A code you still can't bank on

Hw many times have you cursed your bank, building society or credit card issuer about an error but felt helpless to do anything about it? You're far from alone. Complaints against banks and building societies are rising, according tothe Financial Ombudsman, who handles consumer complaints about financial services. There have been 1,330 complaints about banking services in the past year, up from 803 a year earlier and 518 the year before that.

The Banking Code, the voluntary rules to which most banks and building societies are signed up, aims to protect customers from the worst problems. A revised version, aimed at giving further safeguards, took effect yesterday, but not everyone believes the changes will make any difference.

The main revision of rules is to help savers get a better deal.Under the old code, banks and building societies had to inform customers of any changes to interest rates on their accounts. They could do this, however, by putting posters up in branches rather than writing to customers.

The code now stipulates that banks and building societies must tell customers in writing if their rate has been cut by half a per cent or more compared with the Bank of England base rate in any 12-month period, and offer them a chance to withdraw their money without any penalty.

This means, for example, that if the Bank of England were to cut the base rate by a further quarter point to 3.5 per cent, banks and building societies are now obliged to inform customers if they cut their rates by 0.75 per cent (0.5 per cent more than the Bank's cut).

However, even if the revised code had existed before the recent base rate cut, it would have made little difference to beleaguered savers, many of whom suffered cuts greater than the Bank's but not as much as half a per cent greater. In fact the new polish put on the code has already been tarnished by recent treatment of savers.

'Unfortunately, it seems possible that a large number of banks and building societies, aware that this change was being made to the code, adjusted their rates downwards over the Christmas period in readiness,' says Seymour Fortescue, chief executive of the Banking Code Standards Board.

Over the Christmas and New Year period, the Halifax bank dropped the interest rate on its Instant Saver Account by 0.15 per cent to between 2.05 per cent and 2.35 per cent, dependent on balances, while the Bank of Scotland slashed the rate in its Premier Bonus Account from 1 per cent to 0.55 per cent. Rivals such as First Direct, Woolwich and the Coventry building society also cut their rates.

Some of the same institutions followed this rate cutting spree by making fresh reductions following the February base rate fall.

One welcome change to the code, designed to put a rocket under the banks and building societies, is a stipulation that should a customer want to switch providers, the transferring bank must now pass on all direct debits and standing order information to the new one within five days. This will decrease to three days from August.

Consumer bodies have largely welcomed the changes, which followed advice from an independent expert, although the code retains one of its key drawbacks: many customers are still unaware it even exists.

'On the whole we welcome the changes and support the idea of the code,' says Louise Hanson of the Consumers' Association. 'However, I think there needs to be more of a brand awareness of the code so that consumers are aware of their rights.'

And, as the interest rate cutting spree over Christmas illustrates, one of the code's other problems is that even the banks and building societies signed up to it sometimes try to gain advantage by wriggling around its written rules.

The most recent of these was the Halifax, which decided last month to compensate customers to the tune of £500,000 for mistreating its Bonus Gold customers. It told them about changes to their accounts - and then penalised those who tried to move to another bank.

Fortescue says: 'The incident reflected an initial interpretation of the code that was too legalistic and literal, and failed to follow its spirit.'

Despite the evident influence of the code in cases like this, the City analysts who look at the banks' profitability and anything likely to affect it, are largely unconvinced that the code makes much difference. In other words, the rules do not hit them where it hurts: on their bottom lines.

James Eden at Commerzbank says: 'There's a few things that have happened due to the code which are of vague interest to our analysis of the market, such as the fact that institutions all lowered their savings rates around the Christmas period, but generally I don't find it of much relevance.

'Maybe what it will do is to have an effect on what we call leading and lagging, which is when institutions are quick to cut savings rates following a rate cut but leave it longer to cut mortgage rates in order to increase their profit margins.

'This supports banks in years where there are lots of rate changes, so if we do get a series of cuts again the code might help savers as banks may be less hasty in cutting.'

There are still changes to be made to the code, particularly over credit cards, whose charges still remain largely beyond the comprehension of most of us.

'It is usually the case that when two rates of interest operate, for example an introductory rate and a standard rate, the cheapest rate is paid off first. The code needs to go further in clarifying this, as there are nine different ways of calculating interest rates and none of them are clear,' says Hanson.

