Q & A with James Daley
Which? Money editor James Daley answered your questions about banks, as part of the Which? Big Banking Debate, in February 2010
Q. Ewe: One thing that has always confused me, and still does, is credit ratings. I am in my early 20s, have no student debt, no overdraft, never had a loan and only recently got a credit card. Why do I struggle to get credit when I have friends who have £2kplus overdrafts, credit-card debt and student loans who manage to get credit card after credit card? More importantly, what can I do about it without getting loads of unnecessary debt just to improve my credit rating?
A. James Daley: Hi Ewe. Although it might sound strange, lenders actually like you to have more, rather than less, debt (within limits of course) when they're deciding whether to grant you credit – because it gives them a better idea of how much of a risk you are to them. If they see that you've got a good track record of meeting repayments on other loans and credit cards, it reassures them that you'll keep up your repayments to them as well. People like yourself, who don't have much or any credit, can often find it hardest to get a loan or a new credit card. If you do need a loan, start off by approaching your bank, as they're more likely to accept you. And if you need a credit card, there are a number of "credit-building" cards out there, such as Barclaycard Initial, which are designed to help people like you build up a more substantial credit record. They charge higher interest rates than most cards but, after a few months of meeting your repayments, you should be in a better position to apply for a cheaper card.
Q. Edam: Looking only at retail banking and not the bail-outs, I think banks and financial institutions should be forced to be honest with customers. None of this hiding fees in the small print or mis-selling PPI etc. No bonuses or targets for staff who sell products because that inevitably leads to mis-selling. Charges for customers who go over agreed overdraft limits should be fair and reasonable and they should not penalise people with charges on top of charges, forcing people into spiralling debt.
In fact, someone needs to take a long hard look at direct debits: there seems to be very little control on companies who suddenly change the terms and grab more money from your account than you are expecting. Bring back standing orders! Or at least sort out the direct-debit "guarantee" so it actually does what it says it will and works in practice.
James Daley: Hi Edam. We totally agree with your point about commission-driven sales. Too many bank staff are given incentives to sell as many products as possible but, in some cases, the best advice might be that a customer takes no action at all. The regulator is moving to ban commission on investment sales in 2012 but other financial products may escape this ban. If commission is going to stay, it needs to be completely transparent.
Bank charges is another area that needs urgent reform. It was a great shame that the Office of Fair Trading lost its court case against the banks last year – and this will slow down reform in the industry. However, we're continuing to lobby for changes. Charges are still generally much too high. And worse still, all the banks now have very different ways of charging for people who go overdrawn – which makes it difficult for consumers to compare accounts.
Q. Minipie: Here's what I'd like to see:
1. Less pushing of products (both on the phone and through junk mail) please. Especially credit products (see no 4, below)
2. Cheques and electronic transfers. Why do these still take so long to clear? I know some banks are improving this but it's very slow.
3. Branch opening hours. Why can banks still get away with closing at lunchtime on a Saturday (or not opening at all) when other retail businesses are open longer and longer?
4. Credit limits. Many people have been given huge amounts of credit who clearly will not be able to pay it back, and then are slapped with huge interest and charges which just hike up the debt. Banks are deliberately selling credit to those who can't afford it because they make so much through the interest and charges. The credit crunch slowed this somewhat, but not enough. The banks/credit-card companies should take responsibility for not allowing a person's total debt to get out of proportion to their income - in the same way that pubs shouldn't serve someone who is already drunk.
5. The unpaid item fee needs to go. Other bank charges are (arguably) justifiable, but that one isn't.
A. James Daley: Again – lots of interesting issues here, Minipie. We're very concerned about customers being sold unsuitable products when they walk into their bank – and that includes being offered credit that you can't afford. Slow payments is a problem that many of Which?'s members find frustrating. Although some banks have introduced a new "Faster Payments" system – which allows electronic payments to clear instantly – most payments are continuing to take three days or more, which seems ludicrous in the 21st century.
Q. Swedey: I bank with First Direct and would like to say how thoroughly pleased I am with them.
A. James Daley: Hi Swedey. Our members agree with you about First Direct. They come top of our customer satisfaction surveys all the time.
