A survey conducted by the Bank of England has revealed that the number of consumers defaulting on their loans and mortgages has increased and is expected to do so during the remainder of 2009.

Unsurprisingly, the Bank of England noted that state of the UK economy, including rising unemployment, was key to the rising figures.

It also noted that lending to UK businesses had not risen as fast as had been anticipated between April and June 2009.  However, despite this, lenders said they expected the availability of credit to UK businesses to increase between July and September 2009.

The outlook for consumers for the remainder of 2009 looks bleak.

While lending to consumers and businesses is expected to increase slightly over the next three months, it is generally accepted that lending levels will not be at a level such that that UK economy experience a strong and sustained recovery.  It is likely to be a few years until the UK economy recovers since it is clear that the pre-credit crunch lending volumes which fuelled the significant growth in the UK economy between 2005 and 2007 is very much unlikely to return.  Rather, lending volumes are likely to be much more conservative over the coming years which will lead to a slower and sustainable recovery in the long-term.

The regulator of the UK financial services industry, the Financial Services Authority, has today announced that it intends to hand out larger fines on the financial businesses it regulates in order to reflect more accurately the scale of the wrongdoing committed.  This could mean that some fines treble in size.

During the past 18 months and the well documented demise of the big banks and other large household name financial businesses, the reputation of the Financial Services Authority has taken a hammering.  It has been accused of being too weak and too slow in reacting to the financial crisis as the UK economy plunged into recession.

As a result, the Financial Services Authority is determined to take a tougher stance by punishing financial businesses even harder where they repeatedly fail to improve standards.  In particular, it is keen to impose fines that reflect the scale of the wrongdoing of the financial businesses and that any profits made by those businesses from the breaches are clawed back.

Under the regulator’s new proposals the fines it imposes will be linked more closely to the income generated by the financial business.

Penalties will be a proportion of up to 20% of the financial business’s income from the product or business area linked to the breach over the relevant period.  The penalty will be to 40% of an individual’s salary and benefits (including bonuses) from their job relating to the breach in non-market abuse cases.  The minimum starting point for individuals in market abuse cases is £100,000.  It is understood that the total fine imposed will also take into account other factors, such as the desired deterrent effect and any settlement discount.

It is clear that the regulator’s new proposals, which are still in a consultation period until October 2009, are designed to deter financial businesses and individuals committing offences that harm UK consumers.

It is anticipated that new penalty and fine framework will apply to any breaches committed after February 2010.

Results of a survey conducted by the independent consumer advice organisation, Which?, has revealed that during the past year the Co-operative Bank was the best performer in the general field of financial services in the UK including car insurance and home insurance.

Which?’s survey of the financial services market established that the Co-operative Bank outshone its competitors in most areas assessed.

In response to the award the Co-operative Bank explained that the way in which it conducts its business is different to most banks which appeals to many UK consumers who have become disillusioned with the big banks and the way they have been affected by the credit crisis. 

It said that at the heart of the Co-operative Bank is an ethos to provide quality and ethically enhanced products, excellent customer service and that it operates on a fully funded basis – this means it only lends out money it has already received as deposits from customers.  This is the reason why the Co-operative Bank has been pretty much immune to the effects of the credit crunch.  As a result of this business ethos, the Co-operative brand appeals to many consumers.

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The ongoing Payment Protection Insurance (PPI) miss-selling scandal has clearly caught UK consumers’ imagination if the number of complaints about PPI being referred to the Financial Ombudsman Service, which has increased ten-fold in the past year, is anything to go by.  The Ombudsman’s office has so far received 50,000 complaints about miss-sold PPI policies.  The vast majority of PPI complaints being referred to the Ombudsman are upheld resulting in compensation payments to those consumers who have complained. 

However, Scottish consumers keen to obtain compensation about miss-sold PPI have been warned not to be hood-winked into handing over their credit card details to Claims Management Companies (CMCs) offering to help them obtain compensation.

In England and Wales Claims Management Companies are regulated.  However, there is no regulation for Claims Management Companies in Scotland and such firms are currently operating in Scotland without the fear of the law.  Because of this lack of regulation, some Scottish consumers have been duped into handing over their credit card details to pay an “up-front fee” to CMCs purporting to help them obtain compensation for miss-sold PPI.  However, these unscrupulous CMCs are just taking the up-front fee and doing little, if any work to justify the fee they have taken. 

Scottish consumers should therefore be wary of any Claims Management Company that makes an unsolicited call to them offering to assist them obtain compensation for miss-sold PPI, but insisting that a fee be paid up-front first by debit or credit card.

MPs have warned consumers to think carefully about using Claims Management Companies or revealing their credit and debit card details over the telephone to any firms that make unsolicited calls.

Despite these warnings about Claims Management Companies operating in Scotland, many UK consumers may in fact have legitimate claims for miss-sold PPI policies and be entitled to compensation.

