- Guest blog from Matt Hawkins.
What do we expect from our banks? Theoretically banks can provide security, financial advice, free current accounts, interest, loans of somebody else’s money, and, particularly attractive for students, even railcards. The crash of Northern Rock, RBS, Halifax Bank of Scotland (HBOS) and Bradford and Bingley
in the UK suggests, however, that our banks are not quite as secure as we might think. The £9bn that major banking corporations are now being fined for the mis-selling of Payment Protection Insurance (PPI)
also demonstrates that their advice is not always that great. Perhaps one of the most pervasive assumptions, however, is that all these ‘services’ are free. Andrew Bailey, soon-to-be Chief Regulator of the financial services industry, caused some consternation in the banking industry last week by stating that people are buying a myth if they believe that their banking is free. Banks, he said, deliberately underpay interest in order to recoup some of the losses they incur by not having pay-per-use charges or contractual fees for opening an account. Banks also seek to capture big payouts from their customers when their accounts are overdrawn.
The problem is that the apparent need for our banks to be ‘free’ is partly built upon and reinforced by the model of free market capitalism. The culture of competition and the need to stay ahead of the game can encourage underhand methods – particular when there are few punitive measures in place. Hence we see that banks posit themselves as being free to use but in fact utilise ‘silent’ charges to ensure that they maximise their revenue.
The UK is actually unique in Europe in allowing its customers to hold accounts for ‘free’
– elsewhere people will pay a monthly fee or pay at the point of use. Even though banks have admitted that such upfront charges would be fairer
the feeling is that it would constitute business suicide
to be the first bank to introduce open and honest charges. The issue is, however, that banks are making such assumptions about their customers based on the level of information that the public currently holds. As Andrew Bailey’s statement makes quite clear – most of the public are innocently unaware that banks are charging them
for their custom. The public would be far more likely to accept transparent charges if they were made aware of the opaque ones that they are already signed up to.
Do we want to change this culture? It might just be simpler to stick with the status quo and assume that what the public doesn’t know won’t hurt them. The issue, though, is that any kind of deceit can just prop-up a wider culture within the banking industry in which the customer is not being put first. Bailey himself stated that the need to charge customers for their ostensibly free accounts contributed to the practice of mis-selling PPIs
, creating a culture in which deceit was at best possible and at worst encouraged. In addition, propagating the myth that bank accounts are free has an unequal impact across the population. Those who are most likely to be charged are the poorer sections of society
since their accounts often teeter on the edge of going into the Red anyway. Moreover, those with the largest financial portfolios are also more likely to be the most au fait with the practices of “hidden charges” and thus know the various loopholes to avoid them.
We do not have to be satisfied with these practices. The Move Your Money campaign
is encouraging people to speak with their feet and move their money across to financial institutions which support and promote ethical and transparent alternatives. Banks, for instance, do not have to focus their resources purely on being competitive and on enhancing their profit margins. The Co-operative
, for example, is involved in campaigns to promote human rights, environmental sustainability, international development and the prevention of cruelty to animals. At the same time the Co-operative was voted the number one bank for customer service. Banks also do not have to be part of the global capitalist market to work for their customers. A number of building societies and credit unions – Coventry Building Society
, London Mutual
, and Bristol Credit Union
, for example – are built on localism and are meeting the needs of their high street customers. These credit unions might charge for their current accounts (London Mutual is 95p a week
) but at least their fees are transparent and applied to the rich as much as the poor.
Banking can have a different face and a different ethos – but the only way to encourage this is to Move Your Money
and support banks which promote an alternative model.