Social Justice report confuses regulation further, says BBA

The Social Justice Policy Group proposal to replace the Banking Code with more regulation would not provide any additional help to over-indebted borrowers, the British Bankers Association said today in response to the Conservative Party’s Breakthrough Britain Report.

BBA Chief Executive Angela Knight CBE said: “We welcome new ideas and approaches to lifting people out of over-indebtedness, which can have heavy personal consequences to individuals as well as a high social cost. Banks recognise that debt and the feeling that spending is out of control is stressful and worrying for customers. Banks seek only to lend to people who are able to make repayments and they make checks to ensure they are not in difficulties before granting loans or extending credit.

“However, people's circumstances change and sometimes things go wrong. We believe an individual’s financial difficulties must be addressed first by sympathetic discussions between the borrower and the lender, and this is exactly what the Banking Code stipulates.

“The Code sets out a series of undertakings for banks when they lend money to customers, plus more on what the banks will do to help individuals to overcome financial difficulties. These are tangible commitments by the banks, enforced by the Banking Code Standards Board with its range of punitive measures.

“But more importantly it brings together existing statutory rules and obligations under a single document which explains to customers in simple English the minimum level of service they can expect from their banks. To be effective, regulation has to be clear, simple and enforceable - there have to be real comebacks for people who break the rules. The Banking Code does all of this. It is unclear how imposing a further regulatory layer would help people who may be in need of urgent financial advice and assistance.

“Some 37 per cent of unsecured borrowing last year was made by non-banks who are not subject to the responsible lending provisions of the Banking Code. If a charter similar to the Code were applied to these non-bank lenders, it may be a sensible first step to ensuring borrowers in trouble are helped with sensitivity and sympathy.”

The BBA is also asking for further clarification from the Social Justice Policy Group on the claim in the report that the banking sector is currently unregulated. All UK banks are registered by the Financial Services Authority and are subject to further regulation from the Financial Ombudsman Service, Office of Fair Trading and the Banking Code Standards Board.