When banks are fined are the proceeds used to benefit consumers or spur banks to change their behaviour? No – the money goes back into the financial services industry, reducing the fee the banks pay the next year.
It’s been a vintage year for bad behaviour from the banking industry.
Barclays was fined £7.7 million by the Financial Services Authority (FSA) for mis-selling risky investment products to thousands of elderly consumers. JP Morgan was fined £33.3 million for failing to protect client money. And mortgage lender GMAC-RFC was fined £2.8 million for moving too quickly to try and repossess people’s homes. I could go on but you get the picture.
Better ways to spend money
You might be surprised to learn that all of this money is given back to the financial services industry, reducing the fees they have to pay the FSA the following year. So the woeful performance of the industry this year will result in a record discount, expected to be £79.1 million, for them next year.
There must be a better way to spend this money. Especially at a time when almost 500 Citizens Advice Bureaux debt advisers face redundancy and we desperately need to increase funding for financial education. Shouldn’t the money be spent on something which benefits consumers?
Loss of life savings
Argos was fined £17 million by the Office of Fair Trading for the price fixing of toys and games. This was twice as much as Barclays was fined for exposing thousands of risk-averse elderly consumers to the prospect of losing a substantial proportion of their life savings.
We need to see banks pay a larger financial penalty to make it appropriate to the offence.
Banks need to be forced to review their sales of products and compensate consumers. They also need to report information to shareholders about how much compensation they could pay to consumers.
It’s amazing that Lloyds TSB, the UK’s largest retail bank, is keeping its shareholders in the dark about how much it might have to refund to consumers if it’s forced to deal properly with complaints about Payment Protection Insurance.
Only when fines and compensation are high enough to strike banks where it hurts – their pockets – will they come under any pressure from their shareholders to treat customers fairly.
We will be arguing for changes to the legislation used to create the FSA’s successor. Then, hopefully financial penalties will be significantly higher and the money will be used for something which actually benefits consumers.