Consumer Affairs Minister Melanie Johnson said last month she was 'surprised' that a number of organisations had not backed the code. 'I would encourage those lenders who are not signed up to these codes to do so immediately,' she said.

These include such big name lenders as American Express, Capital One, Citibank and Marks & Spencer Financial Services. The Government-backed National Savings and Investments announced last week that it had signed up, saying this would mean 'greater transparency and improved com munications' between itself and its customers.

Capital One's Richard Holmes says: 'In our opinion the code is much more appropriate for and geared towards high-street banks.

'There are a number of technical requirements within the code that without a very big change to our systems would be impossible for us to do.'

He added: 'I think it's very important that every institution is aware of its obligations to consumers and should enforce these.

'However, the Financial Ombudsman scheme, to which we are signed up, effec tively offer s this protection to consumers. So is there a need for the Banking Code?'

Yet David Thomas, principal of the Financial Ombudsman Service, says the code can be helpful in resolving complaints.

'We are required to reach our decisions on the basis of what is fair in the circumstances, taking into account any relevant law, regulations or code and, where applicable, what we consider to have been good industry practice at the time,' Thomas says. 'In this context, the code can be important.'

American Express and Marks & Spencer say they are keeping an open dialogue with the code standards board over the possibility of signing up, but both companies feel that large parts of it are not relevant to them.

Yet Stuart Cliffe, chief executive of the National Association of Banking and Insurance Customers, believes that even consumers who use banks and building societies that do subscribe to the code are being offered false hope.

'It is nothing more than an extended promise to be nice to customers,' Cliffe says. 'The overwhelming problem that comes across from complaints we receive is the huge feeling that banks are suffering from inertia when something goes wrong.

'What is needed is to try to reinforce the protections that are already there and make the process of complaining quicker.'

All change

New features for savers: Banks and building societies must tell customers if their rate is cut by 0.5 per cent or more compared with the Bank of England base rate in a 12-month period and give them a chance to to transfer accounts or leave without penalty. Customers should get personal written confirmation of superseded savings accounts. This should say they may need to ensure they do not lose out by staying in their existing account. The communication should include an easy way to respond, such as a tick box, in case they do wish to switch. For those who wanting to go, their present bank must pass their standing orderand direct debit details to the new bank in five days, or three from August.

For credit card holders: Clear information about the cost of foreign transactions must now be displayed on credit card statements. The front of the statement must show the customer how much the minimum payment should be each month. A clear statement must be made of how much time is left on an introductory credit card rate.

For those in financial difficulty: Much more detail must be given to customers of how their problems will be treated 'sympathetically and positively', in line with the wording of the code.

Best buy or of little account?

Finding a savings account that pays a decent rate of interest now is a tricky task - and choosing one which retains that rate for long is even harder.

The best buy tables change so quickly it can be hard to keep track of them, according to research from online bank Egg.

Since 1988 more than half of the instant access accounts that appeared in the tables kept their position for two months or less, while the average life of an account as a best buy was just over four months.

A spokesman for the research firm Moneyfacts says: 'There are a number of institutions which play the charts.

'Everyone is now jumping on the bandwagon of offering a bonus rate for a limited period in order to get in the charts. They are relying on the fact that savers won't bother to change or will forget when the bonus expires.'

Moneyfacts says some institutions don't quite make it into the tables but offer consistently good rates. These include Tesco, Sainsbury, Yorkshire Building Society, Britannia, Scottish Widows, Standard Life and a number of small local building societies.

How to complain

First make a protest in writing to your bank or building society.

Write 'complaint' at the top of your letter and set out the facts as clearly as possible, sticking to the point. Say what you are unhappy about and what you would like the organisation to do about it.

Include details such as your account number and put them at the top of the letter.

Enclose copies of documents you believe support your case, and keep copies of any correspondence between you and the bank or building society.

If the firm responds and you are unhappy with what it has to say, or it has not replied within eight weeks, you can take your complaint to the Financial Ombudsman Service (tel: 020 7964 1000)

If you think your bank or building society has breached the code, contact the Banking Code Standards Board on 020 7661 9694, or use the feedback form on its website at www.bankingcode.org.uk.