Watchdog gets tough on banks’ silent treatment

A number of savings firms are facing the prospect of disciplinary action after breaching industry rules requiring them to alert their customers when the interest rate on their accounts falls significantly.

In its first direct action under section 4.8 of the Banking Code, the Banking Code Standards Board (BCSB), which monitors compliance by banks, building societies and other savings firms, this week confirmed that it been investigating a number of breaches that had occurred after the latest round of base rate rises.

Since 2003, banks have been required to notify their customers personally within 60 days when for any 12- month period, the interest rate on their savings accounts falls by half a percentage point or more relative to base rate movements.

The reform was introduced to the code – which is voluntary – to ensure savers were more alert to significant cuts to their interest rate or when their bank wasn’t passing on base rate rises.

There have been five quarter-point rate rises since August last year, which have not been fully reflected in many savings rates.

Research by Moneyfacts this week found that savings accounts were paying on average 4 per cent interest and that 87 per cent of accounts containing £5,000 or more are paying less than the current base rate of 5.75 per cent.

“Our investigations have now confirmed that some subscribers failed to recognise the need to send notifications within the 60-day deadline after they had brought about a downgrading or allowed it to occur,” the board said in a letter to the industry in late May which was seen by the FT this week.

“In these cases, disciplinary action is in prospect.”

Adrian Lloyd, compliance officer with the BCSB, said he was unable to reveal the number or names of firms involved as its investigation was still underway.

But the British Bankers Association said it would have been made aware if there was a big problem in the industry with compliance on Section 4.8.

“Our members take the code and its guidance very seriously,” said Paul Ross, director of retail banking. “Where there have been exceptions, action is being taken. This does not suggest that the breaches are widespread.”

Firms found to be in material breach of the code face a range of actions from having to make compensation payments to the most serious sanction of public censure. The board cannot impose fines.

Subsequent to this probe, the board has also uncovered failings in the information firms are supposed to give their customers whose accounts have become downgraded.

Under section 4.8, which only applies to savings accounts of £250 or more, banks must also tell you that you can take your money out or close your account without notice or penalty. But some had only “referred to switching to other accounts with the subscriber”. The board is not taking further action on the majority of cases which were no-notice accounts and otherwise compliant.

Which?, the consumer group that lobbied for the reforms in 2003, said it was pleased that was board was taking action on this section of the code. “A lot of banks rely on customer inertia when they downgrade, so it is very important that this part of the code is enforced,” said Cathy Neal, senior researcher with Which?

Since January, banks have also been required to notify savings customers if their interest rate falls a quarter of percentage point or more relative to base rate movement. This lower threshold only applies to savings accounts of £500 or more.