In an interview with the Yorkshire Post newspaper, Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), suggested that small and medium sized firms still have no effective complaints system for when they are mis-treated by their bank.
Mr Bailey acknowledged that his organisation primarily concentrates on consumer protection issues, and gave as an example the price caps on payday loans and other rules introduced in the consumer credit sector.
The Financial Ombudsman Service, the independent complaints adjudicator for the financial services industry, only adjudicates on complaints made by companies when the company making the complaint has fewer than ten employees and a turnover of less than EUR 2 million. For many companies who cannot meet these criteria, the costs of taking a grievance with a bank to court are prohibitive.
However, the FCA chief revealed that he is in discussions with politicians about ensuring a fairer deal for companies.
Mr Bailey said that “one of the things I am very involved in at the moment with Parliament is the question of having an adequate complaint resolution mechanism for small firms,” and he frankly admitted that “there isn’t one at the moment.”
The episode that perhaps caused the greatest damage to small businesses in recent years was the mis-selling of interest rate hedging products (IRHPs), whereas payment protection insurance (PPI), endowments, packaged accounts and other mis-selling primarily affected individual consumers.
11 high street banking groups were required by the FCA to review their sales of IRHPs, including all of the largest banks. IRHPs are designed to protect against rises in interest rates on business loans, however interest rates have been at a historic low for many years, meaning that the products have been of little value recently. Many businesses have been hit with significant fees and exit costs as a result, and many have said that they have experienced significant financial problems or even gone bust as a result.
In an echo of the PPI scandal, many purchasers of IRHPs allege they were pressured into buying the product, or were told that taking out the product was mandatory. However, many small businesses were excluded from the FCA’s redress scheme as they were deemed to have passed the ‘sophistication test’ – an assessment of whether they were likely to have understood the complex nature of the product. Even for those companies who did receive compensation from the redress scheme, many believed that their payouts were inadequate.
When asked if he thought banks had changed following all the recent mis-selling episodes, Mr Bailey commented:
“I think the lessons have been very harsh. What I would say though, is that we are still dealing with the legacy of that period, in the conduct area for a number of reasons. One is obviously, things like PPI (mis-sold payment protection insurance) are still going on.”
He held out some hope that banks had changed their ways when he went on to say:
“There is quite a lot of what I would call business model change happening, which is a necessary response to the sort of causes of those problems. That is still working its way through the system.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.