Memorandum submitted by The Building Societies
We very much appreciate the opportunity to put
forward to you the views of the Building Societies Members' Association
for this inquiry.
The Building Societies Members Association (BSMA)
was formed in 1982 following a dispute between members and directors
of the Nationwide Building Society concerning information to be
made available to members and the undemocratic methods used at
AGMs for electing board members and voting on resolutions. This
dispute also cause the (then) Chancellor, Sir Geoffrey Howe, to
say in May 1982 that if building societies did not reform themselves
he would introduce legislation to oblige them to do so.
Sadly, reform did not take place nor did the
legislation and the boards of building societies are even less
accountable to their membership now than in 1982. The boards of
buildings societies continue to seek ways of reducing any vestige
of accountability, whenever possible, contrary to statements given
in evidence to the Treasury Committee in July 1999. Voting papers
have become more and more artistically undemocratic with the inclusion
now of hidden "opt out" tick boxes that permit the chairmen
of societies to use members" unused proxy votes to pass resolutions
that may not be in the interests of the membership. It s also
extremely disappointing to know that these actions are supported
by democratically elected MPs on the board of some societies.
It is our firm belief that bad practices and
poor service would be very much reduced, if not eliminated, if
building societies were genuinely mutual and management were made
accountable to members.
With regard to banking services, we seek to
ensure that societies act in a fair and reasonable manner to all
members, both borrowers and savers. We understand that the purpose
of this inquiry centres on both the Business Banking Code and
the Banking Code. Out interest is with the latter and with its
relevance to building society members.
We wish it to be known that this organisation
is not in favour of self-regulation by an industry that boasts
mutuality but does not practice it.
We are currently involved in the review process
for the Banking Code following the appointment of an independent
Reviewer by the British Bankers' Association (BBA). However, we
are concerned that the industry, with no independent board member
representation, may be reluctant to accept recommendations from
the Code Reviewer where these call for significant changes. We
are also concerned that compliance-monitoring procedures are not
sufficiently robust and leave much room for improvement.
We acknowledge that the Banking Code has evolved
over a period of time. However, we are concerned about the slow
pace of evolution and the painful process experienced by members
that only produces marginal rather than significant improvements.
This letter is evidence of the discrepancy between the Code in
its present form and the basis of standards towards which members
Even though the Code is voluntary, our desire
would be for a totally fresh approach whereby the Code becomes,
in effect, the possession of consumers' (a consumers' charter),
and is rephrased accordingly, rather than belonging to the sponsor.
We feel that if part of the board of the Banking Code Standards
Board (BCSB) and the Code Reviewer can be independent of the BBA,
then the same should apply to the Code itself.
We fully agree with the Julius Group's recommendation
that the whole review process and particularly the Reviewer's
report should be open to public view prior to any response from
any source. We feel that this action would be in keeping with
the spirit of openness and transparency that the Julius Group
sought to achieve. However, the BBA has announced that it is not
accepting this recommendation. This is very much a cause of concern
for the outcome of an independent review process.
We also agree with the views of the Julius Report
that there should be a website, public meetings and press advertisements
for the review process. These should be organised by the BBA but
no actions have taken place to put any of these into effect.
We have put forward suggestions to the Code
Reviewer for improvements to the Code and these include the following:
Although we would prefer every member to be
in possession of a copy of the full Code when an account is opened,
we nevertheless support the recommendations of the Review Group
for three formats as an economical approach to increasing public
awareness, albeit over a period of time. However, it is important
that the spirit of the recommendation should also be upheld and
the presentation, content and availability of all three should
ensure that the correct message is conveyed and properly, indeed
The present procedure for obtaining copies of
the Code from a branch office needs to be personally experienced
to be appreciated. It would not be too much of an exaggeration
to say that there is a need for staff at some branches to know
the combination of the safe in order to gain access to them.
The cover of the Code should make it clear that
it refers to building societies as well as banks. The cover can
be misleading, it does little to encourage awareness of the Code
by members of building societies and we note that one of the concerns
in the Julius Report was lack of public awareness of the Code.
As an alternative we have suggested that there should be a separate
code for each section of the industry.
The word "banking" is not normally
associated with building societies in members' minds and our experience
has been that many building society members are not aware that
the Banking Code refers to building societies.
The building society industry itself likes the
distinction of being different from banks and banking as an industry
of mutual societies with its own trade association.
Where subject matter refers to the Code, press
releases from HM Treasury and, understandably, from the BBA, often
use the word "banks" where the words "banks and
building societies" are applicable. This same misinformation
is passed on to the public by the media and adds to the confusion.
Typically, press release headings for Julius ReportJulius
Report Aims to Give Bank Consumers Better Deal" and "Seven
Key Questions About Bank Service".
We believe that if there really is genuine intent
by the industry to promote the Code then efforts could be made
quite easily that would go some way towards demonstrating a commitment
to increase the public profile of the Code and enhance the information
available and we recommend that the following be included in the
Copies of the Code should be on display
alongside product literature on the customer side of the counter
in branch offices. We have found neither lack or space nor lack
of display facilities that would give any reason why this should
not be an acceptable practice.
Wall posters promoting the Code in
branch offices should be of similar size and have similar prominence
to those use for product promotion.
Sufficient stocks of the Code should
be maintained at branch offices at all times.
References to the Code on product
leaflets should not be in the smallest type size as is the case
with some societies.
There should be a highlighted hot
link from all subscriber websites to the BCSB website for both
Code and Guidance.