Q. Lovebeingamummy: I think we should stop expecting a free service; you get what you pay for. It's not that long ago that current accounts had fees. I believe that if all the banks fees were reduced, they would have to charge a maintenance fee again, so let's just do it now. This way, customers will see what they are paying for and, if they don't like it, they can leave. There would be more chance of customers voting with their feet if they were paying for the service.
Branches need to get back to having some control. A branch manager can't due jack to help his customers. People need to be taught how to manage their money properly. I have spoken to people who complain they have no money because a fee has been taken but, when you look at their account, it's down to not budgeting correctly or just plain being stupid with money.
You can have a dozen people who all use the same bank and they will give you different reports because they have spoken to different staff. We need to make people proud to work for their bank. They need to take pride in their job. And not have people swearing and shouting down the phone at them because they've spent all their money.
A. James Daley: Lovebeingamummy, don't believe that our banking is free. Banks make plenty of money from the balances in our accounts. They pay us back little or none of the interest they earn. However, we do have it a lot better than some other countries, where fees for banking services are much more common.
Q. Suena: I want a division between retail banking and "casino" banking. Retail banking is a public service; it should only be permitted under licence and be properly regulated (regulators paid for by licence fee). "Casino" banking does not serve a public need; it need not be licensed nor regulated but the upside is that there should be no public bail-out either. The Competition Commission should ensure that no company is "too big to fail". Hopefully, this would mean more banks and, thus, more competition, which must be good for the consumer.
A. James Daley: Hi Suena. A division between retail banking and investment banking is one way of helping to ensure that the taxpayer does not remain on the hook for the failures of the banking industry. However, it could be very hard to put into practice.
The problem we have is that Britain relies on the financial services industry – it's the biggest single contributor to our economy, so we don't want to do anything drastic that might encourage companies to move elsewhere. However, we can't allow a repeat of the banking crisis – and must take appropriate action to ensure there is no repeat of that. One of the ways to tackle this is to act globally – which is why everyone in Britain is closely watching how Obama gets on with his proposed reforms. He wants to separate the proprietary trading arms (the "casino" parts of the banks) from the retail banks, as you suggest. But he may struggle to get it through Congress. If he succeeds, it'll make it easier for Britain and other countries to follow suit.
Q. Butadream. Retail banking: I am concerned that many people still do not have any bank accounts and that increased reliance on the internet to provide retail banking services will lead to a greater poverty gap. I am not happy with the number of retail banks closing branches in rural areas and in poorer towns and suburbs. I am not impressed by the banking knowledge of Post Office staff, if this is the only fallback such areas have.
I am very annoyed about the level of bank charges that banks impose particularly on customers who have savings with the same bank or on people who try to get themselves sorted but end up just slightly overdrawn month after month due to bank charges alone.
I think that marketing for credit cards should make it clear that, ultimately, the bank can go into the same customer's other accounts to take payment. For this reason, I would never take a credit card out with the same bank I save with.
I think that interest rates v charges could be explained in a clearer manner. For example, fixed-rate mortgage deals should show how arrangement fees and interest rates add up: some of the low-interest rate deals are not the cheapest over the fixed-rate period but this is not immediately obvious.
I support the London Citizen's campaign against usury that 10% interest is quite enough for personal consumers to be charged. I am also concerned about the end of cheques and the impact that will have on small businesses who will then be charged to take payment by card.
As regards investment banking, I understand that the Turner enquiry found that individual bankers' compensation did not cause the current financial crisis after all, that some areas of investment banking did very well and were completely unrelated to the dodgy investments. So I do not mind if bonuses are paid to bankers at market rates, even in state-owned banks, as I think it is important that London, in particular, retains its status as the home of a world-class financial services industry. I am, on the other hand, very supportive of any increases in additional personal taxation (say, 60% income tax on people who earn over £200k per year) even though I understand it would not really raise that much for the Treasury in the overall scheme of things.
A. James Daley: Butadream, some great points here. We're continuing to fight for financial inclusion – ensuring that everyone has access to a bank account, and we have many concerns about transparency in the credit-card market, too. The end of cheques is a big concern for our members, and we're lobbying the industry to ensure that these are not phased out before there are other suitable and freely accessible payment methods to replace them. We're certainly not there yet.