Competition watchdog criticised by MPs over bank reform

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Treasury select committee chair accuses Competition and Markets Authority of ‘dropping the catch’

The competition watchdog has been accused of complacency and missing an opportunity to overhaul high street banking, including capping overdraft charges, despite a two-year long investigation. The accusations were levelled at Alasdair Smith, who led the investigation by the Competition and Markets Authority (CMA), by MPs on the Treasury select committee who were questioning him following the publication of the report in August. In a gruelling evidence session, MPs questioned why Smith – flanked by two members of his team – had not put a cap on overdraft charges and taken more radical measures to break the stranglehold on the current-account market held by the “big four” of Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays. Andrew Tyrie, the Conservative MP who chairs the committee, said the CMA had “dropped the catch” despite support from politicians, academics, consumer groups and the media for a tougher stance towards the banking sector. “The banking crash has changed the terms of trade in favour of the regulators with respect to reform,” said Tyrie.

The Labour MP Rachel Reeves said that the cost of an unauthorised overdraft was greater than a payday loan, where the charges have been capped. Reeves, who is arguing overdraft fees should be restricted, said vulnerable consumers were being let down. “It’s dereliction of duty,” said Reeves. The CMA report stopped short of recommending overdraft caps and said that banks should set out a monthly maximum charge for unauthorised overdrafts, from which the industry generates £1.2bn in fees annually. It recommended that the Financial Conduct Authority should examine this area. Smith argues that a new technology allowing consumers to compare the personal data, known as Midata, will shake up banking.

Tyrie said no other CMA report had ever received such “unequivocal condemnation” but Smith said he was confident the recommendations would transform banking in three or four years. “Only history will prove which one of us is right,” said Smith. “I am confident that the work of our group will result in a major change for the better and that when people look back at the CMA report of 2016 they will see it as a landmark that really changed the direction that this market has gone in,” said Smith, who also insisted that banks were not making excess profits. Smith said after the hearing that the CMA was introducing 17 “hard hitting” changes. “We will also help customers avoid unauthorised overdraft charges by requiring banks to text customers when they are at risk of incurring charges and give them a grace period in which to take action,” said Smith.

The CMA investigation was first announced in July 2014 at a time when the Labour party was promising to create new banks. At the end of the three-hour evidence session, Tyrie said: “The committee was deeply disappointed by what it had heard.”

Jill Treanor

 


Half a million loans written off after probe into debt collector’s practices

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Half a million people whose payday and car loans were sold to a debt recovery firm will have their loans written off after the financial regulator found failures in the collection process. Motormile Finance UK is paying a total of £154,000 in cash to 2,148 borrowers – equivalent to £69.83 each – and writing off a further £414m in debts where it has been unable to verify the amount owed by some 500,000 people. The firm, set up in 2008, specialises in collecting short-term loans that are passed on from lenders who did not recoup the debt themselves. The Financial Conduct Authority said Motormile failed to properly check the sums that these customers owed, and that the firm’s contact with some borrowers was “unfair and unsuitable”. The write-off is almost twice as big as the £220m in loans that Wonga forgave in 2014, in what was seen as the turning point for payday lending practices. Since the regulator started an independent review of Motormile in early 2015, the company has overhauled its IT systems and hired a new chief executive.

“We have worked closely with Motormile, and are now satisfied with their progress and the way that they will address their previous mistakes,” said Jonathan Davidson, director of supervision for retail and authorisations at the FCA. “This evidences the importance of conducting sufficient due diligence and how failing to do so leads to poor treatment of customers.”

The FCA took over responsibility for 50,000 consumer credit firms in 2014 and has been vetting providers before giving them permission to operate, starting with the payday lenders. The regulator refused permission to 35 loan firms in the last financial year and more than 100 debt management firms left the industry. The number of short-term loans has dropped from 6.3m in the first six months of 2013 to just 1.8m in the first half of 2015, aided by a new cap on fees and penalty charges. Around 400,000 Britons are still on debt management plans after struggling to pay back their original loan. Motormile Finance UK (MMF) reported that profits fell from £3.7m to less than £500,000 last year as it started to make provisions for the FCA’s intervention.

