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Banks Should Help People Beat Credit Crunch

9 Mar 2009

Banks should ‘put their customers first’ and help them beat the credit crunch, according to Citizens Advice Scotland (CAS).

In a report submitted today (Wednesday) to the Scottish Affairs Committee of MPs, CAS says that the actions of Scottish banks often make life even more difficult for those Scots who are already struggling to cope with the effects of the recession. The report, based on case evidence from Citizens Advice Bureaux (CABs) across Scotland, identifies a number of such areas, and calls for banks to be more sensitive to the needs of their clients. CAS Chief Executive Kaliani Lyle says, “Banks play a vital role in the lives of the vast majority of adults in Scotland. And because of this, the impact of poor banking policies can be huge – particularly in the middle of a financial downturn like the one we are currently experiencing. “As incomes fall and prices rise, people are facing pressures of redundancy, housing costs and growing debt. The last thing they need is for the banks to make their lives more difficult. And yet our evidence today shows that is what is happening. “Simple things like opening an account, or trying to solve an overdraft are being made extremely difficult. Meanwhile some banks are becoming increasingly unsympathetic in the way they deal with clients, and even rejecting intervention from organisations like the CAB who try to negotiate on a client’s behalf. “Of course not all banks are bad, but the cases we present today are too many. Banks need to put people first and help them beat the credit crunch.” The areas in which CAB clients have reported banking policies making their lives more difficult are: Opening and maintaining accounts

  • Clients are struggling to open bank accounts due to a lack of personal identification, previous debts, or the policies of the bank branch.
  • Bankrupt clients lose their bank accounts and then find it hard to open another.
  • Clients are having difficulty switching their account to one that would make it easier for them to manage their finances.

Bank charges

  • High bank charges for small infringements unfairly penalise low income customers.
  • Some banks are using clients’ much-needed benefit payments to pay for overdraft charges.
  • Multiple charges – e.g. insufficient funds charges, unpaid item charges, missed payments charges – can ‘snowball’ into huge amounts of debt.
  • The likelihood and level of overdraft charges are often poorly explained.
  • Banks are often unhelpful in responding to clients who try to negotiate a solution to their overdraft problems.

Irresponsible Lending

  • Many low income clients are in real difficulty because, prior to the credit crunch, they were offered unaffordable credit that put them into a cycle of debt.
  • Substantial credit was given to clients with no obvious ability to repay, including people who are retired, those on benefits or those with existing debts.
  • Even now, some clients are being pressured into taking loans they had no intention of asking for, believing that taking a further loan will solve arrears.

Account Management

  • Before the credit crunch, some banks responded to clients’ financial difficulties by extending their overdraft limits or offering loans. But since the credit crunch, even small amounts of manageable credit have been denied to clients. People have therefore suffered the ‘worst of both worlds’ under inconsistent banking policies.
  • Other cases have seen banks transferring a client’s money from one account to another, e.g. using their benefit payment to pay their credit card charges (which leaves the client without funds to meet priority debts like mortgage payments).

Attitudes to Interventions from the CAB

  • Some banks have refused to recognise a CAB as representing a client, running contrary to the Office of Fair Trading's Guidance on Debt Collection.
  • A recent trend has seen banks freezing clients’ accounts after a CAB has made contact on behalf of a client.

For more information please contact Tony Hutson on 0131 550 1010. ENDS

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