New banking code protects indebted customers
by Gill Montia
Story link: New banking code protects indebted customers
Changes to the Banking Code are being introduced in March of this year and will mean that bank customers will have some protection against charges made for defaulting on credit or overdraft payments.
The new guidelines, which state that lenders must warn borrowers if they are in danger of getting into debt, are aimed at mitigating the financial difficulties faced by many UK households as a result of the credit squeeze.
Currently borrowers are responsible for informing their banks or building societies of financial difficulties that could result in defaults, but from March, banks will be obliged to offer alternative debt repayment plans to customers who appear to be in financial difficulties.
Lenders will also have to acknowledgement that customers can only be expected to pay off debt from credit cards, personal loans and mortgages if they can still afford to pay for “priority” household bills such as heating and electricity.
The new code prohibits unwarranted account closures and requires lenders to provide clearer of information on products and improve their credit assessment practices.
Greater transparency of information will also be required for credit cards and credit card cheques.
Paul Smee, Chief Executive of APACS, the body that represents the payments services sector, states: “Changes to cheque clearing mean increased transparency and that for the first time customers can be sure that six days after paying in a cheque the money is definitely theirs. This is great news for all customers but particularly for small businesses and those who have basic bank accounts.”
The Citizens Advice Bureau, which has recently been campaigning against the way banks deal with indebted customers, has welcomed the changes.
The charity has, however, criticised the banks’ decision not to end the practice of unsolicited increases in credit limits.