The Code should contain information
on the review process and an invitation for customers to put forward
suggestions or comments on the Code. This would provide support
to Julius Report Recommendations 4.45 for gathering the views
of individual customers.
Where references is made to the Code
in product literature it should not be presented as a code of
excellence but rather a minimum standard, which the organisation
Subscribers should provide adequate
staff training on the contents of the Code.
We see none of these suggestions as being particularly
demanding or unachievable.
The present Code permits decreases in interest
rates of some types of savings accounts to be backdated by up
to one month from the date of notification irrespective of the
circumstances that give rise to the change (section 4). This period
is in addition to the time lapse between the date on which the
decision is taken to change the rate and the date from which the
change becomes effective.
We do not know the basis upon which the period
of notice was founded, however, we believe that the use of a period
of up to one month delay in giving notice to members is excessive
and out of date with present day technology and give rise to abuse.
We do not believe there should be any logistical problems, given
the technical facilities that are available at banks and building
societies, which could cause the need for such a long delay.
There appears to be no relationship between
the size of the customer base of a society and the speed of notification.
However, there is a certain consistency where some organisations
notify members in advance of the effective date, which is obviously
preferable, whereas others consistently notify members on or after
the effective date and some work consistently close to the limit
of one month. We would like those societies that consistently
operate near the limit to learn from those that are able to notify
members in advance.
In our opinion Office of Fair Trading Guidance
on Interest Variation Terms OFT 297 should be applied here. Unless
circumstances, eg external forces, dictate otherwise and to meet
Code key commitment (a), notification should precede rate changes
and should apply to branch and non-branch accounts.
Section 4.4/4.5, as it stands, should only apply
to rate changes that are precipitated by external forces and we
believe in such cases the period of delay after the effective
date should be changed and should not exceed:
For personal notification by post14
days (total period).
For personal notification by e-mail
for internet based accountstwo working days.
For newpaperstwo working days.
For branch officers, telephone helplines
and websitesone working day.
We believe that notifications at branches and
through newspapers, which depend upon consumers buying the right
newspaper on the right day, are of minimal benefit to the majority
of building society members. Nevertheless, where postal accounts
are available to members outside the area served by local newspapers,
notification should be through national dailies. At present some
small societies use only local newpapers.
The reason for a change of interest rate should
be made clear in the notification.
There is a need for the industry to conform
to the spirit as well as the letter of the Code and for building
Societies this should be fundamental to the principles of mutuality.
There would certainly be no desire for a code that has to be produced
in legal language simply to obviate loopholes that lawyers are
paid to find. Nevertheless we do not accept that Code key commitment
(a) is being met in its full sense by management of building societies.
Clear and better definitions are needed that
will end the practice whereby new account issues can be regularly
and quickly superseded then become downgraded by means of skilfully
drafted terms and conditions. This practice does nothing to enhance
the credibility of either the Code or the industry.
It is essential to ensure clarification, for
the benefit of staff, management and customers, on exactly how
an account becomes a superseded account. The contents of this
section need to be clear and unambiguous and must ensure that
it conforms to Code key commitment (a) and to the spirit of a
code of good conduct.
In addition to any terms and conditions that
an account may include, we would like to see the inclusion of
a clause in the Code applicable to notice accounts, which requires
members to be reminded that immediate access to their funds is
available for a period, equal to the period of notice of the account,
without penalty whenever savings rates are changed adversely out
of line with base rate movements. Such an approach would not be
uneconomical even for the smallest society.
Some building societies have accounts that are
routinely opened as new accounts every month with headline-grabbing
rates, which include a bonus that is effective for a short period
and a notice period which may be as much as one third of the bonus
period. At the same time the previous edition of the account will
Another method is for funds from maturing accounts
to be transferred into "special" accounts with extremely
low rather than reasonable rates.
There is a need for the Code to address concerns
that have recently been highlighted by considerable publicity
in the media through failure to deal fairly with customers concerning
TESSA accounts and mortgages.
We believe that in order to comply with Code
key commitment (a) the Guidance should include a provision to
ensure that where the Ombudsman adjudicates against a society
on a matter that affects all members with similar accounts it
should not be the responsibility of every individual member to
be aware of the matter and to go through an obstructive complaints
procedure in order to force the management to rectify a wrong
that would otherwise continue to exist.
The Julius Group accepted that "naming
and shaming" is an effective means of ensuring that business
will conform to a voluntary code. However, we feel that "naming
and shaming" should mean that what is says and should not
mean, what appears to be, "appeasing and pleasing".
The work of the BCSB has revealed that many subscribers are not
complying with the terms of the Banking Code but the public are
left unaware of the culprits and the extent of their non-compliance.
Adverse publicity for "code breakers"
that is readily and widely available, easily understood, and meaningful
and permits informed comparisons on the performance of individual
institutions is essential in combating non-compliance. We believe
this would be more easily achieved if the BCSB were fully independent
of the industry.
We also believe that customers would benefit
considerably if the BCSB drew information from and worked closely
with consumer organisations and the media and did not rely on
subscribers monitoring themselves. We also believe that the Ombudsman
should publish more information, based judgements against individual
As in the promotion of the Code where publicity
is used to promote the performance of the compliance process the
Code should not be presented as a code of excellence but rather
a minimum standard, which the industry should meet.
We thank you again for being able to put forward
our views which we hope are constructive and positive as well
as critical. We should be happy to discuss with you, any item
herein that you may feel needs clarification.
23 April 2002