Memorandum submitted by APACS: The Banking
Code
INTRODUCTION
The Banking Code is a voluntary code which sets
standards of good practice, giving rights to customers over and
above what the law provides and enabling customers to understand
what they can expect in their day-to-day dealings with financial
institutions. The first Code was published in 1991 and has been
regularly updated to cater for the changing financial services
environment. The Code is sponsored by three financial services
associations, APACS, the UK payments association, The British
Bankers' Association (BBA) and The Building Societies Association
(BSA). The Code is independently monitored and enforced by The
Banking Code Standards Board. John McFall MP, Chairman of the
Treasury Select Committee, attended a lunch at the Board on 13
October 2004.
H M Treasury carried out a major review of codes
and what they delivered to customers in 2001 (Cracking The
Codes for Banking Customers, Banking Services Consumer Codes
Review Group, May 2001). The Chairman of the Group, Dr DeAnne
Julius, stated that "The Banking Code, whilst not perfect,
is an exemplar of self-regulation". Out of that process,
it was agreed that an independent reviewer should be appointed
to carry out defined regular reviews of the Code, reporting to
the three sponsors of the Code and ensuring that wide consultation
was carried out.
It was agreed that reviews were to be biennial.
Professor Elaine Kempson was appointed to carry out the review
in 2002 which resulted in the Codes (both the personal Banking
Code and The Business Banking Code) which have been effective
since 1 March 2003. She was subsequently re-appointed to carry
out the review in 2004 for the versions of the Code that will
be effective from 1 March 2005.
The results of the review and the sponsors'
response will be made public in the first week of November once
the response has been finally agreed. This year's consultation
resulted in the reviewer receiving over 30 responses from a mix
of regulators, consumer groups and individuals. Her recommendations
reflect her extensive consultation, not only in the form of two
round tables held in April and June but a series of one-to-one
meetings and cover a wide range of financial services aspects.
The sponsors agree with the great majority of
Professor Kempson's recommendations.
The new Codes will deliver:
— New commitment to make basic bank
accounts more readily available to people who want one.
— Greater transparency of clearing
cycles for electronic payments as well as cheques. Subscribers
will also tell customers if they take longer than the "standard"
cycle.
— Best practice guidelines for credit
card issuers covering:
— increases in credit limits;
— restrictions on issuing credit
card cheques;
— a "Health Warning" on
statements for those making minimum repayments; and
— explanations of how payments are
allocated.[1]
— Explicit endorsement of the Common
Financial Statement to help customers in financial difficulties.
— New commitments to help customers
in the event of branch closures or reduced services.
— Better explanation for customers
on how to be reunited with dormant accounts.
We have also agreed to look at a range of issues
going into the future, in time for the next Review. These include:
— A clearer definition of what we mean
by reasonable and sympathetic treatment of customers in financial
difficulty—and we will agree this wording with the money
advice sector.
— A review of what we do to help customers
with mental health problems—to try and help them avoid inappropriate
debt and to ensure they are sensitively handled if debt difficulties
emerge.
The information within this brief is confidential
on most aspects apart from those that cover card issues and is
being provided on that basis to brief Members of the Treasury
Select Committee. The Banking Code Standards Board is also receiving
this document to ensure that they are well-briefed prior to publicising
the results of the Code review and the response. The sponsors
are keen to ensure that the extensive work done on this review
is made public at the appropriate time and that the very effective
consultative process and its results are recognised.
RECOMMENDATIONS AND
RESPONSES
The detail that follows combines both Elaine
Kempson's recommendations and the response to these. The sponsors
are now heavily involved in the next phase of this activity which
is revising the wording of The Codes, as well as the Guidance
notes which are issued to all 257 subscribers to the Codes. These
are referred to regularly below.
Re-ordering of the Codes
There should be better signposting to sections
that apply to each of the main product types listed. We expect
this to be particularly useful to cardholders and savers.
Section 10 of the Codes should be renamed "Cards"
and should have two sections: one dealing with debit cards; the
other with credit cards.
We shall keep the Codes as simple as possible
by:
1. Providing an additional section to cover
both credit and debit cards where they have the same features.
2. Keeping the title "Cards and PINS".
As a further safeguard for consumers we will
agree to an interim review process as recommended (details appear
below).
A new section will be inserted into the body
of the Codes that expands the key commitment regarding "safe
and reliable banking systems". This is one of Elaine's recommendations.
Our industry is a world leading provider with secure systems capable
of high volumes. We help customers protect against known fraud
and other threats to systems and will introduce appropriate wording.
