Regulator accused of letting down poorer bank customers

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The Competition and Markets Authority (CMA) has been accused of letting down the financially vulnerable in its recent report on banking.

Labour MP Rachel Reeves said the CMA was guilty of a “dereliction of duty”, after it decided not to cap unauthorised overdraft charges. Instead the CMA’s August report suggested that banks should each set their own maximum monthly charges. Professor Alasdair Smith, the report’s author, denied the accusation. He was appearing before MPs on the Treasury Select Committee. Rachel Reeves said that, on average, vulnerable consumers were paying £225 a year in overdraft charges, which they could not afford. “It’s a dereliction of duty, Professor Smith. I think it’s a very disappointing report. You are letting down the most financially vulnerable,” she said. At the moment, the big High Street banks charge up to £100 a month for an unarranged overdraft, plus other fees on top. The MPs heard that the cost of borrowing £100 from a payday lender could even be cheaper.

‘Deeply disappointed’

However Professor Smith said the focus of the CMA’s banking enquiry had been on making competition between the banks work better. “I don’t think it’s a dereliction of duty,” he said. But he said he shared Ms Reeve’s concern. “I agree with you that our measures will not directly address all of the problems of the most vulnerable overdraft users,” he told the MPs. “And it is not realistic for us to do this.” However, the CMA’s senior director, Adam Land, said vulnerable customers would be helped by its plans for so-called open banking, which will enable consumers to share their banking data with third party providers. “Open banking helps overdraft customers in three ways: The first challenge it overcomes is customers feeling that they can’t switch because they are in debt; secondly it provides money-management tools so customers can avoid getting into a poor position; and third it will help customers compare the costs of overdrafts.”

The CMA has also been criticised by the debt charity StepChange, which has argued for a regulated maximum overdraft charge across the whole industry. After the hearing, the chair of the committee, Andrew Tyrie MP, also expressed concern: “The weaknesses identified today were already evident from the interim report of last year. The committee was deeply disappointed by what it heard.”

 

 

 


Barclays’ PPI costs rise by another £600m

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The cost of the payment protection insurance scandal has topped £40bn after Barclays took another £600m hit to pay compensation to customers who were mis-sold the product.

The extra provision, announced as the bank reported a 10% fall in nine-month profits, takes Barclays’ costs to £8.4bn. Data compiled by the thinkthank New City Agenda shows that this top up for Barclays has pushed the total provisions incurred by the industry to £40.2bn. Lloyds Banking Group makes up £17bn of that total bill for PPI mis-selling scandal tops £40bn

Barclays said its extra provision was caused by the cutoff point of June 2019 for claims, set by the Financial Conduct Authority. It added: “We will continue to review the adequacy of the provision levels in respect of the FCA’s proposals, which remain subject to consultation.” In the midst of an overhaul being led by chief executive Jes Staley, the bank insisted it was “open for business” after the Brexit vote. But Staley admitted he was considering what changes it might need to make to its business as the UK made plans to leave the EU.

Barclays chief executive Jes Staley insisted Barclays was ‘open for business’. Staley said: “We are looking at our options. We will take incremental steps. We are engaged in active discussions with the British government. Our desire is to stay as fully invested in the UK as we can.”

This week, the Observer reported a warning from Anthony Browne, the chief executive of the British Bankers Association, that bosses had their hands “quivering over the relocate button”. Staley said while Barclays was looking at its options, “I wouldn’t say our finger is quivering. Our intention is to stay as much invested in London as we can. We are a British bank.” In July, Staley said operations might need to be strengthened in Ireland if the government did not clinch a passport deal that gave access to the remaining 27 EU countries.

The bank’s shares were the biggest risers in the FTSE 100, despite the extra charge for PPI and the £150m hit to cover costs incurred in reducing office space because of job cuts. The bank would not disclose which office was affected, but it has been reported that it has been in talks about leasing space in Canary Wharf to the government. The shares closed 4.5% higher, at 190p, after the bank reported that its profits fell to £2.9bn in the nine months to September, triggered by a loss in the non-core division that houses the operations Staley has earmarked for sale or closure.

