What will new banking rules mean for you?
The financial regulator is to start policing banks’ and building societies’ day-to-day contact with customers.
From 1 November, the Financial Services Authority (FSA) will oversee everything from direct debits, payments and savings accounts as well as unauthorised transactions and interest rate changes.
It will introduce specific standards across everyday banking transactions. “New regulations will put banking customers in the driving seat by setting down clear standards that people can expect from their institution,” says Dan Waters, the FSA’s director of conduct risk.
This will ensure payments between accounts are carried out quicky and smoothly. Banks and building societies will also have to ensure customers are given adequate notice of changes in terms and conditions, and any queries relating to unauthorised or unexpected transaction are properly handled.
“If firms fall short of these standards, or fail to treat their customers fairly, the FSA will take action,” Waters adds.
The rules is detail
One of the major changes to be introduced will be ensuring that new customers are given the correct information on the service or product up front.
While many people might assume this already happens, banks and building societies are currently only required to pass on limited information to customers up front, with the remainder only given once customers sign up.
The FSA says the change will enpower consumers to make more informed decisions.
Another big change will be the requirement for banks and building societies to provide advance notice of any changes to a product – for example, the terms and conditions.
Currently, changes to current accounts and instant access savings deals are passed on to customers once they are introduced, but under the new rules firms must give customers at least two months’ notice. This will include interest rate changes.
The exception will be products that ‘track’ the Bank of England base rate, or another reference rate, or products where a change in interest rate is part of the contract. Some savings accounts, for example, make it clear that after a set period of time (often 12 months) the interest rate will decrease.
The new rules will also cover unauthorised transactions; where a customer claims that an unauthorised transaction has taken place, the FSA says the bank must refund the amount unless it can justfiy investigating the claim.
Unexpected money debited from credit or debit cards, or directly from a current account via a direct debit, then banks will have to refund the entire amount within 10 days.
Finally, from 1 November, customers will start to receive interest from current and instant access savings accounts on the day their money is transferred. From 1 February 2010, this new rule – termed ‘giving value’ by the FSA – will be extended to all deposit accounts.
The new rules will not cover overdrafts and credit card lending, which fall outside of the FSA’s remit and are regulated by the Office of Fair Trading under the Consumer Credit Act.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.