Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by The Building Societies Members' Association

  We very much appreciate the opportunity to put forward to you the views of the Building Societies Members' Association for this inquiry.

  The Building Societies Members Association (BSMA) was formed in 1982 following a dispute between members and directors of the Nationwide Building Society concerning information to be made available to members and the undemocratic methods used at AGMs for electing board members and voting on resolutions. This dispute also cause the (then) Chancellor, Sir Geoffrey Howe, to say in May 1982 that if building societies did not reform themselves he would introduce legislation to oblige them to do so.

  Sadly, reform did not take place nor did the legislation and the boards of building societies are even less accountable to their membership now than in 1982. The boards of buildings societies continue to seek ways of reducing any vestige of accountability, whenever possible, contrary to statements given in evidence to the Treasury Committee in July 1999. Voting papers have become more and more artistically undemocratic with the inclusion now of hidden "opt out" tick boxes that permit the chairmen of societies to use members" unused proxy votes to pass resolutions that may not be in the interests of the membership. It s also extremely disappointing to know that these actions are supported by democratically elected MPs on the board of some societies.

  It is our firm belief that bad practices and poor service would be very much reduced, if not eliminated, if building societies were genuinely mutual and management were made accountable to members.

  With regard to banking services, we seek to ensure that societies act in a fair and reasonable manner to all members, both borrowers and savers. We understand that the purpose of this inquiry centres on both the Business Banking Code and the Banking Code. Out interest is with the latter and with its relevance to building society members.

  We wish it to be known that this organisation is not in favour of self-regulation by an industry that boasts mutuality but does not practice it.

  We are currently involved in the review process for the Banking Code following the appointment of an independent Reviewer by the British Bankers' Association (BBA). However, we are concerned that the industry, with no independent board member representation, may be reluctant to accept recommendations from the Code Reviewer where these call for significant changes. We are also concerned that compliance-monitoring procedures are not sufficiently robust and leave much room for improvement.

  We acknowledge that the Banking Code has evolved over a period of time. However, we are concerned about the slow pace of evolution and the painful process experienced by members that only produces marginal rather than significant improvements. This letter is evidence of the discrepancy between the Code in its present form and the basis of standards towards which members aspire.

  Even though the Code is voluntary, our desire would be for a totally fresh approach whereby the Code becomes, in effect, the possession of consumers' (a consumers' charter), and is rephrased accordingly, rather than belonging to the sponsor. We feel that if part of the board of the Banking Code Standards Board (BCSB) and the Code Reviewer can be independent of the BBA, then the same should apply to the Code itself.

  We fully agree with the Julius Group's recommendation that the whole review process and particularly the Reviewer's report should be open to public view prior to any response from any source. We feel that this action would be in keeping with the spirit of openness and transparency that the Julius Group sought to achieve. However, the BBA has announced that it is not accepting this recommendation. This is very much a cause of concern for the outcome of an independent review process.

  We also agree with the views of the Julius Report that there should be a website, public meetings and press advertisements for the review process. These should be organised by the BBA but no actions have taken place to put any of these into effect.

  We have put forward suggestions to the Code Reviewer for improvements to the Code and these include the following:


  Although we would prefer every member to be in possession of a copy of the full Code when an account is opened, we nevertheless support the recommendations of the Review Group for three formats as an economical approach to increasing public awareness, albeit over a period of time. However, it is important that the spirit of the recommendation should also be upheld and the presentation, content and availability of all three should ensure that the correct message is conveyed and properly, indeed eagerly, disseminated.

  The present procedure for obtaining copies of the Code from a branch office needs to be personally experienced to be appreciated. It would not be too much of an exaggeration to say that there is a need for staff at some branches to know the combination of the safe in order to gain access to them.

  The cover of the Code should make it clear that it refers to building societies as well as banks. The cover can be misleading, it does little to encourage awareness of the Code by members of building societies and we note that one of the concerns in the Julius Report was lack of public awareness of the Code. As an alternative we have suggested that there should be a separate code for each section of the industry.

  The word "banking" is not normally associated with building societies in members' minds and our experience has been that many building society members are not aware that the Banking Code refers to building societies.

  The building society industry itself likes the distinction of being different from banks and banking as an industry of mutual societies with its own trade association.

  Where subject matter refers to the Code, press releases from HM Treasury and, understandably, from the BBA, often use the word "banks" where the words "banks and building societies" are applicable. This same misinformation is passed on to the public by the media and adds to the confusion. Typically, press release headings for Julius Report—Julius Report Aims to Give Bank Consumers Better Deal" and "Seven Key Questions About Bank Service".

  We believe that if there really is genuine intent by the industry to promote the Code then efforts could be made quite easily that would go some way towards demonstrating a commitment to increase the public profile of the Code and enhance the information available and we recommend that the following be included in the Guidance:

    —  Copies of the Code should be on display alongside product literature on the customer side of the counter in branch offices. We have found neither lack or space nor lack of display facilities that would give any reason why this should not be an acceptable practice.

    —  Wall posters promoting the Code in branch offices should be of similar size and have similar prominence to those use for product promotion.

    —  Sufficient stocks of the Code should be maintained at branch offices at all times.

    —  References to the Code on product leaflets should not be in the smallest type size as is the case with some societies.

    —  There should be a highlighted hot link from all subscriber websites to the BCSB website for both Code and Guidance.