“Working so closely with the FCA has provided MMF with a very clear understanding of what is expected under the new regulatory regime and I can assure our customers that we have embraced this.” said Denise Crossley, chief executive. “We apologise to all of the affected customers and will be addressing the issues through the redress scheme we have agreed with the FCA.” She added that the group is now fully authorised by the regulator, “which is testament to them witnessing first-hand the serious approach we take to our regulatory responsibilities and our desire to treat customers fairly”. Customers do not need to take any action and will be contacted in the coming weeks. Motormile hopes to complete the compensation programme by February.

By Marion Dakers, financial services editor

 


Liz Truss urged by Bar Council to condemn Brexit ruling backlash

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New Lord Chancellor installed

The Bar Council joins calls for the Government to defend the judiciary’s independence after three judges were heavily criticised. Justice Secretary Liz Truss is being urged to condemn “serious and unjustified attacks on the judiciary” following a High Court ruling over Brexit. The Bar Council has joined calls for the Government to defend the judiciary’s independence after three judges were heavily criticised by some Tory MPs and sections of the media. The trio ruled on Thursday the Government must seek MPs’ approval before triggering Article 50 – the formal process of leaving the EU.

The Daily Mail called the judges “enemies of the people” while the Daily Express claimed the ruling was a marker of “the day democracy died”. The Bar Council, which represents barristers in England and Wales, condemned the attacks and called upon Lord Chancellor Ms Truss to do the same. It said: “A strong independent judiciary is essential to a functioning democracy and to upholding the rule of law.” Ms Truss has not spoken on the matter since the court decision and Prime Minister Theresa May has also been urged to calm the backlash in the wake of the ruling. Ex-attorney general Dominic Grieve said the stinging criticism of the trio was “chilling and outrageous” and “smacks of the fascist state”. He said reading some of the press coverage was like “living in Robert Mugabe’s Zimbabwe … I think there’s a danger of a sort of mob psyche developing”.

Bob Neill, the Conservative chairman of the justice select committee, told The Times: “All ministers from the Prime Minister down must now make clear that the independence of the judiciary is fundamental to our democracy.” It comes as Labour leader Jeremy Corbyn demanded Mrs May set out her Brexit plans “without delay”. In a speech to the Class think-tank, he said Labour “accepted and respected” the EU vote result but called for the Government’s negotiating terms be transparent and accountable to Parliament. Mr Corbyn also insisted all UK businesses should be given “assurances” over the impact of Brexit to match those apparently made by the Government to Japanese car-maker Nissan.

On Friday, Mrs May suffered a setback after a pro-Brexit Conservative MP resigned over “irreconcilable policy differences” with the Government. Stephen Phillips announced he was quitting over what he perceived to be a failure to appreciate the need to consult Parliament over Brexit. His resignation as MP for Sleaford and North Hykeham has fuelled speculation the PM will call an early election. However, a Number 10 source insisted Mrs May stood by her declaration that she would not go to the country before 2020. Meanwhile, the woman behind the successful High Court challenge on triggering Brexit has been subjected to a torrent of online abuse, including rape and death threats.

Gina Miller, who was born in Guyana in South America, has also been the target of racist rants by internet trolls, who have called for her to be deported.

 


Bank of England left embarrassed by forecast u-turn

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The Bank of England is seen in the City of London in London

The Bank has binned gloomy post-referendum growth projections and now admits it may have to hike interest rates after all. Let’s be frank, this is hardly the first time the Bank of England has got something wrong. It missed the financial crisis, it misjudged the strength of the housing market in the run-up to it, it underestimated the inflationary surge in 2008 and overestimated the economy’s capacity to recover from the Great Recession. But rarely has the Bank ever got an economic forecast quite as wrong as this one. In fact, one can go one step further: this is the biggest forecast u-turn in its history as an independent central bank.

Think about it.

In August, its first forecast after the referendum vote, the Bank slashed its gross domestic product projections more than in any single Inflation Report on record. Today, it raised its GDP forecast more than in any single Inflation Report on record. It is, of course, a deep embarrassment. Having cut interest rates to the lowest level in history and pledged to cut them again, the Bank has now had to admit that it no longer has plans to cut them. In fact, with inflation now forecast to rise further above its 2% target than at any point in recent history (that tends to happen when the pound falls) it has had to signal that it may have to raise rates if prices continue rising.

