Banking giant hit in the profits: Better customer service to follow

July 29th, 2011

The banking giant Santander has set aside 620m euros (£548m) to cover the costs of mis-selling payment protection insurance (PPI) in the UK. The Spanish bank is the latest to outline the one-off amount to cover the cost of compensation for mis-selling the loan insurance.

Lloyds Banking Group set aside £3.2bn to cover the cost of this compensation, followed by Barclays (£1bn), RBS (£850m) and HSBC (£269m).

The move hit Santander’s profits. The UK arm of the bank, which includes the Abbey, Alliance and Leicester and Bradford and Bingley brands, saw pre-tax profits dip 3% to £1.2bn in the six months to June.

The parent company Banco Santander reported a first-half net profit of 3.5 billion euros, down 21%.

PPI is supposed to cover loan repayments if someone becomes ill or loses their job, but it has emerged that many of the policies sold by the banks were mis-sold. This blog has been following the consumer campaign with great interest.

In April, the banking industry lost its High Court challenge to new rules on the sale of PPI. Among other things, the rules require sellers of PPI polices to review all their past sales to see if their customers have a claim for mis-selling, whether or not they have actually complained.

While the legal case was going on the banks put on hold tens of thousands of fresh PPI complaints that came in.

Santander was second, behind Barclays, in the list of most complained-about financial institutions during the second half of 2010. The data, compiled by the City watchdog – the Financial Services Authority, was driven, in part, by PPI complaints.

The Santander chief executive said the bank had taken ‘significant steps’ to improve customer service. Earlier in July, Santander said it had brought its call centres back to the UK from India following complaints.

Unless you happen to be a shareholder in the Santander banking group this is excellent news. Hitting banks in the profits is the best and possibly only way to influence their actions. If their dodgy practices and lack of concern for their own customers starts to cost them money then they will quickly change their ways.

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UK Credit card spending restrained

July 23rd, 2011

The British Retail Consortium (BRC), which represents 90% of the UK’s shops and shopkeepers, this week said that credit card use fell last year as people turned to cash and debit cards to avoid borrowing.

The figures show that the number of transactions involving credit cards dropped 12.9%. The number of transactions involving cash also fell, although the average amount spent rose by 13% to £12.93. Debit card use jumped by 15.8%.

The BRC criticised the level of bank charges associated with credit cards, pointing out they are the most expensive payments they have to process.

On average in 2010, each retailer paid 1.7p per cash transaction to have the money transported and banked. The BRC said that the average charge for processing a credit card payment was 37.1p, compared with a debit card average of 9.2p.

Credit cards were used in just 10% of all transaction, but accounted to more than 44% of processing costs.

The BRC added that cash was the quickest way to pay. Using physical money took an average of 27.2 seconds, it said, compared with an average 39.4 seconds for a card payment.

The BRC’s annual Cost of Payment Collection Survey includes results from nearly eight billion transactions in store and online, 60% of the UK’s annual retail sales.

Retailers reported fraud losses had fallen by 37% compared with 2009 after investment in technology, such as the latest secure card readers, new levels of internet security and note checkers at tills.

The general trend with consumer spending is that hard-pressed customers are switching to cash and debit cards for the reassurance that they can’t spend what they haven’t got. This is why the use of credit cards has dropped sharply and cash still remains king, used for more than half of all retail payments.

It remains to be seen if this trend continues as the economy continues, but for now it seems that people are taking a much more sensible approach to their spending and levels of debt. Let’s just hope that these habits stick this time.

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OFT moves to tackle credit scams

July 17th, 2011

The Office of Fair Trading (OFT) this week announced plans to tackle dishonest credit brokers that demand upfront fees for loans they have no intention of arranging. Firms found engaging in the scam practice will be closed down for the protection of consumers.

The measure is part of a general crackdown by the regulator following a complaint from Citizens’ Advice that said some unscrupulous firms were cold-calling thousands of potential borrowers and offering loans in return for hefty fees.

Evidence suggests some businesses are deliberately taking people’s money upfront with no realistic expectation of finding them the type of loan they need. To combat this, the OFT is making it mandatory for fees to be refunded if a loan is not agreed.

The OFT is going to ask the government to consider changing the law to ban outright the practice of credit brokers demanding upfront fees in exchange for arranging loans.

Citizens’ Advice had complained, in a so-called “super complaint”, that many people had received a text message or telephone call from these firms offering to find them an unsecured loan. Those who accepted were then charged the fees for little or no service in return.

The OFT estimates that 270,000 people had paid upfront fees to credit brokers in the past year, with complaints about them doubling between 2008 and 2010, an upfront fee of £70 was not uncommon, but the organisation had come across charges of up to £300.

The firms in question typically specialised in arranging unsecured loans for people who found it hard to borrow money because of their low incomes or past problems repaying debts.

Some victims, Citizens’ Advice said, had been persuaded to hand over their bank details and later found that money had been taken from their account without their permission. Victims struggled to get somebody to deal with the issue, and were charged a premium rate when calling to complain.

In parallel, the OFT will bring in new rules later this month for debt management firms to stop them making misleading claims in adverts, charging expensive fees upfront, giving poor advice or posing as charities.

As well as threatening to close down rogue credit brokers, the OFT is consulting on changes to its own rules to make it clear that borrowers already have a right in law for their fees to be refunded if the credit broker fails to introduce them to a potential lender and, if an introduction is made but a loan is not granted within six months, the fee must still be repaid.

The consumer minister Edward Davey welcomed the OFT’s proposed changes and has promised legislative action if required to back up the consumer protection initiative. Analysts have welcomed the moves as important steps to protect vulnerable consumers but pointed out that it will require continued vigilance as new loop holes will always be found by criminals and unscrupulous brokers.

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