The banks are laughing at us
The banks find it easy to sell us over-priced products that we don't need. Don't fall for their tricks.
The banks are always one step ahead of financial commentators, two steps ahead of their customers, and too agile for the regulator. Together with their propaganda machine, the British Bankers' Association, they make complete fools of us and run rings round us. Not all of us all the time, but in general.
The banks find it extremely easy to sell us over-priced products we don't need with poor terms and conditions. Credit cards, for example, have at least 19 traps. It stinks, and often we don't realise it for a long while.
Eventually, the feeble fishy smell is revealed as a rotting whale of a rip-off. However, the banks have a tried and tested seven-stage strategy for dealing with attempts to remove the stinking carcass:
Stage one: A propaganda campaign
This stage is also known as a 'public relations exercise'. The British Bankers' Association issues a statement describing the rip-off as 'a useful product providing peace of minds to millions and operating within the Banking Code' (the Code is the banks' chief piece of propaganda literature). After a brief search of the BBA's website I find a real example of which I take a small snippet:
'Payment protection insurance is a valuable product which provides customers with a safety net to meet their financial commitments.'
This statement has come in the midst of the greatest attack on payment protection insurance (PPI) mis-selling ever, as the Competition Commission makes some very strong conclusions that will be great for the consumer - and more work for the BBA.
Stage two: Counter-attack
Propaganda continues in the next stage as banks argue that removing the offending product, policy, clause or tactic would cause far greater damage to customers, perhaps by depriving them of vital benefits.
We have an example with this from the same BBA statement on PPI:
'We remain concerned that customers may be encouraged to cancel policies - or decide against taking them out - at precisely the time when a policy that covers the bills could be most valuable.'
Stage three: Disguise the product
If the counter-attack doesn't work, change the presentation. Often, simply re-naming suffices, which is why the reviled "mortgage indemnity guarantee" became a "higher lending charge", and "accident, sickness and unemployment insurance" became "payment protection insurance". (Each bank also tends to use its own names, which adds to the confusion.)
Stage four: Ignore the problem
Ignore customers, leaving individuals to fight to get a resolution. Offer financial settlements individually when absolutely necessary and for as little as possible, and, to stop mass settlements, label them 'goodwill payments' so they don't have to admit it's a stinking rip-off. The recent bank charges debacle is a great case in point.
Stage five: Increase prices
When the pressure is on (be it from the FSA, the courts, the Office of Fair Trading, or whoever), banks increase the cost of the product or worsen the terms and conditions to maximise profits whilst they still can. This happened again with bank charges. During the early stages of the big case between the banks and the Office of Fair Trading, they actually put up their charges!
Stage six: Get the lawyers in and fight hard
Even if the banks eventually lose, by dragging it out using highly-talented lawyers, they're likely to rake in extra profits before the end, and give themselves more time to find another sneaky way to make a profit. Bank charges, again, are one of the most recent examples. They've dragged a court case over two years so far, pulling in perhaps £8bn in charges over the period.
They lost in the High Court and the Court of Appeal. The Court of Appeal said they had no chance of winning and refused to grant them appeal to the House of Lords. However, the banks went direct to the Lords and appealed anyway, delaying the case yet further.
Stage seven: Innovate
When all this fails, invent new products, procedures or tactics to get the same result. When this new method is discovered, begin again at stage one!
One example of innovation from recent months has been made to, once again, payment protection insurance (PPI). There are reports that Barclays has already withdrawn its PPI range as a result of a brilliant ban by the Competition Commission, but it intends to bring back what it claims are radically new products. As far as I can see, these 'radically' new products will involve selling a combination of re-packaged PPI and life insurance.
Bank charges are another example. Many financial journalists have already been tricked by the innovative new charging structures into believing they've been greatly reduced. However changing a one-time £35 charge into a £5 per day charge is just slicing the whale into smaller chunks.
A load of rip-offs
We see these tactics extending into history from PPI and bank charges today today, to exit fees yesterday and endowment policies the day before. We can combat this by staying informed. Read some articles on rip offs:
Mobile phone insurance: Don't buy this rip-off insurance
Home credit loans: Avoid these rip-off loans
GAP insurance: Another rip-off insurance to avoid
ID theft insurance: Avoid this expensive rip-off
Car and home insurance: The £100 car and home insurance rip-off
Savings accounts: Six snags with savings accounts
Currency conversion charges: Avoid these sneaky travel rip-offs
Some more tips
- Don't buy anything you don't understand or where you can't understand how the bank makes its money.
- If you don't understand any small print or want a second opinion, ask a question on Q&A.
- If you feel you've been treated unfairly, complain to the bank. If you're unhappy with the result, complain to the Financial Ombudsman Service, which has strong powers to force a settlement on the bank and even to order compensation.
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