Banking Madness

'Truth never damages a cause that is just.'

— Mahatma Gandhi

Here are recent examples of anti-social banking practises where lessons can be learned. These lessons highlight the need for building ethics into the banking system through competitions such as the Honourable Banking Blue Star Awards, which would benefit not only society but the banks and building societies themselves:



Repossessing homes of mortgage holders in default as a standard business practice rather than as a last resort

In these challenging economic times some banks and building societies have been repeatedly accused of aggressively repossessing the homes of mortgage holders who may have only defaulted on their payments once or twice or who are only able to make partial repayments. Some have piled on extra charges, not negotiated with borrowers to come up with workable repayment arrangements and used court action as a first resort rather than a last resort. It would seem some banks and building societies often treat such defaulters as just numbers on a spreadsheet. They do not consider what will happen to whoever they evict. They don't stop to consider that they may be making families with children, elderly people and other vulnerable people homeless. Even less thought is given to the extra burden repossession may place on local housing authorities who might already struggle to meet the demand for emergency social housing; and the tax payer who is expected to pay for it.

The following articles highlight some questionable repossession activity: Mortgage lenders 'too fast to repossess' homes, BBC, 15/12/2009 Lenders given 'fairness deadline', BBC, 28/11/2008 The hidden costs of unsecured loans, BBC, 28/10/2008 Ministers plan repossession help, BBC, 19/10/2008 Anger over Rock repossession rate, BBC, 17/10/2008 UK repossessions rise by 48%, BBC, 8/8/2008

Repossessing homes of credit-card holders in default for debts as little as £1,000

Another aggressive tactic which lenders have used is the use of charging orders to secure unsecured debt like credit-card debts to borrowers' properties. This means that when the borrower sells or re-mortgages the lender can claim back the debt out of the proceeds. Some lenders even take this further and apply for an 'order of sale' which forces the debtor to sell their property.

Banks exploit legal loophole to seize homes, timesonline.co.uk, 26/10/2008



Failing to safeguard vulnerable clients by ignoring 'power of attorney'

The Alzheimer's Society, has reported that there are growing problems with how banks deal with powers of attorney, which is causing added distress to dementia sufferers and their families.

Is the power of attorney working? BBC, 16/9/2011



Employing inappropriate and aggressive debt collection methods

Credit card borrower tortured by lender, says judge, BBC, 3/3/2011



Taking money from people's accounts to pay other debts without permission or notice

Many banks and building societies have been taking money from customers' bank accounts to pay credit card or loan arrears owed to the bank without permission or notice, or without checking the customer's circumstances first. Some people have had money taken out of their bank accounts that is meant to pay mortgages, rent and utility bills. As a result, many people already in hardship miss these payments and get hit with late payment penalties and penalty charges; leaving them even worse off.

There is also no percentage limit to the amount a bank or building society can take. This means people in hardship are sometimes having their benefit money taken from them leaving them with very little, if anything, to live on. This is especially a problem where people are having housing benefit paid into their account. The obvious implications of banks and building societies taking rent money are that such people can be forced into arrears on their rent and can face eviction.

Have Your Say: Banks help themselves, BBC's Money Box, 14/2/2009



Removing existing credit from viable and profitable businesses

Some viable and profitable businesses have been 'credit crunched' as lenders suddenly decide to remove existing credit arrangements. This can leave such businesses with instant cash flow problems, which in turn force them to scale back operations and often lay off employees. This is obviously the very last thing society needs when it's facing tough economic conditions.

Cable tells banks to increase lending to small firms, BBC, 23/5/2011

Bank loans refused 'to nearly 60%' of UK businesses, BBC, 16/2/2010

Bank pulled my business funding, BBC, 5/8/2009

Banks ordered to start lending in new bailout, timesonline.co.uk, 19/1/2009



Reckless lending

It would seem many banks and building societies in the UK have preyed on low income earners, those in financial difficulties and other vulnerable people. One way this happened was through reckless lending to vulnerable people without taking into consideration their income and expenditure and their ability to repay the debt. The lenders often quickly used hefty penalty charges to increase the debt before using heavy-handed methods to try to recover the money such as making threats to inform credit rating agencies and take legal action. It has also not been unusual for lenders to make unreasonable repayment demands.

Another common way lenders caused poverty through reckless lending was through the practise of unsolicited increases in credit limits particularly on credit cards and unsolicited issuing of credit card cheques. Both these practises have helped 'sleep walk' vulnerable people into further debt.

Widespread reckless lending practices have helped destabilise Britain's economic well-being and lead to record numbers of people in debt. Some banks lent far more than they had on deposit which meant they have needed to be bailed out with tax payers' money.

The following articles and transcripts give more details on some of Britain's banks' reckless behaviour.

