In the Queen’s Speech today, the Government promised to punish misbehaving banks with big fines if they don’t treat customers fairly – and two institutions who are about to take a large chunk of taxpayers’ money have clearly decided to get ahead of the game. This morning Lloyds TSB and HBOS, the two banks plotting a mega-merger (with state support) both announced new small business-friendly measures, which will hopefully ensure that they don’t have Treasury mandarins breathing down their necks for the next few weeks...
Lloyds TSB revealed a new six-point charter, in which it promised to pass on future interest rate cuts to business customers turning over less than £1m a year. As some have been discovering lately, some lending agreements include small print that puts a floor on how low rates can go – but Lloyds is apparently promising not to do this to its smaller clients. It’s also promising not to change overdraft terms during the course of an agreement (or thereafter, unless it absolutely has to) and to set up ‘surgeries’ to help struggling businesses. Meanwhile Bank of Scotland has also eased its repayment conditions on its overdrafts, and requested £250m of funding from the European Investment Bank so it can provide cheap loans to business customers.
The moves came on the day of the Queen’s Speech, which included more detail about the new Banking Reform Bill. This is based around Gordon Brown’s new favourite word: ‘fairness’ (well, he can hardly stick with ‘prudence’ these days). The new legislation is partly intended to give the FSA, the Treasury and the Bank of England more power to intervene in the future (because obviously they would have been able to prevent the current crisis if they’d had these powers before). But it will also give banks a legally binding obligation to treat customers fairly; the FSA will apparently police this, and big fines could be meted out to those who refuse to toe the line.
In other words, it’s pretty clear which way the political wind is blowing – and since Lloyds and HBOS are about to get such a large amount of public money, they’re under more pressure than most to deal with customers sympathetically. So you could argue that the measures announced today – like those of RBS on Monday – are just a case of the banks bowing to the inevitable. However, customers are unlikely to complain, particularly since these moves will probably force the other banks to follow suit.
The banks will argue that this is partly a problem of the Government’s making. In an interview with the FT today, Lloyds boss Eric Daniels complains that the ‘pretty punitive’ costs of the state bail-out were actually making lending even more difficult. But we suspect this view is unlikely to get much public sympathy...
In today's bulletin:
Lloyds and HBOS ease terms ahead of crackdown
Government presses ahead with flexible working changes
Heads Roling at EMI as Terra Firma woes continue
Qantas: BA's decent proposal
What if women ruled the City?