Co-op under fire over bank charges

The Co-operative Bank, which described itself as ‘ethical’ has come under fire after announcing a change to the way that it charges on unauthorised overdrafts.

According to experts the new charging structure that will come into force next month will not only push people into debt more quickly, but will also affect lower income customers the most. The changes are to take effect next month, and campaigners state that lower income banking customers could really bear the brunt of the changes.

The UK’s financial regulator, the Financial Services Authority, stated earlier this year that banks could temporarily put the brakes on issuing bank charge refunds until the High Court test case had taken place in January 2008. However, experts state that the new Co-operative Bank charges appear to be in violation of the FSA guidelines. This was because banks were told at that time not to make any material changes or raise overdraft fees.

The fee from the Co-operative Bank will still be capped at £100 per month, but under the new structure many customers will clock up a higher fee more quickly, reaching the £100 limit faster than they would have done over the old structure. It is estimated that close to one million customers could fall victim to this new charging structure.

An official from the Consumer Action Group stated: ‘These clever changes will hit those people who are eking out a living day by day and go over their limit just before pay-day. This happens an awful lot for people on benefits and people like young single mums, who run out of money just at the end of the month. If you are in a vulnerable group this will happen every month of your life. These changes are likely to break the camel’s back for them. The Co-op is just throwing this at them because it knows they have no mobility in their accounts and can’t go anywhere else because of their credit rating. This is an insidious charge based on the knowledge that those affected just can’t walk away.’

Tom Smith
7th December 2007

FSA investigation leads to two arrests

An investigation into a so called boiler room operation by the Financial Services Authority has led to two arrests, according to a recent report.

The Financial Services Authority has been investigating claims of illegal share selling, which are known as boiler rooms, and after raids on a number of homes last week two men were arrested. The raids were carried out by the FSA along with police officers.

The two men arrested are thought to be involved with Universal Management Services (UMS), which is said to be a boiler room, which means a front for illegal share selling. It is thought that consumers that have fallen victim to this scam may have lost over £5 million collectively. Although these boiler rooms are usually operated from abroad, which means that the FSA cannot take action, the agency can act on those based and operated in the UK.

Reports claim that consumers were cold called in order to sell them the shares. Victims are talked into purchasing shares that are actually worthless of worth very little. The company responsible is not authorized by the FSA. The investigations started after a number of consumers complained about the pressure put on them by sales people, who then told purchasers to write cheques out to UMS.

Jonathan Phelan, head of retail enforcement at the FSA, stated: “This the first time we have taken this action and it shows that we will not hesitate to use our powers to protect consumers, including launching criminal investigations where appropriate.” As part of the investigation over £5 million worth of assets have been frozen, according to the report. The FSA also pointed out that there are at least four other companies with similar names in the UK but that they are not related to UMS.

Tom Smith
10th November 2007

Interest payments on current accounts to be abolished by First Direct

The Internet banking arm of the HSBC, First Direct, has announced that it will be cutting interest charges on current accounts for customers.

According to officials from the bank the money that is saved from not having to pay interest on current accounts will be used to increase interest rates paid on savings accounts. However, following the mass exodus of customers earlier this year, after the bank announced that some customers would be charged monthly fees of £10, this could be a bad move for the online bank.

First Direct currently has two current accounts in place, and although these accounts do not enjoy the greatest interest rates there is still interest paid on deposits. The cheque account offers an interest rate of just 0.1% on credit balances, whilst the bank account offers 2%. However, in November the two accounts will be merged to create just one standard account known as the 1st Account, and this will pay no interest at all on credit balances.

Officials from First Direct state that customers will be compensated by way of better deals on their savings. An instant access account paying 5.5% will be available, although this is still far lower than the best buy savings accounts offered by other financial institutions, with the highest currently standing at 6.3%. An interest free overdraft facility of £250 will also be available to customers, along with free text banking that could help customers to avoid penalty charges applied when the account goes over its limit.

An official from the bank stated: “A staggering 96 per cent of our customers told us credit interest wasn’t an important factor in choosing to bank with us. We figured it made far more sense to use every single penny we now pay in credit interest to give customers the chance to earn serious interest on higher-interest savings accounts.”

Tom Smith
26th October 2007

Job cuts at the FOS

In a recent report the Financial Ombudsman Service has announced that around a quarter of its workforce will be losing their jobs, as resources are streamlined to fit in with workloads.

Although the Financial Ombudsman Service has been receiving many complaints about bank charges it had been dealing with a high level of complaints relating to mis-sold endowment policies. The number of complaints relating to this issue reach its peak in 2005 but then began to taper off.

It is thought that the workload of the Financial Ombudsman Service will fall significantly in 2005, particularly if banks continue to reduce their overdraft charges, as many have stated they will be doing. Nearly a million complaints relating to endowment policies have been dealt with by the service of the past few years, with around seventy thousand complaints coming in for 2005. However, although more complaints were expected the issue seems to be cooling down.

One FOS spokesperson stated that staff number were being cut in order to align them with demand and workloads, and that it was hoped many of the job cuts would result from voluntary redundancy. The Financial Ombudsman Service is the main point of contact for complaints relating to financial institutions and services. The aim of the Financial Ombudsman Service is to try and resolve disputes between consumers and financial service providers, and award compensation in cases where this is deemed appropriate.

Bosses at the Financial Ombudsman Service will soon be starting consultations with the staff council in order to finalize the details of the job cuts.

Complaints relating to mis-sold endowments have dropped to under thirty thousand for this year, with one official from the FOS stating: “We are not processing the hundreds of thousands of endowment mortgage disputes since 2005.”