Staley joined Barclays in December and set about selling off the bank’s operations in Africa. He said: “The growing momentum in attaining our strategic goals means we can feel optimistic of our prospects of completing the restructuring of Barclays – a restructuring to a simplified, transatlantic, consumer, corporate and investment bank with the capacity to deliver sustainable, high-quality returns for shareholders. This quarter has seen us take another important stride toward that state.” The vote to leave the EU had been a political shock, Staley said, but consumers had recovered swiftly.

“The referendum was a political shock, not an economic shock. I think consumers have recovered from that, but there has been an impact in the currency, which directly impacts the consumer,” said Staley. Barclays said it remained in discussions with the US Department of Justice over a settlement related to mortgage bond mis-selling.

 


LLOYDS MISSELLING

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Lloyds fined £28m for ‘sell or be demoted’ incentive plan

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Lloyds Banking Group has been fined a record £28m by the Financial Conduct Authority for putting staff under so much pressure to sell some even bought the products to save themselves from the axe.

The FCA said that incentive schemes created a “culture of mis-selling” between 2010 and 2012 where sales staff across Lloyds, Bank of Scotland and Halifax were put under pressure to hit targets to avoid being demoted, rather than focus on what consumers may need or want.

Taxpayer-backed Lloyds has already set aside more that £8bn to compensate victims of PPI – Payment Protection Insurance mis-selling – by far the largest provision made by any British bank. The regulator’s investigation focused on Lloyds’ sale of investment products, such as share ISAs and income protection products between January 1, 2010 and March 31, 2012. Sales were offered “champagne” or “grand in your hand” bonuses for hitting targets. The FCA said the worst case it had seen was “evidence that one Lloyds staff member sold protection products to himself, his wife and a colleague to prevent himself from being demoted”.

The regulator said competency standards were “seriously flawed” and advisers still received a monthly bonus even though a high proportion of sales was found by Lloyds to be unsuitable or potentially unsuitable.

For a Lloyds TSB adviser on a mid-level salary, not hitting 90pc of their target over a period of nine months could see their base annual salary drop from £33,706 to £25,927; and if they were demoted by two levels their base pay would drop to £18,189 – almost a 50pc salary cut, the FCA said.

It’s the ninth biggest fine ever issued by the City regulator and the largest ever for a breach of retail regulations.

Tracey McDermott, FCA enforcement director, said: “The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the consumer at heart.

“The review of incentive scheme that we published last year makes it quite clear that this is something to which we expect all firms to adhere.”

“Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite.”

The FCA said that Lloyds was handed its biggest ever retail fine because former regulator, the Financial Services Authority, had warned about the use of poorly managed incentive schemes for a number of years.

Lloyds TSB had also been handed a fine for the unsuitable sale of bonds in 2003 caused in part by the general pressure to meet sales targets.

The FCA said during the period of 1 January 2010 and 31 March 2012 Lloyds TSB advisers sold more than 630,000 products to over 399,000 customers, who invested about £1.2bn and paid £71m in protection premiums. In comparison, Halifax sold over just under half 380,000 products to more than 239,000 customers, who invested around £888m and paid £38m in protection premiums.

While Bank of Scotland advisers sold 84,000 products to over 54,000 customers, who invested around £170m and paid £9m in protection premiums.

Lloyds settled with the regulator at an early stage and therefore qualified for a 20pc discount. Without the discount the total fine would have been £35m, the FCA said.

Lloyds today “apologised” for any inconvenience it may have caused. There was no comment from Antonio Horta Osorio, the chief executive, who picked up a £2.3m bonus for 2012 last month.

Today’s fine follows media campaigns last year which revealed the pressure sales staff at Lloyds were under. One Halifax manager picked up £39,000 for three months’ sales over the first three months of 2013. The windfall – which almost equalled his entire salary – was so big it had to be signed off by Halifax chief David Nicholson.

