Banking Codes Revamped

BANKING/INSOLVENCY

BANKING CODES REVAMPED

Sinéad McGrath examines changes to be introduced to the Banking and Business Banking Codes which take effect from 1st March 2005.

Banking Codes Revamped

Bank and building society customers are set to benefit from changes to be introduced following a wide ranging independent review of the Banking and Business Banking Codes carried out by Professor Elaine Kempson. The changes will take effect from 1st March 2005 and will relate to services provided to personal customers and small businesses with a turnover of up to £1,000,000.

Voluntary Codes

The Banking Code and Business Banking Code are voluntary codes which set standard good banking practice for banks and building societies to follow when they are dealing with personal or small business customers in the United Kingdom. The first Banking Code for personal customers was introduced in December 1991 and was followed by a separate Business Banking Code in December 2001. Compliance with both codes is overseen by the independent Banking Code Standards Board. Professor Elaine Kempson was appointed as independent reviewer for the banking codes following a recommendation by the Julius Committee in 2001 in a report to the Chancellor of the Exchequer.

Key Commitments

Each code is based on a number of key commitments from the financial institutions who subscribe to it. These key commitments have been clarified following the recent code reviews and include the following:

• a commitment to ensure that all advertising literature is clear and not misleading and that the customer is given clear information about products and services;


• once a customer has chosen an account or service, a commitment to provide clear information about how that account works, the terms and conditions and interest rates which apply to it;


• a commitment to help customers use their accounts by sending regular statements and keeping customers informed about changes in interest rates, charges or terms and conditions;


• a commitment to deal with things which go wrong quickly and sympathetically and consider all cases of financial difficulties sympathetically and positively;


• a promise to deal with all personal information relating to the customer as private and confidential and to operate secure and reliable banking and payment systems; and


• a commitment to publicise the code, have copies available and to make sure that staff are trained to put it into practice.

These key commitments are backed up by detailed guidance on various matters
such as account switching, clearing cycles and how security is taken.

Changes

There are a number of main changes to be introduced following the recent review:

• Credit cards - a summary box containing succinct information about the key features of the credit card should be contained in credit card agreements. Credit card statements must contain a "health warning" in plain English about the consequences of repeatedly making only the minimum payment and a commitment is to be included in the codes to refund any interest incurred on disputed transactions;


• Financial difficulties - financial institutions are to work with national money advice associations to agree guidance on what is meant by acting "sympathetically and positively" and a new section is to be included in the Business Banking Code to bring together information on business failures;


• Basic bank accounts - these should be more readily available to people who want one;


• Branch closures - there are new commitments to customers of branches which are closed or where services are reduced;


• Account switching - customers should be told about the Bank's policy on paying legal/valuation charges for transfer of any security it holds from a business customer and there is a commitment not to make any additional charges for closing or switching an account;


• Dormant accounts - there should be better explanation for customers on how to claim balances on dormant accounts; and


• Clearing cycles - there will be greater transparency of clearing cycles for electronic payments as well as cheques.

The various recommendations contained in the code have been welcomed by both subscribers and consumer groups and are due to take effect from 1st March 2005.

Sinéad McGrath is a Partner in the firm's Banking Unit specialising in property based lending and project finance.

Sinéad can be contacted at sinead.mcgrath@lestrangeandbrett.com

Quote: key committments to customers