Aspects of the Code
Our provision of basic bank accounts to widen
financial inclusion is part of the industry's response to a Government
initiative. Other countries provide comparable services. There
are 834,000 basic bank accounts (June 2004) which have been opened
since the Universal Banking Service launched last year. Meeting
a recommendation of the reviewer, we shall now undertake to open
a basic account if specifically asked for one.
The APACS guidelines on credit card limit
increases will be incorporated into both the Banking and Business
Banking Code Guidance. We believe that this will most sensibly
sit in the new section on cards (Section 10).
Code Guidance will reflect best practice on
credit checks in the industry when making lending decisions. The
Review revealed simple proof of identity to be a sufficient credit
check in the Code. This never reflected practice and we will correct
the Code and also say more about best practice.
It may be inadequate only to check past performance
on a credit card before raising the credit limit and the industry
is leading work on improvements to data sharing across the industry.
Once this work is finalised the Codes' Guidance will be revised
to take account of these initiatives. We anticipate this being
completed as part of the next review, although work is already
advanced.
The APACS best practice guidelines specify
the need for issuers to take an active approach to responsible
lending, including making appropriate checks before increasing
a customer's credit limit.
The Common Financial Statement (CFS) is the
result of an initiative from members of the BBA together with
the Money Advice Trust. The CFS helps debtors with many creditors
to propose a debt management plan through a recognised money adviser.
It uses agreed standards of living expenditure and analyses the
customers cash position each month to allow agreed repayments
to all creditors. It promotes the concept of priority debts (notably
for housing, thus protecting home ownership). The Code will commit
much more strongly to its use.
A new "due diligence" process when
selling debts to ensure the purchaser complies with industry and
regulator guidance on debt collection. Problems can still be seen
when debts are sold on again on subsequent occasions by non-subscribers.
Work to redraft the Guidance so that it clarifies
what is meant by acting "sympathetically and positively"
in time for next Review.
Work with the national money advice associations
listed in the Codes to agree guidance on the most appropriate
ways for subscribers to assist people who have diagnosed mental
health problems that impair their ability to handle money. We
need a practical approach within the constraints of legislation
and the inevitable difficulties associated with identifying the
problems for any individual.
Summary Boxes on credit card literature will
become part of the Code, reflecting the wording of APACS current
Guidance agreed in October 2004.
A health warning on minimum repayments will
go on statements for credit cards.
Credit card cheques drew an emotive response
from some quarters during the Review.
We will redraft the Guidance to stipulate
that the following consumers should not be issued credit card
cheques:
— customers who are late paying
or over-limit;
— customers with limited scope to
borrow more or are at their limit;
— customers who have opted out of
receiving cheques; and
— customers where there are fraudulent
activities or lost/stolen procedures on the account.
There will be no unsolicited pre-completed
cheques sent to consumers.
The radius for the extended notification for
closure of last branches should be reduced to one mile in urban
areas and no more than four miles in rural ones, with the Guidance
making it clear that this distance is by road, not as the crow
flies.
A new paragraph will be inserted after paragraph
6.2 in the Banking Code stating that subscribers comply with the
Distance Marketing Directive and explaining briefly what rights
it confers. The Guidance will include a reference to the FSA rules.
(Full addendum to 2003 Code attached)
Guidance to say that the text of Terms and Conditions
should be easy to read by someone with normal or corrected eyesight.
We have had numerous discussions with legislators, regulators
and other stakeholders on this issue. We shall avoid the simplistic
route of prescribing a font size.
A new section will be inserted on sponsors dormant
accounts schemes, explaining that the money in such accounts remains
the property of the account holder and giving a commitment to
tell customers how to access the money in their dormant account.
The Personal Code Guidance will refer to the BBA, BSA and NS&I
dormant account schemes.
A new sub-section will be inserted dealing specifically
with on-line banking.
We will ask relevant subscribers to explain
the Small Firms Loan Guarantee Scheme when they identify customers
with good business proposals enjoying sound prospects for repaying
a loan but are short of capital and security. No records of such
explanations will be kept.
Future reviews should be held every three
years. There should be a fast track procedure for Code amendments
between the formal reviews. These interim reviews will deal with
areas of material consumer detriment not adequately covered by
the Code, be initiated by either the BCSB or Code sponsors and
be overseen by the independent reviewer.
October 2004
1 For ease of reference, changes to the Code relating
to card aspects are highlighted in bold. Back
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