In September last year Lloyds head of retail Alison Brittain insisted she would “bash the bonus bullies” and change the sales culture. But this Spring staff claimed nothing had changed and pressure was intense as ever.

One told The Sun: “Sales are now called ‘needs met’. It’s compulsory to ‘mid-brief’ every customer – to leave the interview and get a manager to check we have ‘maxed out sales’. It is also now compulsory to cold call a minimum of 25 customers every week. If we don’t, we are threatened with a ‘Performance Plan’.”

The FCA refused to say whether it was carrying out any separate investigations into Lloyds today. The bank withdrew packaged accounts at the start of this year saying it had to “harmonise” the sales process. They have not come back on sale since.

Richard Lloyd, executive director of Which? today said: “It’s right that in this case the Financial Conduct Authority is taking strong action by imposing their largest fine.

“This should send a clear message to the banking industry that mis-selling won’t be tolerated and that customers, not sales, must come first.

“We now need to see the new professional banking standards body deliver a big change in banking culture right across the industry, so that front line staff and their managers are not incentivised to sell products that customers don’t want or need.”

 

Read More: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10510228/Lloyds-fined-28m-for-sell-or-be-demoted-incentive-plan.html

 


BARCLAYS MISSELLING

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Barclays increases PPI and swaps mis-selling provisions

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Barclays has increased the provisions to cover two mis-selling scandals by another £1bn.

It relates to the mis-selling of interest rate hedging products sold to small firms, and payment protection insurance (PPI) schemes.

Following a review, the bank said total provisions for the scandal involving interest rate swaps were now £850m, and £2.6bn for the PPI schemes.

The figure comes ahead of the bank’s full-year results due on 12 February.

Review of sales

The Financial Services Authority (FSA) last week ordered the UK’s major banks – Barclays, Royal Bank of Scotland, Lloyds, and HSBC – to review all their sales of interest rate hedging products, and provide redress where mis-selling occurred.

The products were offered to thousands of small firms – including pub owners, haulage firms, care-home operators and vets – when they asked their bank for a loan.

The borrowers were told that the product would provide an “insurance” or “hedge” against the risk of interest rates rising. But with interest rates having instead fallen since 2008 to historic lows, many of these businesses discovered they were sitting on tens of thousands of pounds in losses.

The FSA said that around 40,000 interest rate hedging products were sold since December 2001 to “non-sophisticated” customers, to protect against interest rate rises or limit interest rate fluctuations.

In its review of 173 such sales across the four banks, the FSA said it found that more than 90% did not comply with one or more of its regulatory requirements.

Barclays increased its provision by £400m, nearly doubling the total amount it has set aside for compensation.

Barclays chief executive Antony Jenkins later told the parliamentary committee on banking standards that compensation would be paid as quickly as possible. He said that this would be an easier process than redress for PPI, as more information about those affected was available.

He also said that the payments meant staff would get smaller bonuses as a result.

The FSA has called on banks to deal with the issue within six months, although some cases could take longer.

Mis-selling

The bank has increased its PPI provision by £600m. The total amount of £2.6bn was still well below the £5.3bn set aside by Lloyds Banking Group.

Financial institutions sold PPI alongside loans, credit cards and mortgages. It was supposed to cover loan repayments if policyholders were ill, had an accident, or lost their job. However, the policies were mis-sold to large numbers of people who would never have qualified for or needed to make a claim. Some did not even know they were paying for PPI.

Mr Jenkins told MPs that PPI was mis-sold at Barclaycard – which he ran – up to 2009, when it stopped selling the product.

Millions of people have now received compensation from banks, receiving a typical payment of nearly £3,000. The total bill facing UK institutions for PPI stands at approaching £14bn, but it is expected to go higher.

Some 11,000 complaints a week are being made to the financial ombudsman in cases which are unresolved by the banks.

