Code came into force last Monday. The revamped set of standards of good practice, which is voluntary, puts a greater onus on banks to act constructively when their customers fall into debt.

Banks and building societies signing up to the code are meant to try their best to offer advice to those whom they believe are having problems repaying personal loans and mortgages.

The new guidelines are particularly timely, following predictions from the Council of Mortgage Lenders that the number of homeowners having their properties repossessed could rise by 50 per cent during 2008.

In addition, the code contains a requirement for signatories to lend responsibly. Lenders must make greater efforts to assess borrowers' ability to repay their debts before handing out new loans and mortgages.

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

Customers are also to be given more accurate information by banks on the time it will take for their cheques to clear. Consumer groups have long claimed that banks are profiteering by failing to do this quickly enough.