UK banks say consumer safeguard could backfire in cost of living crisis
5:39 pm Wednesday, November 16th, 2022
By Huw Jones
LONDON (Reuters) – Britain’s banks are proactively helping customers hit by the cost of living crisis, but implementing a new “consumer duty” on time could exclude vulnerable consumers from help, banking industry body UK Finance said on Wednesday.
Consumers are grappling with inflation at a 41-year high of more than 11%, higher energy and food prices, and more Bank of England interest rate rises anticipated.
UK Finance chief executive David Postings said portfolios of lenders have so far stood up to current economic stresses.
“Arrears and impairments are around normal levels but it is clear there is mounting strain as interest rates continue to rise,” Postings told UK Finance’s annual dinner.
Banks will have a repossession moratorium over the holiday period, Postings said.
But he saw a “real worry” over the rollout of the Financial Conduct Authority’s tougher “consumer duty” on financial firms to ensure good outcomes for customers.
The FCA has said the rules will start to apply to new and existing products from July 31, 2023, but this timetable is “extremely tight, maybe too tight”, Postings said.
“Faced with a lack of clarity over the definition of ‘good outcomes’ and the real risk of challenge down the line I worry that firms will take a low-risk approach, withdrawing products and/or tightening the sales criteria,” Postings said.
This would effectively exclude those who might need greatest financial support, he added.
FCA chief executive Nikhil Rathi said in a speech at the dinner that he knew banks have concerns but there would be no extension.
“Thanks to your co-operation and hard work, we hope that we have overcome the biggest stumbling blocks in the design and implementation,” Rathi said, adding the watchdog would check that no consumers are excluded.
“Firms seem to be on track so we see no need for those deadlines to move again,” Rathi said.
It is more critical than ever that borrowers and savers are offered fair and competitive rates, Rathi added.
UK Finance chair Bob Wigley said he anticipated that finance minister Jeremy Hunt’s fiscal statement on Thursday would help restore Britain’s “traditional reputation for sound management of public finances” after turmoil in UK bond markets in September.
“I hope that he will also recognise the importance of this partnership our sector offers. That means recognising the excessive rates of aggregate taxes on banks in London compared with other global financial centres, particularly Amsterdam, Frankfurt, Dublin and New York,” Wigley said.
Banks hope Hunt will announce a cut in the tax surcharge on their profits.
(Reporting by Huw Jones; Editing by Bernadette Baum)
