Have Britain’s scandalous banks finally turned a corner?
With new brooms in place, and the CPP mis-selling racket exposed, the mood is shifting
WHEN RBS’s new boss, New Zealander Ross McEwan, arrived in Britain last September to take charge of the bank’s high-street arm, he was taken aback with what he found. As he told analysts six months into the job: “I have been quite surprised by how bad this industry is.”
This week saw further confirmation of that, in the shape of yet another grubby mis-selling scandal. The central culprit is a company called CPP, which was flogging insurance cover, nominally to protect against card fraud and identity theft.
The fraud protection products, costing around £30 a year, were largely useless – because in all but exceptional circumstances, banks are liable to compensate for losses anyway. The identity theft cover (at £85 a year) may at least have had some value, but the Financial Conduct Authority found widespread evidence that scare tactics were used to sell them, with the risk of ID theft greatly exaggerated.
The banks might not have been the central player in this scam, but they were in it up to their eyeballs: a sizeable chunk of CPP’s business came from direct referrals, with customers sometimes told that buying the cover was “compulsory”. Many were unwittingly placed in CPP’s grasp when they rang a number on a new card to activate it; they were often misled into thinking they were talking to their own bank. In a sense they were, since – according to CPP’s own flotation prospectus – the referring bank got a kick-back of up to 80 per cent.
Many people, on hearing of this latest outrage, will simply shrug their shoulders. The CPP racket is a classic example of the sort of cynical hoodwinking that became the norm in the sector the moment the banks abused their position of authority in people’s lives to become some of the most aggressive sales touts in the country.
How many people paid an extra £12-£15 a month for a “packaged” account – often doubling up on existing motor breakdown or insurance cover – just to get a pushy sales rep desperate to his meet quarterly targets off their backs? Perhaps they hoped their amenability would be rewarded with preferential treatment in future dealings. Fat chance of that. Customers were just sheep to be fleeced
Have we seen the back of this unedifying phase of banking history? The mood has certainly shifted – as the appointments of McEwan (an unabashedly “people-focused” retail banker) at RBS and ‘Saint Antony Jenkins at Barclays highlight. In the general clean-out of the Augean stables, most banks have removed the worst of their incentives-based sales structures.
Some think the problem will never be tackled so long as UK regulators maintain their comparatively soft stance. As with preceding mis-selling scandals (notably, PPI and the interest-rate swaps scam) the focus of the investigation into CPP has been on compensating customers, rather than rooting out and punishing miscreants.
There is also cynicism about the ability of new entrants into the market – the so-called “challenger banks” – to shake the oligopolistic UK banking industry. That may be premature. While the Big Four have been wrestling with regulators, banks like Metro, Aldermore and Triodos and Sweden’s Handelsbanken have been quietly building networks and grabbing market share. The latter now has 160 branches in Britain – and counting. Its focus on building long-term customer relationships and “localism” is clearly resonating with customers.
Given the growing threat on their other flank from peer-to-peer lenders such as Zopa, Ratesetter and Funding Circle, the established banks actually face quite a formidable pincer movement. Whether or not we have now seen the back of the big mis-selling scandals, the pressure for internal reform is mounting. Let’s hope it lasts. ·