Return of the card sharks: Banks luring millions deeper into debt with 'reckless' credit cards, Mail online, 23/8/2010

Irresponsible lending prohibited by OFT, BBC, 31/3/2010

Credit card industry resists lending limits, BBC, 19/1/2010

Banks 'prey on customers in debt', BBC, 15/12/2007

Bank debts 'drove wife to brink', BBC, 15/12/2007 The money trap: BBC's Panorama Transcript, 02/07/2006 Crackdown on credit card cheques: thisismoney.co.uk, 01/03/2006 Banks sell loans to vulnerable, BBC's Real Story, 01/8/2005

Deceiving the public by hiding important information in fine print or overly complicated presentations

In the past many banks have routinely only told customers information that will likely secure more business for the bank; they have often not provided vital information the customer needs to hear in order to make a properly informed decision and safeguard his or her best interests. That information was often hidden in the fine print or represented in complicated numbers, equations and presentations.

Vince Cable: Banks continue to rip customers off, BBC, 19/7/2010

Banking fees 'incomprehensible', BBC, 22/9/2009

Free Banking is a myth: charges on current accounts reach £8 billion a year, The Independent, 17/7/2008



Penalty charges

Banks and building societies in the UK often cause poverty to low income earners, those in financial difficulties and other vulnerable people through the levying of hefty penalty charges for unauthorised overdrafts. (Exceeding the agreed limit of their account) Examples of penalty charges levied include charges for unauthorised overdrafts, failed direct-debits, bounced cheques, as well as monthly and sometimes daily charges for overdrawn accounts. Other charges include those made for not making credit card payments on time or exceeding agreed credit limits.

Under UK law banks and building societies are meant to only recover their costs from customers who break their financial agreements with their bank or building society. They are not supposed to profit by setting charges far higher than their actual costs. It's estimated that penalty charges boost the coffers of banks and building societies by around £2.6 billion a year. The Office of Fair Trading (OFT) investigated these penalty charges and found them to be unlawful but had to use taxpayers' money to seek a High Court decision to support its findings and its right to rule on the fairness of penalty charges. It succeeded in the High Court and the Appeal Court but lost in the Supreme Court. Crucially the Supreme Court did not rule on the fairness of penalty charges, but instead ruled that the OFT did not have the right to use parts of the 1999 Unfair Terms in Consumer Contract Regulations to decide if penalty charges were unfair.

Without taking into consideration the fairness of the charges themselves justice cannot be served and this means vulnerable people will continue to suffer unfairly because of bank charges. Despite the fact that many banks and building societies know they hurt vulnerable people with these charges and the way use them; many continue the practice.

By so obviously placing profit above everything including ethical and responsible practice, banks and building societies have earned themselves much public resentment particularly through penalty charges. If they would only judge these charges and the impoverishing effect they have on vulnerable people in line with the often noble sentiments and ideals expressed in their own corporate and social responsibility statements, a vital lesson could be learned and they could move forward the stronger for it.

Banks may offer opt-out from unauthorised overdrafts, BBC, 16/3/2010

Bank overdraft charges face new legal attack, BBC, 22/2/2010

HBOS overdraft fees criticised, BBC Money Box, 24/10/2009

OFT says bank charges are unfair, BBC, 29/8/2008

How to claim back penalty charges, BBC, 13/12/2006


How penalty charges help drive poverty and what can be learned from it



Setting credit rates far too high

In the name of chasing ever bigger profits credit rates are regularly being set far higher than the base rate.
Making a fair profit is one thing but ripping consumers off is another.

Credit card rates excessive says ex-government adviser, BBC, 20/2/2010



Lies, scams and threats

'Deficiencies identified by the Financial Services Authority from a sample of banks and building societies, and set out in the regulator’s letter, include: '— A failure to respond to complaints fairly and consistently, to address adequately the subject matter of complaints, or to ensure that complaints are resolved at the earliest possible opportunity;

'— Unfair closure of accounts, or threats to do so;

'— False or misleading statements made to complainants.'

For more information please read the following article :

RBS and NatWest are fined £2.8m by FSA over complaints, BBC, 11/1/2011

Banking fees 'incomprehensible' , BBC, 22/9/2009

Banks identified over complaints, BBC, 15/9/2009

Lies, scams and threats - banks are condemned, timesonline.co.uk, 28/7/2007

Misusing cash machines for unethical profit In some overseas countries if you open an account you can only withdraw through cash machines the amount you have deposited in that account or the amount your bank has approved as an authorised overdraft, and no more or else the cash machine will decline the transaction.

In the UK most banks and building societies will allow you to open an account and withdraw more than you have in the account from cash machines because they can then apply hefty penalty charges for unauthorised borrowing. If you ask them about this and query the practise, they will likely tell you that the facility exists to protect you in emergency financial situations. Common sense tells us that the real reason is to make the banks and building societies easy money. After all, it's not the well off people who are likely to overdraw their accounts because they will likely keep their accounts well funded. It's vulnerable people; and the very last thing those who are likely to find themselves in emergency financial situations need are large penalty charges being racked up over their accounts; followed if they don't pay up by threatening letters to recover the money through debt recovery companies and litigation. It's also vulnerable people who are least likely to be able to challenge the banks and building societies and stand up for their rights.



Product mis-selling and deception

Banks have found themselves in facing complaints, legal actions and compensation payments over mis-selling insurance and investment products.

