LONDON: A legal duty for banks to act in the best interests of their customers may be needed, British lawmakers said on Monday, piling pressure on regulators to step up protection of consumers after a string of mis-selling scandals spanning decades.
British lenders have paid more than 30 billion pounds ($39.03 billion) since 2007 in redress to customers mis-sold endowment mortgages, pensions and payment protection insurance.
Banks and other financial firms are not legally required to put customers’ interests ahead of their own.
“All retail financial services, no matter which sector of the industry they operate in, should be acting in their customers’ best interests at all times,” parliament’s Treasury Select Committee said in a report on financial inclusion.
“If the Financial Conduct Authority (FCA) is unable to enforce such behaviour in firms under its current rule book and principles, the committee would support a legal duty of care,” it said.
Faced with a lack of consensus on the issue, the FCA said in April it has no plans to introduce a duty of care rule as there is unlikely to be a one-size-fits-all solution to any weaknesses in consumer protection.
The watchdog would instead review how it applies its existing rules and principles, but the lawmakers said the FCA should set out by autumn a clear timetable of when changes to its rule book, principles, or legislation, if needed, will occur.
Stephen Jones, chief executive of UK Finance, which represents banks in Britain, said the sector’s commitment to financial inclusion is shown by nearly 7.5 million customers having a free-in-credit basic bank account.
The report also said that the FCA should make it mandatory for financial firms to publish the size of their “loyalty penalty” or the cost of being a long-standing customer compared with a new customer receiving the same products.
Consumer campaigner body Which? told lawmakers that an average customer could be paying a “penalty” of up to 1,000 pounds ($1,301) a year.
The industry is improving competition in mortgages and cash savings to encourage customers to shop around to get the best possible deal, UK Finance said.
The TSC report warned against more closures of bank branches, saying they hit vulnerable people, such as the elderly or those on lower incomes.
The number of branches in Britain has fallen to 9,690 in 2017 from 20,583 in 1988 as more customers bank online, the use of cheques declines, and as contactless payments overtook the use of cash in 2017.
Banking industry bodies say that customers can now use post offices for basic banking services.
“The Post Office provides this service at a loss. Taxpayers should not be subsidising the big six banks’ lack of branches,” the report said.
Free-to-use cash machines must also be maintained to avoid Britain inadvertently becoming a “cash less society” which would hit vulnerable people, it added.
The FCA should also force banks to relax their restrictions on opening a basic bank account to make them accessible to all consumers.
“It can no longer be an option for banks to ignore financial inclusion,” the TSC’s chair Nicky Morgan said.