Teresa Hunter: Driven crazy by nonsense banking reforms

Published on Saturday 31 October 2009 13:56

THIS government's relationship with the banking industry becomes more like Edward Lear's Miss Maniac by the day.

"Deceived! Deceived! I loved thee once, therefore I will not curse.

"But if my soul were barred to thee, Hell could not wish thee worse."

The week began with a list of credit card reforms, to prevent us taking on debts in the unlikely event we ever can find anyone to lend to us again.

Forgive my cynicism, but I seem to have spent the last decade writing about endless consumer credit reviews and investigations, most of which came up with identical conclusions. Banks must not unilaterally increase borrowers' credit limits or interest without asking, and minimum monthly payments should be increased.

The government welcomed each of the reports, promised to read them carefully and promptly threw them in the bin.

So why, when the problem is no longer excessive credit but a plastic famine, does it now choose to act? Isn't it crazy to ask people to pay more when they are already struggling to pay their bills?

Are they, like Miss Maniac, bedevilled by a guilty conscience?

"Oh! When the bubble pleasure burst, how slowly time rolled by, My thoughts were grief, my looks were shame, my every breath a sigh!"

Next we hear details of their plans to break Northern Rock into a bad bank, which stays with the taxpayer, and a good bank, which can be sold off. But there was almost no mention of how this will hit customers.

A bit of digging unearthed that while the savings accounts are being transferred to the new bank, the biggest chunk of mortgages are staying with the old bank. Here they will be offered no alternative but to pay the variable rate, which given the parlous state of its toxic loan book, could well creep up over time.

Those who get switched to the new bank have the prospect of a better deal. The new bank will want to attract customers, so will have a competitive range of fixed, tracker and discounted deals, not least because the government has effectively given it 8 billion and said "go lend".

So who stays and who goes? This, apparently, will come down to the way individual loans were financed. If it was funded via wholesale money then it stays in the bad bank, but if it was allotted using retail savings, i.e money over the counter, then they can go.

How is this fair? Borrowers have no say over how their mortgage is funded, and will be similarly powerless to influence what happens next. If they do get stuck in the bad bank, they will not be able to get a further advance, and if they don't like the service, many may find it impossible to move elsewhere, because they took out large loans, or are now stranded with a small deposit, due to falling prices.

It is even more farcical when you remember that all this is happening in the week when chief city watchdogs at the FSA launched a new regime of banking regulation pledging to ensure fairness for consumers.

Transparency, guaranteeing customers get clear information which puts them in control of their affairs, is the central and consistent theme at the heart of the FSA's promise to clean up the industry. Have they even thought what will happen when one set of former Northern Rock customers are offered bargain deals denied to another set.

Even Miss Maniac could see such a plan would be lunacy.

"Till, lost in unknown agony, I laughed, as if in mirth,

Or shudd'ring – welcomed back the gloom of hell began on earth."

Where is the upfront information for Northern Rock customers, who as we speak, haven't a clue what is going to happen to their mortgage?

They are not alone. There is speculation that Royal Bank of Scotland and Lloyds Group will also spin off brands, leaving many tens of thousands of customers wondering where their current account will land, amid predictions that the old Williams & Glyn, NatWest in Scotland, TSB Scotland, Cheltenham & Gloucester and Intelligent Finance will be sold.

The waiting is over for customers with Standard Life Bank, which is to be sold to Barclays. I'm sure, though, some will be aggrieved. If they had wanted a Barclays service, they could have chosen to bank with Barclays in the first place. Intelligent Finance, which was HBOS's main internet brand, which pioneered offset mortgages for the masses, has stopped granting any new loans. If you have an offset mortgage, and want a further advance, or another offset loan, hard luck.

Indeed, it's all a terrible mess. And customers end up paying twice. First, as taxpayers, they bear any ultimate losses. Second, as account holders, they are pushed around like flotsam and jetsam.

At this rate, they'll drive us all as crazy as Miss Maniac.

"The madness first his scorching hand held o'er my withered brain,

"Aha, it was a deadly touch but it never cooled again!"