Bank of Scotland fined over complaints errors by FSA, BBC, 25/5/2011

UK banks lose Payment Protection Insurance challenge, BBC, 20/4/2011


Exploiting charities for their own ends

Recently a dozen of the best known high street banks were caught using charitable trusts to raise billions without telling the administrators of those charitable trusts or giving the trusts any of the money they make. The banks do this to exploit charity tax law. For more details please read the article below:

Revealed: how UK banks exploit charity tax laws, guardian.co.uk, 5/12/2007

Mistreating their employees One common way banks and building societies have often mistreated their employees is by setting performance targets far too high. This in turn has placed some employees under such pressure that they are encouraged to behave unethically and recklessly to meet their targets.

Bank workers 'pushed to sell products consumers do not need', myfinances.co.uk, 31/3/2009

Barclays Bank scandal exposed, thisismoney.co.uk, 21/3/2007



Using corporate and social responsibility statements to mislead the public

Nearly all banks and building societies have corporate and social responsibility statements, but these are often dishonoured. They are frequently used by some banks and building societies to advertise that they take ethics seriously, but in reality their actions often ignore ethics as they focus predominately on unrestrained profit chasing.

We need only compare a bank's or building society's corporate and social responsibility statement to its information and statement of unauthorised penalty charges for proof of this. Both can usually be found on their websites.

How penalty charges help drive poverty and what can be learned from it



The infamous 'fat cat salaries' and bonus culture

Many in the highest offices in banks and building societies continually seek higher and higher remuneration way beyond what they need or will ever need. Their motives are often to match or better others in similar positions in other financial service providers who are on higher salaries, and they consider themselves undervalued unless they get it. It seems few of them ever stop to consider what the cost to society of all of this will be. Besides contributing toward increasing the cost of doing business, which only helps fuel more reckless behaviour and policies in the banks and building societies themselves; it also helps to drive up the cost of living for everyone else.

Bank bonuses 'to run to billions in 2011', BBC, 7/1/2011

New Rules on Bonuses 'this week' BBC, 9/8/2009

Minister attacks banking bosses, BBC, 24/1/2009



Tax avoidance

Banks have been accused of avoiding paying taxes on their own profits as well as helping their clients avoid tax.

Barclays UK corporation tax bill for 2009 was £113m, BBC, 18/2/2011

HSBC comes under US tax scrutiny over Indian accounts, BBC, 8/4/2011

Banks warned over Tax avoidance, BBC, 29/6/2009



Unethical investing and corruption

RBS agrees to end work for Belarus, BBC, 29/08/2011

UK banks complicit in Nigerian corruption, report says, BBC, 11/10/2010

RBS fined £5.6m for anti-terror failings, BBC, 3/8/2010

The Great Hunger Lottery - How banking speculation causes food crises, World Development Movement, July 2010

Unprecedented legal battle over RBS' unethical investments, WDM, 19/10/2009

Breaking competition laws

Competition laws are designed to stop collusion between competing companies that would allow them to set higher than market prices leading to consumers being ripped off.

EU investigates banks over credit default swaps use, BBC, 29/4/2011

RBS fined £28.6m for breaking competition law, BBC, 30/3/2010



Taking ever greater risks whilst ignoring traditional risk controls

Some UK retail banks have keenly put aside their traditional roles as lenders to gamble in the stock markets. Many have especially over exposed themselves to complex derivative trading and securitization. Due to their complexity such instruments are often notoriously hard to value properly and are therefore very risky. This is one of the main reasons why some banks now require bail outs with public money.

Some banks have broken long established risk controls by investing in big companies as well as lending large sums to them. This has meant that their judgment on the credit-worthiness of such companies has often been compromised by the bank's enthusiasm to see those companies make bigger profits to increase the value of their investment.

Finally, some banks have made themselves over reliant on unreliable sources of funding.

UBS trader Kweku Adoboli arrested over 'rogue deals', BBC, 15/9/2011

Banking Commission wants firewall around retail banking, BBC Preston's Picks, 9/4/2011



Ignoring the bigger picture

There is a simple rule in business and that is money doesn’t grow on trees. If an easy way to make money is found then we can know someone, somewhere will have to pay for it. If banks and building societies find apparent easy ways to make large amounts of money off of society in the short-term then the long-term cost should never be ignored and forgotten. The big picture always needs to be honestly assessed to determine who is likely to pay for it and what the consequences of that will be. Otherwise an unsustainable bubble will be created that must inevitably burst and leave a mess that does far more harm to society than good.

It would be wise for banks and building societies to consult with social welfare organisations and consumer protection organisations when considering the social costs of their banking policy decisions that affect wider society.

Mervyn King: Banks putting profits before customers, BBC, 5/3/2011




This list is by no means exhaustive and is only intended to represent a brief cross-section of bad banking practice. It is vital that those who decide banking policy and strategy are also helped to understand the true consequences of neglecting corporate and social ethics, and that positions of power also bring great responsibilities to work for society's greater good.