An independent review of the Banking Code has been undertaken and changes will be made which intend to see customers treated more fairly when it comes to lending, but some say that the changes will not do enough to benefit consumers.
As a result of the updated code, banks will no longer be able to lend as recklessly to vulnerable borrowers who will not be able to meet repayments. It has come as a result of criticism surrounding the credit crisis which points the finger at banks for providing people with huge loans, like those in America which are now causing a huge rise in house repossession.
The Banking Code is sponsored by the BBA, Building Societies Association and the UK payment association APACS, which announced the changes that will take effect from March 2008.
It is hoped that the new code will help prevent customers getting into financial difficulty, offer greater clarity on financial products, prohibit account closure simply because a customer has made a complaint – such as which has occurred when customers have reclaimed supposedly unfair bank charges, strengthen credit assessment to encourage responsible lending, and offer more transparency of information about credit cards and credit card cheques.
Angela Knight, chief executive of the British Bankers' Association said: "The Banking Code is the charter that sets out how customers are treated by their banks and building societies. It is there to ensure that everyone - both customers and financial providers - know what they have to do and where their responsibilities lie.
"These revisions to the Code reflect the need to keep up with a changing world. It will continue to underpin the treatment and protection customers value and have every right to expect."
However, there are those which say that the code has not been sufficiently updated to reflect the needs of the consumer and that it could go further. David Black, principal consultant for banking at financial research company Defaqto, said he would have liked to see more attention paid to the way savings accounts are advertised and that penalties implemented for withdrawals should be made clearer.
"On the positive side they do offer good value for depositors who know they will not need to access their money." he said, but "Other savers, needing to make withdrawals but aiming to minimise their interest penalties, would do well to close such accounts on the day that least interest will be lost, rather than making partial withdrawals. In effect, this would treat these accounts as flexible term accounts with a closure option each month."
Teresa Perchard, Director of Public Policy for the Citizens Advice Bureau, said it is a shame that the review did not "end the practices of unsolicited increases in credit limits and unsolicited issuing of credit card cheques," which "may have contributed to a culture of consumers sleepwalking into higher levels of debt."
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