What are banks playing at?

You could say that my first four months covering saving and banking here at This is Money has been a baptism of fire of sorts: less than three weeks into the job, the country experienced the first run on a UK bank since Overend and Gurney in 1866 with the fallout from Northern Rock.

But surprisingly, it is not the aftershock of the ever-widening credit crisis that sticks in my mind when recalling the last few months – it’s the more frequent complaints received by hundreds of banking customers over the little things that dent their trust in our financial institutions.

This is perhaps less headline grabbing than the tentacles of the sub-prime mortgage crisis in the US, which is slowly spreading throughout global financial markets, but it affects the daily lives of our readers and, arguably, takes a much greater toll.

These include a range of issues that we have all had to deal with at some point in our lives: hidden charges on accounts, rate offers that seemed wonderful when we signed up to them but swiftly disappeared 12-months down the line, unanswered complaints and, last but not least, a curt and indifferent customer service ethic that flies in the face of our industry’s Treating Customers Fairly guidelines.

Is it any wonder the world and his aunt queued for hours at Northern Rock to withdraw their cash, when many of them had been dealing with a banking system that treats them like second class citizens? Who would trust Alistair Darling and Adam Applegarth’s pleas for calm when it just sounded all too similar to an indifferent member of a bank’s call centre telling you your complaint ‘will be dealt with over the next week’, only then to find nothing has been done?

One way to begin tackling this is to ask what ‘FSA regulated’ actually means. There needs to be some form of ‘real time’ regulation of banks’ complaints procedures – involving the Banking Code Standards Board, the FSA and the Financial Ombudsman – as the current process is clearly failing customers: they contact a bank with a complaint, spend weeks enmeshed in its complaints procedure followed by weeks of dealing with the Ombudsman, leading to untold stress and dissatisfaction.

Another way to cut down on lengthy complaints procedures and customer dissatisfaction is to prevent complaints to begin with. The solution to this is simpler than it seems: banks should be upfront with savers about the services a bank has to offer, with no hidden charges or tricky clauses in the small print.

For example, bonuses and rate guarantees on savings accounts tend to obscure an account’s real rate. Sure, it’s in the small print, but customers frequently feel short-changed when they suddenly realise that, after 12 months, their table-topping rate has suddenly fallen into insignificance.

This is made worse by the fact that over half of rate guarantees only guarantee that they will ‘track’ movements in the base rate, all the while paying a consistently lower rate.

It would help to lessen savers’ perceived injuries if they were given several weeks notice of all interest rate cuts, allowing them to move accounts if they so wished. A good example of how rate notifications should not be done comes in the case of Abbey – one of 2007’s worst offenders in the field of customer service: it cut its savings rate on 1 January, following the base rate decrease in December, but did not publicise this until 2 January.

It often seems like banks base their business model on getting in as many customers as possible, whether or not they have the support structure to deal with them, and then leave them languishing in complaint procedure hell.

I attended a conference run by price comparison website Moneyfacts last year, in which the topic of discussion was how banks deal with their customers. The CEO of Moneyfacts Group Paul Pester seemed to hit on the zeitgeist of those attending by remarking that many banks focus on bringing in new customers to the detriment of their existing customer base, something which he said ‘destroys trust in the industry’.

One issue the industry needs to look at is how can this trust be restored; one question that jumps to my mind, given my experience of some High Street names over the past few months, is does the industry actually care enough?

Comments

[John Portwood]

Banks aren't the only one's offering large incentives to get new business in at the expense of current customers.

You only have to look at the 'offers' available in the Direct motor and House Insurance Market to see similar offers such as:

£75.00 cashback.
30% online discount
1 Month free insurance this year, 2 months free next if no claim.
£30 cashback to all readers

Yet the AA is reporting that rates are rising - the inevitable conclusion is that the existing customer is being charged more to pay for these gimmicks.

[lardeon]

Bradford & Bingley reduced the rate 0.25% on their internet saver account retrospectively. They informed me on 21st January 2008 that they had reduced the rate on 30th December 2007. This is in the previous year!
They were still showing the old higher rate on there web site for most of this time.
Retrospective reductions should be outlawed by the FSA.
30 days notice should be given for any change.
B&B management misled and attempt to confuse investors by continuously reducing account interest rates for loyal customers and starting new accounts at better interest rates to attract new customers. Their list of accounts reads more like a telephone directory.
I have voted with my feet and walked away