Banking StandardsWritten evidence from Bruce Dalton

Preface

On 26 July 2012, Andrew Tyrie, MP leading The Parliamentary Commission on Banking Standards called for written evidence of how far standards in British banking had declined |*|

“We need evidence to gauge both the scale of the problem and to identify likely remedies.” he said, and asked whether there was ever a “golden age” of British banking. |FT 27 Jul 2012|

The Commission’s solicition for evidence lists many questions including the following:

The Commission would welcome responses to the following initial questions:

1.To what extent are professional standards in UK banking absent or defective?

2.What have been the consequences of the above for (a) consumers, both retail and ...?

3.What have been the consequences of any problems identified in question 1 for public trust and in, expectation of the banking sector?

… … …

5.What can and should be done to address any weaknesses identified?

To what extent are such weaknesses subject to remedial corporate, regulatory or legislative action... ?

6.Are the changes proposed by (a) Government, (b) regulators and (c) the industry sufficient?

Re: Questions 1, 2 & 3

As evidence of how low standards have sunk this memorandum cites specific examples |*|of dishonourable behaviour by banks, including deliberate breaches of the key term they had advertised and promoted as a permanent—“for ever”—benefit of becoming a customer.

This memorandum also cites examples of behaviour by the Nationwide Building Society which torpedo the myth that its mutuality makes it very different from the untrustworthy banks.

Re: Questions 5 & 6

Although a solution to the decline of trust in banks, and the retail financial sector as a whole, is not formulated, aspects of the changes needed and a key feature of the means of achieving them are recommended—as those currently on offer from the Government are inadequate.

Introduction & Summary

1. Trust

Banks continually offer a master class in how not to foster trust, let alone rebuild it.

Banks breach crucial terms they previously promoted extensively as promised benefits “for life” or “for ever” of contractual agreements enshrined in their products. Specific shameful named examples include business banking accounts and credit cards.

Banks are currently stepping up their campaign, incredibly with the public support of Lord Adair Turner, chairman of their regulator, the Financial Services Authority, to breach the “free-if-in-credit” contract terms for current accounts by imposing fees.

[Paragraphs 2 and 3 redacted]

1. Trust

The surest way for regulators to reinforce the public’s distrust of banks and the financial sector as a whole, is to allow banks to breach contract terms such as “free-if-in-credit” banking—especially as banks hide behind the regulator &/or small print to do so.

Consider three instances …

(1)Santander Business Accounts: Not “free forever”

On Sunday 29 July 2012 the story broke in these tweets and on BBC NEWS.

Tweets by Paul Lewis (@paullewismoney) Presenter BBC Radio 4’s Money Box

Santander reneges on promise of “Free day to day business banking forever” and imposes £7.50 a month charge on 230,000 business customers.

“Free day to day business banking forever could mean a real and lasting benefit for your business” but Santander reneges with £90 a year fee.

“We guarantee that unless there are ... changes to the law ... you’ll benefit from free day to day business banking forever” or bank charges £90.

Santander ends free business banking on accounts which were sold as “free” with “no time limits ...” with £90 charge from later in 2012.

Santander says T&Cs allow it to make £90 a year charge on 230k biz accounts on 60 days notice despite promise of “free banking for ever”.

Extracts from the report on BBC NEWS Money

About 230,000 small businesses that bank with Santander have been told that their accounts, supposedly free for ever, will now cost £7.50 a month.

The word “forever” is emblazoned in big blue letters on the brochure so the application of a new monthly fee is in clear contradiction to its original marketing promise.

Both the Financial Ombudsman Service (FOS) and the Financial Services Authority (FSA) have advised ... to complain to Santander in the first instance, ...

The Federation of Small Businesses (FSB) says it is investigating whether bank may be in breach of contract.

The terms and conditions of account make it clear that they can be varied by the bank with proper warning. The bank says it will issue all its customers with the required 60 days notice.

Chris Warner, a lawyer at the consumers’ association Which? warned that small businesses do not have the same legal protection against being taken by surprise by the small print in contracts. “Businesses are not protected as consumers are against unfair terms in contracts,” he explained.

Marc Gander, of Consumer Action Group, says ... should think about going to the County Court to obtain a judgement that Santander has breached its obligation to treat customers fairly, under the Banking Conduct of Business (BCOB) regulations. “These regulations set a statutory duty on banks to act fairly. They are hugely powerful but no-one seems interested in using them.”

(2)Access and Barclaycard promises “Never” to charge an annual fee

The Access credit card, issued jointly by Lloyds, NatWest and Midland banks, and Barclays’ Barclaycard were the first credit cards marketed in Britain. Consumers were wary of credit cards and baulked at paying a fee for having a card.

