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Banks, and how they treat us, are still firmly on the political agenda.

The coalition manifesto says “reform of the banking system is essential” and promises a levy on profits.

The last government made much of the competition it hopes will emerge from the hiving off of Lloyds and Royal Bank of Scotland branches. The financial meltdown has already prompted increased government scrutiny, with the Financial Services Authority taking over full supervision of retail banking only last November. But whatever the next political era brings, can we expect any changes to the way banks behave?

whenever I go into Barclays to pay money in, they always try and sell me a current account that charges a monthly fee with no benefits that are any use to me. Tim Kelsey, IFA, Money Marketing

Financial adviser Steven Forbes recently helped a client recover from a traumatic banking experience. “This lady, let’s call her Jane, was told by her branch that she should see one of their advisers for a ‘review’,” says Forbes, managing director of Alan Steel Asset Management.

“At this meeting she was told that as she was not married and had no children, her sister, who is the executor in her will, would have to pay a very large inheritance tax (IHT) bill, and as most of her estate was in property Jane needed to take out an insurance policy to fund this.” She had, however, made it clear that she intended to leave most of her estate to local charities so, in fact, her sister would not have been liable to any IHT at all.

“Jane was put under a great deal of pressure to take out the policy, at a cost of £900 per month. The adviser was using heavy sales techniques such as indicating the premium quoted was going to rise if she did not sign up now, and making her feel guilty that her sister would be left to pay such a tax charge.” Forbes says the bank would have received some £12,000 in commission for selling the policy.

“When I confirmed to her that she had absolutely no need to take out a policy such as this she was relieved and elated.”

He adds: “For too long banks have been pretending to have their clients’ interest at heart when offering these ‘reviews’, when in reality they have been a means to try and get high commissions for selling inappropriate products.”

Banking executives see it differently. At the Which? Future of Banking Commission, led by Tory MP David Davis and Labour’s former Treasury select committee chairman John McFall, the boss of Barclays’s global retail banking Anthony Jenkins said: “Mis-selling is a very serious problem but there is absolutely no benefit at all for us to sell a product that the customer neither wants nor needs. We want a long-term relationship with our customers.”

He said when he visits branches, he finds colleagues are “very keen to get the customer the right product….we have a good culture and we put the customer at the centre at everything we do”.

IFA Tim Kelsey, blogging on the Money Marketing website, responded: “That’s funny, whenever I go into Barclays to pay money in, they always try and sell me a current account that charges a monthly fee with no benefits that are any use to me. I feel that staff are very keen to sell me a product they’ll get commission on.”

Another, Brian Harrison, blogged: “I recently visited my local NatWest branch to open an additional bank account. For almost an hour the assistant tried to sell me various products and services before asking me to sign to say no advice had been given.”

Michelle Slade at information group Moneyfacts says: “My grandfather found himself upgraded to the Lloyds Platinum account, charging £17 a month. But he never travels abroad so he did not need the travel insurance and he already had breakdown cover with his car insurance.”

McFall said he had personal experience of “aggressive selling” by Barclays of payment protection insurance (PPI), which prompted the select committee to look into the products. The FSA has estimated that compensation for customers who have complained about being mis-sold PPI may cost the bank-dominated industry around £1 billion, plus a further £2bn for reimbursing those who have not complained. Earlier this month the FSA upheld its ban on the sale of single premium PPI alongside other products – such has been its abuse.

The FSA says it is taking “tough action” after finding poor standards of complaint handling at five banks – but has failed to name them. Two of the five have been referred to its enforcement division for further investigation.

The regulator pointed to a lack of senior management interest, incentive schemes penalising branch staff for paying redress, and “staff issuing multiple, repetitive responses to customers, forcing them to restate their complaint a number of times in the face of ongoing negative responses from the bank”. Some banks were chronic re-offenders, it added.

Dan Waters at the FSA says: “We are determined to use all the tools available to us to ensure that banks comply with our rules.”

Peter Vicary-Smith, chief executive of Which?, responds: “Bonuses should be linked to treating customers fairly and the resolution of complaints, not to sales. What’s more, consumers have the right to know which banks the FSA is referring to its enforcement division. If the UK’s banks want to win back the public’s trust, then they must fundamentally change the way they treat their customers.”

Adam Phillips, chairman of the Financial Services Consumer Panel, set up to monitor the FSA on consumers’ behalf, comments: “It is no wonder that the banks have objected to recent FSA moves to publish complaints data. This report shows that the way banks are handling complaints is lamentable, and can cause real suffering to consumers.”

Eric Leenders, director of retail banking at the British Bankers’ Association responds: “The vast majority of customers carry out their day-to-day banking with no problems.” But complaints were not always being handled consistently. “Clearly more needs to be done – that is why the BBA is working with the industry to bring all banks up to the standards of the best.”

Complaints about banks more than doubled to 2.2 million in the second half of 2009 as complaints about unfair overdraft charges were finally unfrozen, the FSA reported last week. The Office of Fair Trading took the big banks (and the Nationwide) to court but after two-and-a-half years the OFT was told by judges last December it was fighting on the wrong grounds, and it declined to continue the campaign.

Mike Dailly at Govan Law Centre, a campaign leader, says the Consumer Credit Act, as amended three years ago, puts the onus of proof on banks to show charges are fair, and could have provided a firm platform for the OFT to continue. Dailly says such an approach could create “a potentially devastating case for them (the banks) to answer”.

The OFT instead published a fair treatment manifesto to improve current account banking for customers.

Consumer panel chairman Phillips says: “The OFT’s response is weak. It relies on banks improving themselves when they have patently failed to do this in other areas.” He says the point of the FSA taking over retail banking responsibility was to spell out the “overarching requirement to treat customers fairly which was not in the previous voluntary Banking Code”.

Phillips says: “If the OFT’s proposals do not work, it must deliver on its commitment to make further intervention in the market, including legislation.”

The Co-operative Bank has doubled its market share of new current accounts in the last year, with a 38% increase in account openings.

Helena Forsyth, from Edinburgh, has been banking with the Co-op for over 10 years and has no problem with its lack of a branch in the capital.

“I do it all over the phone and over the internet,” she says. “I knew they weren’t going to go bust and they didn’t over-extend themselves, and it was nice to know they weren’t contributing to some sort of fat-cat pension.”

She adds that the bank has a forgiving approach to an accidental slip into the red for those normally (for the previous year) in credit.

The Co-op does not offer cash incentives to switch accounts, but does promise to pay £50 to any new customer who is dissatisfied with its switching service.

Consumers will not be expecting the likes of Tesco Bank, Virgin and M&S Money to offer a better service than the traditional high street banking brands, according to research by moneysupermarket.com. Just 10% of us think supermarket banks would offer a better service than high street banks, with 20% claiming the reverse.

Only 6% of adults change their current account each year and many worry that the switchover will “mess up” direct debits or go awry in some other way, says research firm Defaqto.

But David Black at Defaqto says: “Don’t be afraid of the switching process because it is actually relatively seamless. The banks will do most of the legwork by arranging the notification of the change of account details with all the direct debits and standing order originators. The entire switching process will typically take between two and four weeks.”

Latest research from Which? into mortgage providers found that Bank of Scotland had the lowest customer satisfaction score with 41% with Halifax (44%), Northern Rock (45%) and Lloyds TSB (48%) close behind. For the third year running, First Direct topped the survey, with 89%, followed by The Co-operative with 78% and Virgin’s One Account with 77%.

Source: http://www.heraldscotland.com