BANKING FOR PEOPLE

Making UK Retail Banking and Lending accountable to Customers.

Many politicians haven't yet 'got it'.

The depth of the publics' anger and disgust at the antics of the banking sector and the limp responses of major figures in both government and opposition may not have fully sunk into the minds of many politicians, but it is real and will last a long time.

Banking for people - keep the investment markets away

Many UK banks are now owned by the taxpayers, but some are still accountable to investors. The financial markets are totally unsuitable "owners" of retail banks and lenders, being dominated by short-termism and speculation. Bank directors' pay has been determined by non-executive directors, acting on behalf of the financial markets. A latest example of the cupidity of retail banks is the campaign to persuade customers to take up 'new' current accounts that will heavily penalise any customers who run overdrafts. Banking industry denials that this is in any way connected with a High Court ruling against banks which levy extortionate rates for customers' overdrafts can be treated with a great deal of cynicism.

The following reports from the Guardian and Daily Mail cover the gist of the bad news for banks:

UK banks could be forced to return billions of pounds of overdraft fees to consumers after a high court judge said the fees could be challenged by the Office of Fair Trading.

Mr Justice Andrew Smith agreed with the OFT that charges were covered under the Unfair Terms in Consumer Contracts Regulation 1999.

This paves the way for a further hearing in which the court will decide whether the charges are unfair and, if so, what a fair charge should be.

According to the OFT, banks receive up to £3.5bn a year in unauthorised overdraft fees - nearly £10m a day.

They charge up to £39 for a bounced cheque, standing order or direct debit, and critics of the system say this does not reflect the actual cost incurred by the banks, which could be as little as £2.

Banks could be forced to refund their customers more than £10billion following a landmark court victory.

The Court of Appeal yesterday ruled that the Office of Fair Trading has the right to decide whether sky-high charges - such as fees of up to £38 for exceeding an overdraft limit - are unfair.

The decision clears the way for the OFT to rule that millions of Britons have been overcharged for going overdrawn or bouncing a cheque.

If the watchdog did this - and assuming the banks did not appeal to the House of Lords - customers could then claim refunds on any unfair charges levied in the last six years.

The demands of investors and the greed of bankers have been root causes of the behaviour of the banks and lending institutions, which has led to misery for millions.

Politicians of all parties seem to feel that once the immediate financial crisis has been weathered, the banks in public ownership should be "returned to the private sector". This simply means that they will again be subjected to the whole panoply of financial market pressures that led to the current problems.

Retail banking and lending are different from investment banking in that they directly affect the lives and well-being of millions of people, many of whom are vulnerable because they lack the skills to evaluate what they are being offered and the consequences of their actions. They are best suited to mutual or co-operative models of ownership.

They are relatively straightforward businesses. Banks and building societies accept money from savers, invest it to obtain secure returns and lend responsibly to borrowers. This kind of business does not need "innovation" of the sort we have witnessed in investment banking, nor should retail banks and building societies have much need of support from the financial markets.

For these reasons, it is crucial that we do not return to "business as usual" when the crisis subsides.

Essential actions for change:

• Legally separate investment banking and retail banking/lending
• Make retail banks and lenders responsible to their customers through an independent commission legally mandated to represent consumers' interests
• Introduce a licensing system for all in senior positions in banks. Licenses to practice would be revoked for unethical or illegal practices
• Give banking institutions run along co-operative and mutual lines special protection in law and offer large tax advantages for them
• Give massive public support to establishing local banks that are run for their customers, including the creation of an independent banking network owned and run by the Post office and extension of the Credit Union network.