Throughout the 1970s and early 1980s large outdoor poster hoardings were saturated with advertisements for Access and Barclaycard promising there was no charge to have a card. Using a variety of clever advertising variations the headlines always promised the bank would “never” charge an annual fee for having an Access card or Barclaycard. The same message featured prominently in advertising on TV and in the press.

In 1989 Access reneged and levied a fee (£12.00pa), and in 1990 Barclaycard did likewise. Like thousands of others I complained quoting their “never charge an annual fee” promise. Both replied without any mention of their “no fee” promise, instead boasting of their cards’ ancillary benefits ... [I still have the correspondence.]

(3)Banks lobby for imposition of fees on existing “free-if-in-credit” current accounts

My 30 July 2012 letter to Lord Turner, FSA chairman, copied to George Osborne MP, Chancellor of the Exchequer, after Lord Turner’s Banking at the Crossroads speech, which follows on next page [not printed], details why such a fee would fail to achieve its two objectives intended by proponents, and ineluctably instill intense distrust—not restore trust.

[Pages 6 to 8 of Original Submission Not Printed]

2. Nationwide Building Society

The Parliamentary Commission on Banking Standards should include Nationwide—which is effectively a “bank” as it operates, competes with and behaves like banks, despite its name not including “bank” and its mutuality structure—in its considerations and report.

The Nationwide Building Society peddles the notion that its mutuality makes it nicer than its (implied nasty) bank competitors. Until Halifax Building Society demutualised the Halifax, which had been the largest society by far, was deservedly admired as the gold standard for rock-solid unimpeachable standards of behaviour. Well before the infamous rescue of HBOS (Halifax Bank of Scotland) by Lloyds Bank the Halifax halo had permanently slipped.

Nationwide promotes itself as the modern equivalent of the old Halifax: large and safe, reliable and decent in its dealings, impeccable traditional standards of service.

Nationwide’s current theme in all its advertising, literature and branches is: ON YOUR SIDE.

Nationwide’s smug self-righteousness is breathtaking in its Orwellianism.

Every time I visit a branch to transact on my savings account and hand my passbook to the clerk behind the screen, the clerk delays me, and everyone in the queue behind me, by using one of the sales strategies which is drilled into them during so-called customer service training to ensare customers into having a “review with one of our advisers”. After I decline, they often continue the sales pitch by asking me to defend my refusal. The atmosphere becomes sour and strained. Sometimes I’ve been treated as some kind of inferior idiot when the clerk or their supervisor bleats: “s/he was only trying to help you”.

A blind person visiting Nationwide could easily think they were at their bank. The unrelenting sales culture which has permeated banks is equally dominant in Nationwide.

Jeff Prestridge, Editor Financial Mail on Sunday, and Personal Finance Journalist of the Year, wrote on 23 August 2009:

“Nationwide likes to think it is whiter that white and that it can simply do no wrong. Yet, this isn’t the case. It is showing a commercial ruthlessness usually reserved for the nasty banks. Low savings rates and poor service have generated anger. [the] poll indicates that more than 70% of customers are unhappy.

With grumbling of discontent among some branch staff over work practices and greater pressure to sell more products, Nationwide isn’t the happy ship it wants the world to think it is.”

And on 4 July 2010 he wrote:

“Nationwide is in danger of doing irreparable damage to its brand unless it gets a grip on its chronic service problems. The truth is that it is no better than the banks. Incompetent monoliths such as Nationwide need to change. Their bosses need to wake up and realize that a mindset that says ‘I am unable to provide a timescale at present’ is a mindset not fit to do business.”

(1)Payments Council: Plan to abolish cheques

In January 2010 I wrote to Nationwide chief executive Graham Beale, enclosing a copy of my letter to the Payments Council detailing ample evidence of the permanent harm banks would inflict on consumers if the planned abolition of cheques was allowed. l also highlighted it would be impossible to operate my branch-based passbook operated savings account without cheques, and sought his support to prevent cheque abolition.

Nationwide’s reply, from the senior manager, corporate affairs, assured me Nationwide would abide by the decision of the Payments Council Board. Nationwide sat on the Board! So it legitimised its support for cheque abolition by reference to and hiding behind itself. This contravened the ancient principle of nemo judex in sua causa—which holds that any body cannot be a judge in its own proceedings. To partially get around the forthcoming absence of cheques, the senior manager advised me to open a Nationwide current account.

In July 2010 I wrote to Nationwide chairman Geoffrey Howe, explaining why I would not be supporting the Board at the forthcoming 2010 AGM. Nationwide’s then theme was: “You talk. We listen”. The AGM voting guide leaflet boasted: “Your needs set our agenda”. After summarising my letter to Graham Beale, and his senior manager’s reply, I wrote:

“Fundamental flaws in the application of such a convoluted series of transactions, let alone the inconvenience of having to open and operate an extra bank account with concomitant need to: maintain files of statements, letters and literature, have more security numbers; and complicate my tax return, instead of continuing with complete convenience, immediacy and security of cheques, attests to NVV’s refusal to put my needs first.