    —  The Code should contain information on the review process and an invitation for customers to put forward suggestions or comments on the Code. This would provide support to Julius Report Recommendations 4.45 for gathering the views of individual customers.

    —  Where references is made to the Code in product literature it should not be presented as a code of excellence but rather a minimum standard, which the organisation should meet.

    —  Subscribers should provide adequate staff training on the contents of the Code.

  We see none of these suggestions as being particularly demanding or unachievable.


  The present Code permits decreases in interest rates of some types of savings accounts to be backdated by up to one month from the date of notification irrespective of the circumstances that give rise to the change (section 4). This period is in addition to the time lapse between the date on which the decision is taken to change the rate and the date from which the change becomes effective.

  We do not know the basis upon which the period of notice was founded, however, we believe that the use of a period of up to one month delay in giving notice to members is excessive and out of date with present day technology and give rise to abuse. We do not believe there should be any logistical problems, given the technical facilities that are available at banks and building societies, which could cause the need for such a long delay.

  There appears to be no relationship between the size of the customer base of a society and the speed of notification. However, there is a certain consistency where some organisations notify members in advance of the effective date, which is obviously preferable, whereas others consistently notify members on or after the effective date and some work consistently close to the limit of one month. We would like those societies that consistently operate near the limit to learn from those that are able to notify members in advance.

  In our opinion Office of Fair Trading Guidance on Interest Variation Terms OFT 297 should be applied here. Unless circumstances, eg external forces, dictate otherwise and to meet Code key commitment (a), notification should precede rate changes and should apply to branch and non-branch accounts.

  Section 4.4/4.5, as it stands, should only apply to rate changes that are precipitated by external forces and we believe in such cases the period of delay after the effective date should be changed and should not exceed:

    —  For personal notification by post—14 days (total period).

    —  For personal notification by e-mail for internet based accounts—two working days.

    —  For newpapers—two working days.

    —  For branch officers, telephone helplines and websites—one working day.

  We believe that notifications at branches and through newspapers, which depend upon consumers buying the right newspaper on the right day, are of minimal benefit to the majority of building society members. Nevertheless, where postal accounts are available to members outside the area served by local newspapers, notification should be through national dailies. At present some small societies use only local newpapers.

  The reason for a change of interest rate should be made clear in the notification.


  There is a need for the industry to conform to the spirit as well as the letter of the Code and for building Societies this should be fundamental to the principles of mutuality. There would certainly be no desire for a code that has to be produced in legal language simply to obviate loopholes that lawyers are paid to find. Nevertheless we do not accept that Code key commitment (a) is being met in its full sense by management of building societies.

  Clear and better definitions are needed that will end the practice whereby new account issues can be regularly and quickly superseded then become downgraded by means of skilfully drafted terms and conditions. This practice does nothing to enhance the credibility of either the Code or the industry.

  It is essential to ensure clarification, for the benefit of staff, management and customers, on exactly how an account becomes a superseded account. The contents of this section need to be clear and unambiguous and must ensure that it conforms to Code key commitment (a) and to the spirit of a code of good conduct.

  In addition to any terms and conditions that an account may include, we would like to see the inclusion of a clause in the Code applicable to notice accounts, which requires members to be reminded that immediate access to their funds is available for a period, equal to the period of notice of the account, without penalty whenever savings rates are changed adversely out of line with base rate movements. Such an approach would not be uneconomical even for the smallest society.

  Some building societies have accounts that are routinely opened as new accounts every month with headline-grabbing rates, which include a bonus that is effective for a short period and a notice period which may be as much as one third of the bonus period. At the same time the previous edition of the account will be closed.

  Another method is for funds from maturing accounts to be transferred into "special" accounts with extremely low rather than reasonable rates.


  There is a need for the Code to address concerns that have recently been highlighted by considerable publicity in the media through failure to deal fairly with customers concerning TESSA accounts and mortgages.

  We believe that in order to comply with Code key commitment (a) the Guidance should include a provision to ensure that where the Ombudsman adjudicates against a society on a matter that affects all members with similar accounts it should not be the responsibility of every individual member to be aware of the matter and to go through an obstructive complaints procedure in order to force the management to rectify a wrong that would otherwise continue to exist.


  The Julius Group accepted that "naming and shaming" is an effective means of ensuring that business will conform to a voluntary code. However, we feel that "naming and shaming" should mean that what is says and should not mean, what appears to be, "appeasing and pleasing". The work of the BCSB has revealed that many subscribers are not complying with the terms of the Banking Code but the public are left unaware of the culprits and the extent of their non-compliance.

  Adverse publicity for "code breakers" that is readily and widely available, easily understood, and meaningful and permits informed comparisons on the performance of individual institutions is essential in combating non-compliance. We believe this would be more easily achieved if the BCSB were fully independent of the industry.

  We also believe that customers would benefit considerably if the BCSB drew information from and worked closely with consumer organisations and the media and did not rely on subscribers monitoring themselves. We also believe that the Ombudsman should publish more information, based judgements against individual societies.

  As in the promotion of the Code where publicity is used to promote the performance of the compliance process the Code should not be presented as a code of excellence but rather a minimum standard, which the industry should meet.

  We thank you again for being able to put forward our views which we hope are constructive and positive as well as critical. We should be happy to discuss with you, any item herein that you may feel needs clarification.

23 April 2002

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