How banks betray your trust

Robert Powell reveals three ways banks abuse our trust in the search for profit...

Perhaps it’s too easy to demonise bankers.

After all, the financial crisis wasn’t solely their fault. Just mostly...

But let’s be honest, they don’t do themselves any favours do they?

From the whopping bonuses for employees of taxpayer-funded banks right down to the deluge of financial junk mail shoved through our doors on a daily basis – it can seem like the banking sector is determined to get up the noses of as many people as possible.

So while I’m in a suitably cynical mood, here’s a few other ways that banks betray our trust in the eternal search for the almighty buck.

Tricking you into gambling your money

Investing can be one of the most profitable things you can do with your hard-earned cash. But only if you get it right. Make the wrong investment choices and you can wave goodbye to that retirement nest egg, new car or home extension.

That’s why many of us will trust an expert to invest our money in a wise way and generate us the greatest return.

But if a new report from the Financial Services Authority (FSA) is to be believed, the banks and advisers we trust with our cash are actually duping us into the wrong investments and pension choices.

It’s all to do with the questionnaires we fill out when we go along to see our trusty bank manager or financial adviser. While they’re designed to assess how much risk we’re prepared to take on, the questions are actually so skewed that they can lead to cautious investors being tricked into taking huge gambles with their cash.

The FSA analysed investment files between March 2008 and September 2010 and found 366 cases of unsuitable investments. Of these files, half were judged as unsuitable because they failed to adequately take into account the amount of risk a customer was willing and able to take.

What’s more, the high-risk investments that these questionnaires dupe customers into taking will usually pay out a huge commission to the bank adviser who seals the deal.

The FSA also reported that the banks in question (who they did not name) carried out these cons by using poor, vague questions, giving too much weight to certain answers while ignoring others and failing to spot customers who really should not invest their money.

Irresponsible marketing

Junk mail has been around as long as we’ve had the postal service, but recently banks have been getting savvier about how they sell to you through the letter box.

Just last week I returned home to find my flatmate angrily tearing up a handful of glossy leaflets and letters. Her bank had sent through details of their brand new credit card, complete with a pre-filled out form. All she had to do was sign on the dotted line and pop the pre-stamped envelope back in the post.

Now maybe I’m old fashioned but I’d assume that if you’d made the decision to take out a new credit card, you wouldn’t be put off by 10 minutes of form filling and the cost of a stamp.

This tactic is obviously designed to encourage ‘on-the-whim applications’ fuelled by the thought that in a mere seven days you could be out on a spending spree with your new flexible friend.

But with many struggling to make ends meet as price rises and spending cuts grip the nation, surely such marketing tactics are tantamount to offering a gambler a free ticket to Las Vegas?

And what’s more, this marketing is anything but random. Lenders will now use sophisticated software to keep track of your financial status and target advertising at customers who are most likely to take out additional financial products.

This is why if your credit card spend drops or your current account balance increases you may find a clump of advertising from your bank drop through your letter box.

Read Six ways banks are allowed to bully you for tips on avoiding these cunning sales ploys.

Sharing your information

As I reported in How your bank manager is spying on you, companies are now pooling information in an attempt to get a better idea of your complete balance sheet before issuing you with credit.

Credit referencing agency Callcredit uses a system known as SHARE which consists of information provided by banks, building societies, credit card companies and finance houses. This information could include your current credit limits, any outstanding balances, the amount you pay off credit card bills each month and start and end dates of accounts.

Now, you do have to give your permission for a lender to share this information. But this permission will often consist of ticking a box to confirm you agree with the terms and conditions of taking out a current account or credit card.

You land yourself in a tricky position if you don’t want banks to share your information as you’re effectively stopping yourself from taking out a whole host of financial products.

This ‘my way or the highway’ attitude seems to lie at the root of most of the problems we have with the banks. They control who gets credit cards, low APR’s and sound investment advice, so as the consumer we’re always going to be on the back foot.

But there are still ways you can fight back against unfair deals and cunning scams – read 4 major rip-offs you can fight back against and The secret reason why banks reject you for some top-tips and sound advice.

More: How your postcode costs you money The secret trick you can use against your energy provider