I should be obliged if you would please place NW’s support for cheque abolition—a cause not endorsed by all your peer building society chairman and chief executives in letters to me—on agenda of NW’s next board meeting with a recommendation to reverse NW’s support.”

The Nationwide chairman’s reply included whole paragraphs unrelated to the subject, eg two template-type paragraphs excusing Nationwide’s appalling service on its ISA business! Then he wrote “[cheque abolition] should not inhibit our employees from taking ownership of a customer service issue.” (I defy anyone to explain what that means?) He concluded Nationwide would continue to support abolition of cheques, adding sentences verbatim I recognised from Payments Council Newsletters, press releases and answers given by Sandra Quinn. its director of communications, on Radio 4 and BBC NEWS.

It would have been delicious retribution for the Nationwide chairman and chief executive if they had been witnesses alongside the Payments Council executives, at the Treasury select committee oral hearing on The Future of Cheques in Committee Room 8, at the Palace of Westminster, on Wednesday 15 June 2011, when the TSC chairman Andrew Tyrie MP used the letter written by Mark Hoban MP, Financial Secretary to the Treasury, the previous day (14 June 2011) to reduce the Payments Council witnesses to jibbering dust.

QED—Nationwide is as bad as banks. But worse than banks because Nationwide hides behind its mutuality to claim it is superior. The truth is it’s: Nasty Nationwide.

(2)Nationwide Chief Executive’s response to its near—£1 million fine for risking customers’ security

In February 2007 Nationwide was fined almost £1 million for risking customers’ security when a laptop, on which customer details were stored, was stolen from an employee’s home. Nationwide said its chief executive had apologised in writing to all 11 million members.

Most of the letter, headed: THIS IS IMPORTANT PLEASE READ CAREFULLY was dedicated to telling customers how they could improve their own security by following some simple steps all listed in bold paragraphs, and enclosed two leaflets on protection from fraud.

The irony of this was that Nationwide’s chief executive had the bare-faced cheek to lecture customers on the “simple steps” they should take to protect themselves from identity theft, when it was Nationwide itself that needed lessons in basic security, not its customers.

That was the type of letter one would expect a bank chief executive to write.

(3)Nationwide thinks 50,000 customers is a “small” number to be debited twice incorrectly

On one day in July 2012 Nationwide processed all its customers’ debit card transaction made that day, and again the next day, ie it debited current accounts twice for same sum.

In an official statement, Jenny Groves, Nationwide’s divisional director, said that of the 704,426 accounts affected a “small” number “estimated to be less than 50,000” had been “adversely impacted”.

It’s difficult to imagine even Barclays, HSBC, Lloyds or NatWest banks admitting they regard any five-figure number of customers adversely impacted by their own staff’s incompetence as a “small” number.

Nationwide’s statement reveals it really is different from banks, but—embarrassingly—not in the way Nationwide would like us to believe.

3. Project Verde: “Evasive action” to stay with Lloyds

The sale of 632 branches by Lloyds Banking Group to satisfy EU state-aid demands, known as Project Verde, has a concomitant total embargo on any proactive promotion or activity by Lloyds to highlight advantages to customers of the branches about to be sold, of remaining with Lloyds, albeit no longer registered with the same branch.

But, if customers ask what steps they need to take to ensure they remain with Lloyds, Lloyds must—obviously—provide full information without any obfuscation or delay.

The information I was twice given in writing, the second time after a newspaper story prompted me to ask for the information to be confirmed “with absolute cast iron total certainty after verification with Lloyds head office”, is—according to two financial journalists who were briefed by and questioned Lloyds on 19 July 2012, the day Lloyds announced the sale of the named 632 branches to the Co-Op, whom I spoke to that night—“absolutely wrong, it’s completely untrue”.

[Redacted last 3 Paragraphs of this Section]

[Pages 12 and 13 in Original Submission Not Printed]

Effective remedial change

I do not have a solution to remedy the decline in banking standards, as typified in the foregone examples of my own experience of appalling bankers’ behaviour.

But, I recommend the Commission considers adopting certain principles and pointers to formulate the direction and thrust of its recommendations for effective remedial action, namely:

1.Bankers will only be deterred by FORCE and knowing they will SUFFER PERSONALLY if they transgress. Commitments of adherence to Principles or Codes of Good Practice are a waste of time. Think: the defunct Banking Code Standards Board, and the FSA’s Treating Customers Fairly principles—more honoured in the breech than in practice.

