Mortgages, pensions and other financial products could be issued with traffic-light ratings in a similar way to food, as part of government plans to improve transparency and help consumers make good decisions about their money.
In a combined green and white paper, the government proposes several fundamental chances to the way we buy financial products and, indeed, the way consumers bank in the UK. One of the key suggestions is to introduce a “traffic-light” system, which has already been introduced into food labeling to indicate salt, fat and sugar content.
The paper states: “While financial services and food are clearly very different classes of consumer products, there may be important lessons to be learned from food labelling for improving the transparency of financial products.” Such a scheme, however, is likely to be introduced on a voluntary level, giving providers such as banks a free rein on whether they choose to adopt the system.
Another proposal that could have a significant impact on many consumers is the proposal to make current accounts portable. The government says issuing bank account numbers that are specific to people rather than institutions would enable more people to switch providers without the hassle of having to transport direct debits and standing orders.
The government has asked the Retail Financial Services Forum to consider this measure and to see whether such an approach would be possible in the UK.
Elsewhere, the paper comments on the current situation facing people who are still waiting to claim back unfair bank charges. A waiver is currently in place preventing most refunds while the House of Lords deliberates on the issue.
However, the government has called on banks to consider dropping their legal battle with the Office of Fair Trading (the latter is fighting for the right to cap overdraft fees) and to find a “quicker way of resolving these cases that is preferable for customers to pursuing further litigation”.
It also wants to give consumers more rights when it comes to complaining about financial products, and is considering the case for introducing new laws to introduce “some form of collective action through which consumers can enforce their rights to redress”.
Mortgages are put under the spotlight in the paper, with the government admitting concerns about the affordability. It plans to consult later this year on whether to make mortgage insurance compulsory for all people borrowing large amounts or where they do not have large deposits to put down on a property.
An update on this issue is now expected in the pre-Budget report in the autumn.
Responding to the continuing uncertainty over the safety of banks in the UK, the government says it has no immediate plans to change the compensation limits (currently £50,000 per customer, per bank) but that it is working with the EU over cross-border rules.
It also calls on the EU to scrap the passport scheme – this applies to foreign banks operating in the UK, and see them covered by two or more compensation schemes.
“The government believes that the EU should move towards a system in which host schemes would always act as the single point of contact for depositors in their country, irrespective of which scheme had the ultimate liability to pay for the compensation given to depositors.”
Finally, the government maintains it is committed to bringing the so-called bailed-out banks back into public ownership as soon as possible.
But it warns: “Such action will, of course, depend upon a full restoration of stable and liquid financial markets.”