PPI is an insurance policy usually sold with loans, finance agreements or credit cards.  It is designed to provide a monthly benefit equal to the repayments required under the credit agreement in the event that the policyholder is incapacitated or unemployed. 

However, there is no need for consumers to use a Claims Management Company, which typically take up to 25% of any compensation payment as a fee, to puruse a complaint about miss-sold PPI.  Rather, consumers can make a claim for compensation about PPI absolutely free by referring the matter to the Financial Ombudsman Service.  In the first instance, the consumer would need to complain to their bank or credit card company which provided the PPI policy.  If they remained dissatisfied with the response from their bank or credit card company they could then refer it to the Ombudsman’s office for free.  Any compensation payment they receive following the Ombudsman’s intervention would not be reduced by any Claims Management Company fee. 

It is difficult to see what value a Claims Management Company offers a consumer to warrant the substantial fee it charges for its services.  This is because if the Claims Management Company cannot successfully persaude the bank or credit company that the complaint should succeed it will refer the matter to the Ombudsman’s office anyway – something the consumer themselves can do, but without having to pay a hefty fee to a Claims Management Company.

Virgin is considering launching an internet bank – a move seen by many as an attempt to cash in on the discontempt many UK consumers now feel towards the big banks following the start of the credit crunch in autumn 2007.

Virgin’s announcement follows quick on the heels of the announcement recently made by supermarket giant, Tesco, that it was also considering launching its own in-store banking facilities to take advantage of consumers’ ill-feeling towards the traditional banks.

The Virgin internet bank would be provided by the Virgin Money brand.  In order to achieve this it will first be necessary for Virgin Money to obtain a banking licence from the City watchdog, the Financial Services Authority.  This will permit Virgin Money’s internet bank to accept deposits from savers and also offer mortgage loans.  Once that big hurdle is cleared and the FSA is satisfied then it would seem that Virgin’s internet bank offering could be live in the near future.  It is understood that Virgin Money is considering three options: launching a new bank, complete with a branch network and internet presence; entering a partnership with another financial institution; or buying a failed bank, such as Northern Rock, as part of a larger consortium.

Virgin Money is expected to announce that its sales for 2008 leapt from £70 million to around £100 million compared to 2007.  Profits are estimated to come in at £30m.

The head of Virgin, Richard Branson, is also considering more ambitious plans that could see Virgin Money launch a bid for the failed bank, Northern Rock.  That is on the basis that the Government decide to sell part of Northern Rock back to the private sector before the planned general election in May 2010.  It is understood that the Treasury’s financial adviser, Credit Suisse, has discussed the matter of selling part of Northern Rock with potential buyers over the past several weeks.  In early 2008, Virgin Money failed with its bid to purchase Northern Rock at that time.

The public’s opinion towards the banks is currently at an all time low, with many people blaming the banks’ irresponsible lending and bonus culture of the past several years being the catalyst for the recession the UK currently finds itself in.  In order to take advantage of this negative feeling towards traditional high street banks, the UK’s biggest supermarkets are planning to increase the level of financial services they offer consumers.

In the mid-1990s, the UK’s supermarkets started offering financial services to consumers. At the time high street banks were initially worried that the supermarkets, with their identifiable brands and large customer base, would pose a significant threat.  However, until now the banking customer base of the supermarkets has remained pretty modest and nothing like the high street banks feared back in the 1990s.  This could change in the next few years.

The UK’s biggest supermarket, Tesco, which already offers a comprehensive range of personal finance products, such as credit cards, car insurance, life insurance, pet insurance, personal loans, and savings accounts, is planning to open 30 in-store bank branches by the end of 2009, starting in Blackpool, Bristol and Coventry.  By 2012, Tesco plans to provide its own range of current accounts and mortgages.  A number of other supermarkets, such as ASDA, Sainsbury’s and Marks & Spencer also offer competitive credit cards, personal loans and insurance.  They too may be planning on creating in-store banking facilities for their customers, but are likely to wait in the wings and see how successful Tesco’s in-store brances do first.

There is no doubt that the convenience of being able to conduct simple banking affairs while doing the weekly shopping – all under one roof – will appeal to many consumers.  Tesco said its aim would be to provide old fashioned banking with the back-to-basic offers that high street banks used to offer, but have failed to concentrate on over the past several years.  It has been shown that the credit cards on offer from the UK’s biggest supermarket’s charge less interest than the sector average of 17.7 %. Tesco is currently offering a credit card deal for balance transfers, offering 0 % for 14 months. It is clear that the desire from the supermarkets to concentrate on simple products and their aim to attract new customers means any future current account or mortgage deals they offer could be equally competitive.

It is worth noting that for consumers there should be no difference in the level of security or quality of service offered by supermarkets compared with banks.  This is because all financial services businesses in the UK must be authorised and regulated by the Financial Services Authority.  Currently, savings up to £50,000 are covered by the Financial Services Compensation Scheme – this same level of protection would apply to savings and bank accounts with supermarkets.

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