2.Recommendations alone, however perfect and apposite, no matter how much they are “welcomed” by ministers who routinely swear they are “committed” to solving the problem which has “highest priority”, will never change bankers’ behaviour without those recommendations being enshrined in Statute and/or Statutory Regulations, then policed with sufficient resources to catch miscreants, and enforced effectively with severe punishments affecting bank directors and senior executives personally—to act as an effective deterrent to others.

3.Directors and senior executives of offending banks must be punished so it hurts them personally—not just namby pamby bans from holding jobs in the financial sector—but by sufficiently large personal fines to reduce their personal wealth substantially and by long prison terms sufficient to deprive them of their liberty (without parole) for years.

[Mega million pound fines on the corporate bank entities themselves are ineffective. They penalise shareholders, not the bank’s directors and senior directors responsible. Shareholder institutions have proved useless in eradicating banks’ disgusting treatment of customers. Fund managers and pension funds care only about a bank’s share price and dividend paying prospects next quarter and next year. Its cloud cuckoo land to think fund managers and institutional shareholders will do what only government must do.]

4.Re: Report by Sir John Vickers, Independent Commission on Banking, and government’s current legislative proposals for implementation of the ICB’s recommendations: Just “ringfencing” the retail from the investment business (the commercial from casino) is insufficient. It invites trouble for the future. It must be enforced total “separation”. Anyone who sat and listened to the whole of Treasury select committee oral hearings with ICB commissioners themselves, and with the chief executives from four banks, would never buy the bankers’ self-interested arguments for avoiding separation.

5.Yes, there was a “golden age” of banking. I remember it well in the 1940s and 1950s. Captain Mainwaring of Dad’s Army fame may be a character of fun and fond derision, but the real bank managers of his era were the apogee of total trust and respectability. They were universally held as the most honourable of men, with unimpeachable integrity who genuinely knew all the customers of their branch—face-to-face, not as a number.

6.Branch staff were of the same ilk, studied for banking exams, and behaved impeccably. All banks’ senior executives had ascended to their roles after many decades of experience on the front line in branches, working up through various grades of clerk and manager. The ethos, the culture, the mindset was: they were bankers—and they behaved as such.

7.Retail banking is simply a utility service. A simple service all retail customers need. Customers don’t need (to be sold) ancillary products or services such as: investments; pensions; life assurance; household or motor, travel or pet insurance; identity protection insurance; etc from banks.

8.Bankers must be re-focussed back onto pure retail banking, and compete on service.

9.Bank directors and shareholders must adjust how bank shares are expected to perform accordingly, ie as equivalents of gas, electricity, water or land line (only) company shares.

10.Banks must radically change the desired profile for staff recruitment (no longer taking on someone just because they’ve had sales experience at Marks & Spencer or PC World).

11.Banks need to attract and train staff who want to be actual bankers—not salesmen.

12.Bank staff must study (in their own time = commitment) for and pass bank CIB exams.

13.Bank in-house training must be on real customer service, not sales masquerading as such.

14.Banks must not be allowed to use call centres outside the UK—no matter how much training in English and British idiom, ways and culture foreign staff are given.

15.All executive directors and senior executives must work periodically full-time for two consecutive days in a branch and in a call centre (ie total four days), dealing personally with customers face to face or on the phone, every quarter (ie 4 times per year).

16.Instead of giving seal of acceptance that poor current account balance management by customers is inevitable, and devising services (initially free, but probably for a fee later) to “help” their undisciplined or imprudent customers, banks must promote thrift, saving and current bank account balance management in interest of the customer, not the bank. The mantra: Instead of buying on credit, if you really want it, you can save up for it.

17.nb: Bank support for financial education in schools is commendable, but no matter how much money banks deploy in such support, it’s the change in culture manifested in what happens in branches and over the phone in call centres that matters. Every bank senior executive, manager, supervisor and clerk needs a root and branch [no pun intended] reversal of how they were trained, and how they are now assessed and rewarded.

18.Three related insights (below) are critical as the key to achieve effective change in banks:

“Any organisation that has poor service will have a management that tolerates those conditions.”

“Customer service is about a mindset, not about a set of rules and regulations. It’s instinctive and reactive. Be under no illusion, super-service spreads from the top down. Senior staff set the tenor and style of performance.”

“A fish rots from the head down!”

Without a total clearout of current bank directors and all senior executives, exchanging them for an entirely different breed, with the mind set and motivation fit and a tuned to direct and manage a purely retail bank, and proud to be part of a “boring” retail bank, the cultural change necessary to revert back to the “golden age” of banking will never be achieved throughout each bank’s head office hierarchy, and its branch and call centre regional/area managements, to reach the branch and call centre staff on a sustained basis.

By doing all the above the government can achieve banking nirvana for retail customers. Ritual grumbling about “bloody” banks will fade away, and complaints about banks will rarely feature on the Financial Ombudsman Service radar.

1 August 2012