Why many people have lost faith in banks

Over the past year major banks in the UK seem to have spent a great deal of time dominating the financial headlines for one reason or another, and the news is not normally good. The banking industry in the UK has found itself under fire almost continually over the past year or so, and as a result of this many consumers have lost confidence in their banks as well as in the banking industry as a whole.

One of the major aspects of banking that have dominated the headlines recently relates to bank charges, which are the charges that banks apply to customer accounts for exceeding the overdraft limit on the account, for bounced cheques, and for returned direct debits. However, there are many other things that have landed the UK’s banks in hot water recently, and a recent survey has showed that consumer confidence in the banking industry as a whole has plummeted, with under 50% of consumers having faith in their banks.

There are a number of factors that may have contributed to this loss of faith in the banking industry, and this includes:

Bank charges
Over the years banks have applied hefty charges to customers’ accounts if they bounce a cheque, have a returned direct debit, or exceed their overdraft limits. Recently these charges have exceeded £35 with some banks. However, campaigners have been up in arms because it is estimated that the actual cost incurred by banks when such things happen is between £2-£5. As a result of this these charges were deemed unfair and unlawful last year, with regulators stating that banks were making an illegal profit from applying these charges. This has resulted in many customers across the UK reclaiming these bank charges going back up to six years. Many have found themselves with a battle on their hands, and have had to take their cases to court. However, in the vast majority of cases the judge has ruled in the customer’s favour.

Interest rates
It is a well known fact that most banks are quick off the mark when it comes to applying interest rate rises on borrowing, and this has been displayed more clearly than ever over the past year, where the Bank of England has hiked up interest rates five times. As expected, many lenders did not hesitate to crank up interest rates on borrowing in line with the base rate rises. However, many of these banks have not been so quick to apply interest rate rises to savings. In fact, according to some reports a number of banks have failed to pass on the full rate rises – and in some cases have failed to apply any rise at all – to savers’ accounts, whilst cashing in on the interest rate rises applied to their borrowing.

Security issues
A number of banks have come under fire for security breaches over the past year, and some of these have been quite serious. This has ranged from sending account information to the wrong address to dumping sensitive customers account date in skips outside the bank branches, putting customers at increased risk of becoming victims of identity theft.

Additional charges
Some banks have had customers up in arms over the addition of charges to many customers’ accounts. One of the most notable culprits of this is First Direct, which suffered a mass exodus of customers after it introduced a monthly charge of £10 to the accounts of customers that did not have a certain level of income going into the account, or did not have another First Direct product in addition to their bank account. To make matters worse the bank has recently announced that it will be scrapping interest payments on these current accounts, although officials from the bank claim that the money saved will be put towards giving extra interest to savers.

Lack of communication
With banks growing every bigger, being increasingly focussed on profit rather than service, and accruing an ever growing customer base, communication between banks and customers has dwindled over the years. In fact, a senior official from the British Banker’s Association has recently announced that banks needs to be far more pro-active when it comes to improving communication with customers, ensuring that they are kept informed on services, products, and changes that may be taking place.

Northern Rock
Perhaps the final straw for many consumers that were fast losing faith in the banking industry was the recent chaos that ensued at Northern Rock. After it was discovered that the Rock had taken an emergency loan from the Bank of England customers poured to the branches and took out over £2 billion amidst fears that the bank was on the verge of collapse. This put real fear in some banking customers, particularly when many customers found that they were unable to access their accounts online during the chaos.