Tom Smith
24th October 2007

Benefit from low cost home insurance cover from Sainsbury’s

Supermarket giant Sainsbury’s recently announced changes to its credit cards that meant consumers would be able to enjoy longer interest free periods on purchases in addition to a low life of balance transfer interest rate, as well as other benefits.

The supermarket giant has now announced that it has some good news for homeowners that want to enjoy the peace of mind and security of having comprehensive home insurance cover in place without having to pay over the odds on this type of cover.

Sainsbury’s has announced a special deal that will be available for consumers that wish to purchase both buildings and contents insurance cover as a bundle package. These consumers will be able to get twelve months of cover for the cost of just nine months, saving them 25% on the cost of their premiums right away.

Furthermore, consumers that make the purchase online will be able to save a further 10% on the cost of their cover, which means that some consumers could save a whopping 35% on the cost of their cover for a year.

The offer is open to consumers that take out cover before the 27th November, and could attract many customers who are taking out cover for the first time or are due to renew their cover. As a special bonus consumers that take out this cover before 27th November will also enjoy being in with a chance to earn one million Nectar points. The cover includes protection against accidental damage, and customers are able to pay conveniently and easily by direct debit.

Officials from the company state that although insurance premiums on home and contents cover has risen recently, particularly after the flooding problems that hit the country in June, there are still affordable policies and deals available.

Tom Smith
9th October 2007

Could supermarkets soon take over current accounts market?

There was a time when supermarkets were only used for the purchase of groceries and household goods, but all of this has changed over recent years.

Many leading supermarkets in the UK have really branched out over recent years, and have started offering an array of financial products and services, such as insurance services, loans, and credit cards, amongst others. Many offer savings accounts as well as banking services, providing the consumer with far more choice when it comes to finding the best financial products and services.

A recent survey has revealed just how popular supermarket financial services have become in the UK, indicating that one in every ten consumers has a supermarket savings account, and one in every five shoppers holds a supermarket credit card. The figures show just how much business supermarket giants such as Asda, Tesco, and Sainsbury’s have taken away from the major banks in the UK. Figures also indicate that if supermarkets decide to branch out further they could take away far more business from banks.

According to the results of the survey around half of consumers in the UK would like to see supermarkets branch out and offer more in the way of financial products, as most think that supermarkets can offer far better value and service on such services and products. Current accounts seemed to be of particular interest, and although only one in every two hundred consumers has a supermarket current account at present, if more supermarkets offer this facility they could end up with close to half of the 40 million current accounts in operation in the UK today.

One industry expert stated: “This is a massive unpicked cherry for supermarkets to target. With their low running costs, supermarkets can easily undercut other providers. They are already pinching customers from banks and in time could steal even more.”

Tom Smith
25th September 2007

AIFA responds to government proposals

Recently the government announced its intentions to crackdown when it came to Independent Financial Advisers to ensure that consumers were receiving sounds advice based on their needs rather than on which lender would be the IFA the most money in commission.

The government stated that financial adviser services would become more standardized and that those wishing to operate as independent advisers would have to seek payment for the advice from the customer and not from the lenders that he or she recommends.

The European Commission has also put forward a green paper that recommends a single, standardized European market.

Chris Cummings from the Association of Independent Financial Advisers stated: “The EU should be mindful that the UK retail financial distribution market is unique because the majority of business in retail financial products is arranged through intermediaries. The delivery of this advice, according to Deloitte research, has the potential to improve the wealth of low to medium income earners in the UK from £38bn to £78bn even if only 10% were to optimise fully the advice given.”

He added: “We support the Commission’s views that there must be a rigorous and thorough analysis before introducing any new regulations, which takes into account both the benefits and the cost to firms and consumers, and the impact on the market. There are many reasons why consumers are naturally restricted from using cross border financial services such as language, taxation, social welfare and currency. The Commission must consider these issues before seeking to force standardisation that will not benefit consumers.”

A letter that has been signed by a number of industry professionals has been signed and sent to the commission to urge officials to improve their knowledge of consumer demand before any action is taken on this issue.

Tom Smith
24th July 2007

Consider financial ombudsman over bank charges

In the ongoing disputes relating to bank charges Lloyds TSB recently became the first bank to win a court case against a customer that was trying to reclaim bank charges that had been imposed for exceeding the overdraft limit on the account, and for returned cheques and direct debits.

And is seems that this unprecedented case has started to put some consumers off from trying to reclaim charges from their banks. However, experts advise that there is another route available.

This is Money has advised consumers that if they don’t feel confident about taking their bank to court of reclaiming bank charged they can simply go through the Financial Ombudsman Service. This is a free service, so consumers will have nothing to lose by taking their complaints to the ombudsman. And if, at the end of the day, the consumer does not agree with the financial ombudsman’s decision he or she can still take the case to court.

This is Money also warns that this cannot be done the other way around. So if a consumer takes the bank to court, and the judge rules in favour of the bank, the consumer cannot then take the complaint to the financial ombudsman because the judge’s ruling has to be the final one. So, anyone having trouble getting bank charges back from their bank should consider complaining to the FOS before taking the case to court.

Even banks are now using the Lloyds RSB case to try and make consumers feel as though this is a definitive decision, but this is not the case.

One FOS spokesman stated: ‘We are seeing letters from banks suggesting the Birmingham case is definitive. This is usually happening at local branch level. Often when we raise it at a senior level, head office agrees that the letters are wrong and stop any more going out.’

Tom Smith
10th June 2007