Is the British banking system beyond help?

4th April 2011

It’s easy to point out the fundamental problems with our retail banking system. They aren’t lending to us, their terms and conditions lack transparency and they appear to suffer from a massive lack of competition.

Anyone in serious debt (sometimes as a result of irresponsible bank lending in the past) faces another set of issues. Banks often seem unable to exercise common sense, directing huge amounts of interest and charges towards customers who clearly aren’t in a position to pay. Debt collection procedures often appear to be an attempt to subtly intimidate and annoy, rather than to collectively deal with the crux of a financial problem.

The situation appears to be reaching crisis level. A recent YouGov survey revealed banking was the industry most consumers are dissatisfied with, above and beyond all others. 28% of those quizzed in the survey pointed to the banks, 23% to utility providers and 21% to shops and restaurants. In the last three months of 2010, over one million complaints were made about banking customer service, a 15% increase on 2009.

Complaints about banking have increasingly spread to the web and social media, a phenomenon which can easily be witnessed on the trust deed forum at Trust-Deed.co.uk. 20% of us now report poor service by making online comments, with the number rising to 36% amongst those aged 18-24 years.

In any other industry experiencing such problems there would be a simple solution. New competition, sensing the weakness of the established banks, would enter the market with good customer service and attractive products. So why doesn’t this happen?

New banks face a major issue. The established banks offer ‘free’ banking. This system is profitable as 20% of account holders will frequently incur interest and penalty charges for bouncing payments. The other 80% receive ‘free’ banking thanks to the 20% who pay on their behalf.

Very few of those account holders within the 80% are going to make a move to a new bank which charges for the privilege of having an account. So if banks aren’t charging the majority for the provision of banking services, the only way to make money is to hammer the minority with interest and charges if they falter on previously agreed terms. Sadly, it would seem that opening a big bank with competitive products and transparent terms simply isn’t commercially viable.

If you are looking into the possibility of a entering into a trust deed, the chances are that you’ll need to open up a new bank account. All of your sources of income will need to be held by a bank to which you do not owe any money, as otherwise you risk having your income seized.

If you do decide to set up a new account the bank you choose should be aware and accept that the account holder is bound by the terms of a trust deed. Some banks will close the account if they discover a trust deed has been signed. As a general rule, only basic accounts (those without credit facilities) should be considered suitable for such a purpose. However, it should be possible to find an account which provides a debit card and facilitates the payment of standing orders and direct debits.

If you have signed a trust deed and are experiencing problems with your bank as a result, please do not hesitate to contact the experts at Trust-Deed.co.uk, who will provide you with the friendly advice and support you need to help you clearly understand your position.

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