With their finances under pressure, the banks have asked the FSA to impose a deadline on complaints, but the regulator has not agreed to one.

But Richard Lloyd, executive director of consumer group Which?, said: “The banks should be proactively contacting their customers and making sure it is as easy as possible for those with a legitimate claim to get their money back, without any hassle.”

Barclays’ latest provisions announcement comes just a week before Mr Jenkins is expected to unveil a blueprint for overhauling the bank’s culture.

Its finance director Chris Lucas announced over the weekend that he was stepping down.

The bank has already been handed a record £290m fine by UK and US regulators related to a separate Libor-rigging scandal.

 

Read More: http://www.bbc.co.uk/news/business-21334145


Lloyds and Halifax mis-selling: who will get compensation?

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Those who bought Isas and insurance from Lloyds TSB, Bank of Scotland or Halifax between 2010 and 2012 could be in line for compensation.

 

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Thousands of customers could be in line for compensation after Lloyds Banking Group was hit with a record fine for pressuring staff to sell products that customers didn’t need or didn’t want.

The early indication is that nearly 100,000 people could receive money.

The Financial Conduct Authority said that incentive schemes created a failure in its sales process between 1 January 2010 and 31 March 2012 where staff across the group’s high street brands – Lloyds TSB, Bank of Scotland and Halifax – were put under pressure to hit targets to avoid being demoted.

It said such incentive plans “can create a culture of mis-selling”. Lloyds must now make recompense.

Which are the products?

The regulator’s investigation focused on Lloyds’ sale of protection products and investment products between January 2010 and March 2012.

Protection products included critical illness, income protection, life cover and “expenses on death” cover. Investments included personal investment plans, Individual Savings Accounts (Isas) and Open Ended Investment Companies (Oeics).

The regulator said the banks persuaded customers to take out more protection cover than they needed.

It could also be that customers were urged to invest in funds when this wasn’t suitable for them.

How were the salesmen incentivised? 

During the two year period salesmen at all three firms earned an average commission of £600 for every protection policy sold and £60 in commission for regular premium investment plans sold.

One-off investments into a new unit trust, Oeic, or Isa paid £260 in commission.

The only product which earned more commission than the protection products were lump sum investment bonds which earned an average £1,300.

The FCA’s investigation documents also revealed that the salesmen were offered “champagne” or “grand in your hand” bonuses for hitting their sales targets. Advisers were given big pay rises for towing the party line by recommending the protection products. Salesmen who missed their targets were not given bonuses and were even threatened with demotion.

One “adviser” even sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

In Lloyds TSB, advisers were typically paid a salary of between £18,000 and £73,000, based on six tiers. Most were paid £34,000 or £47,000 – tiers three and four. Failure to make enough sales would see them slide down the tiers.

How many people are due compensation? 

It is unclear exactly how many people are in line for compensation. Lloyds will act as judge and jury by undertaking an internal review to establish who exactly should be compensated. It has said it will prioritise 11,000 cases where compensation is most likely.

That is tiny compared with the total of around 692,000 customers who bought these products over that period. Lloyds said the FCA’s investigation of a sample found compensation was due in 14pc of cases, which would equate to around 97,000 people.

The FCA said salesmen at Lloyds TSB sold over 630,000 products to over 399,000 customers over the two year period. Halifax advisers sold over 380,000 products to over 239,000 customers, while Bank of Scotland salesmen sold over 84,000 products to more than 54,000 customers.

Millions of pounds were spent on these products. At Lloyds, customers invested £1.2bn and paid £71m in protection premiums. At Halifax, around £888m was invested and paid £38m in protection premiums, while £170m was put into protection products and £9m into protection premiums.

The FCA acknowledged that rises in the stock market may mean that “customer detriment” may be low. Any compensation on the investment products may therefore be lower as a result.

Read more: http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10510649/Lloyds-and-Halifax-mis-selling-who-will-get-compensation.html

 

 


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