Very awkward indeed.

And yet, the story is not quite as straightforward as those headline revisions might suggest. For one thing, that near-term upgrade is followed by a big growth downgrade in the following years. The upshot is that actually in three years’ time the economy is set to be a few percentage points smaller than the Bank forecast last time around. That raises a deeper issue about the economics of Brexit: the real damage (or indeed boost) will be determined by the way the negotiations go in the coming years, and by the nature of the deal the UK eventually secures.

Will it be a deal that keeps the borders open and trade flowing? Will it clamp down on commerce and freedom of movement? These are the things that will determine economic growth and productivity in the coming years. It is too early to make a decent stab at predicting any of that – though the Bank’s medium term forecast cut suggests it believes the process might dampen growth in the coming years. Will it be right on that? As the former Governor, Mervyn King, used to say, the one thing we can be sure of is that none of our forecasts will be completely accurate.

Ed Conway Economics Editor

 

 


Why Philip Hammond should be getting ready to break up RBS

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Conservative Leader Theresa May Addresses Party Conference

The new series of The Missing is surely the gloomiest television of the year. But it has nothing on the endless saga of RBS, which seems to use the same disturbing time-shift device: whenever there’s a horrible new plot twist, you have to spot whether we’re in 2008, 2011 or today.

The crippled bank, still 73 per cent state-owned, has lost £2.5 billion in the first three quarters of this year, having just paid out another £425 million in ‘litigation and conduct’ costs chiefly relating to mortgage-backed securities hanky-panky in the US. Since its bailout eight years ago, it has lost considerably more than the £46 billion of taxpayers’ money that was pumped into it, and has never reported a full-year profit. Attempts by chief executive Ross-McEwan, after three years in post, to persuade analysts to focus on the bank’s positive underlying performance, rather than the extraordinary charges that are the legacy of his cursed predecessor-but-one Fred-Goodwin, fall quarterly on stony ground.

The harsh truth is this: if ever there was a company that cried out to be broken up, its operating business either sold to the highest bidder or if unsellable then parked in a ‘bad bank’ to be gradually wound down, RBS is surely it. The parent brand deserves to be buried forever, even if the main subsidiary brands of NatWest and Coutts are still viable and the original Scottish branch network might have a new life under a new (or old) name. But the one serious attempt to sell off a significant piece of the group — the separation of 314 branches into a ‘challenger bank’ under the revived and well-respected name of Williams & Glyn — has turned into the biggest cock-up of all.

The disposal was insisted upon by competition officials in Brussels, to be done by 31 December next year as a condition of the 2008 bailout. Plans for flotation of Williams & Glyn this year were abandoned because it proved too difficult to clone a separate computer platform; ‘restructuring costs’ relating to that and other problems amounted to £301 million in the most recent quarter alone. Next, Santander withdrew as a potential buyer because of incompatibility with its own superior systems; and after a recent second look, the Spanish group withdrew again because the price asked by RBS was too high for the can of worms on offer.

Now the Clydesdale & Yorkshire Banking Group — a hard-nosed operator recently spun off by National Australia Bank — has made a tentative offer, causing its own share price to dip as a result. But RBS says neither this nor any other Williams & Glyn sale can hope to be signed off by the end of 2017. In which case, Brussels may appoint its own ‘trustee’, somehow to force the disposal to completion.

What a farce. Philip Hammond, with none of George Osborne’s baggage to carry on this one, should call for a reappraisal of RBS’s chances of ever returning to the private sector in anything like its present size and shape. If he wants to set a generous time limit, he might say ‘before the opening of Heathrow’s new runway’. But if the expert advice is that the likelihood is close to zero however distant the deadline, he should send in a ruthless hit squad of accountants and liquidators to retrieve whatever value for the taxpayer they can find.

That would at least have some justice to it, since it is what RBS was accused of doing to so many of its struggling business customers during the recession.

http://www.spectator.co.uk/author/martin-vander-weyer/

 


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