Banking Code change obliges banks to "grant concessions" to people in financial trouble

09 January 2008 / by Verity G
Banks will be obliged to "consider granting concessions on interest fees and charges" to customers that are in financial trouble, under the new Banking Code, to be published in March.

The new code will stipulate that where customers are actually in financial difficulty, they should contact their bank immediately; the bank is then to treat that customer 'sympathetically', and to consider granting concessions.

"This is always to be decided on a case by case basis, but one of the main deciders will be the extent to which the customer is working with the bank to resolve the problem," according to the British Banking Association.

The new code also requires banks to acknowledge that "the customer’s income should only be used to pay off non–priority debts when provision has been made for the priorities, such as household bills," and to contact customers they perceive to be headed for financial trouble. The banks would also be required to contact customers regularly missing scheduled payments in order to resolve the situation early.

But, says the BBA, the new code does not shift responsibility to the banks, "It stands to reason that borrowers will always be ultimately responsible for their debts – it is their responsibility to ensure they borrow no more than they can afford to pay back and to keep the lender fully informed of any change in circumstances which might delay that repayment," it said in a statement.

On announcement of the Code change, Paul Smee, Chief Executive of APACS said: "This new Code will deliver greater certainty and transparency for anyone accepting cheques. Changes to cheque clearing mean increased transparency and that for the first time customers can be sure that six days after paying in a cheque the money is definitely theirs. This is great news for all customers but particularly for small businesses and those who have basic bank accounts."

Perhaps the most controversial revision is the one that required banks to acknowledge that customers will only be expected to pay off debt from credit cards, personal loans and mortgages if they can still afford to pay for "priority" household bills such as heating and electricity.

Citizens Advice has welcomed the changes but have criticised the banks' decision not to end the practice of unsolicited increases in credit limits or credit card cheques. Director of Public Policy, Teresa Perchard, comments:

"We are disappointed that the opportunity has not been taken by the Code reviewer, or the banks, to end the practices of unsolicited increases in credit limits and unsolicited issuing of credit card cheques.

"Such practices do not sit easily, in our view, with the commitment in the Code to lend responsibly and may have contributed to a culture of consumers sleepwalking into higher levels of debt."

Meanwhile, credit reference agency Experian has launched a new service that will alert banks when lenders are at risk of defaulting on repayments and going into arrears.

Triggers for contacting the bank will include two missed credit card payments, exceeding credit limits, or getting a county court judgement. It is hoped that this will prevent customers getting into difficulties and adversely affecting their credit histories while limiting their exposure to identity fraud.

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