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This industry update is more than 1 year old

Industry update

Dear CEO: Interest rate changes, account acceptance and closures

Overview

We expect banks to be transparent with their customers and have due regard to their interests. Recent economic circumstances mean that customers face higher or increasing charges for mortgages or personal borrowing, which may impact customers’ potentially strained household finances.

We reviewed how banks are adapting their processes for dealing with customers, customer literature and staff training to ensure they can support their customers in this more challenging environment, including when decisions are made to close or decline accounts.

Savings interest rates

We analysed how quickly the retail banks passed on interest rate increases to savers. The review showed that retail banks have increased rates on customer deposits from the time when the base rate was at its lowest. Interest margins have widened as the rates passed on to savers have not increased quite as rapidly as those on lending products. Some banks have also issued new products with more attractive rates on instant access and fixed rates accounts.

We expect banks to transact business in an expeditious manner and ensure that customers can switch savings products easily to benefit from new offers. In some cases, we observed that this can be difficult, for example if there is a requirement for face-to-face meetings in branch, or delays where banks are unable to keep up with increased demand. We expect banks to consider what investment is needed in digital channels to address any barriers to achieving this.

Mortgage lending

Most retail banks in Jersey have assured us that their practices are generally in line with the UK’s Mortgage Charter. We welcome the support mechanisms that banks have put in place for customers who may experience financial difficulties and note that the evidence suggests this has not developed into a significant issue. However, 80% of mortgages are on fixed terms with around 15-20% of those maturing in 2024, so banks will need to maintain their monitoring of the situation.

Some banks need to be more transparent regarding the support they offer. Half the retail banks have clear, easy to find guidance on their websites with contact details of a specialist to speak to. The same banks confirm they are aligned to the UK Mortgager Charter. Of the others, two indicate they offer just two options of support, while one does not advertise support at all.

We expect banks to provide transparency on their websites on options available to customers who experience financial difficulties or wish to manage their finances efficiently.

Account closures and new customer acceptances

The consequences of poor decision-making and poor handling of account declines or terminations can lead to certain sectors of the Jersey population finding it difficult to obtain banking services. This is contrary to our guiding principle of “protecting and enhancing the reputation and integrity of Jersey in commercial and financial matters”.

We expect banks to be treating customers fairly when making decisions on account closures. This means banks should consider relevant developments, including changes to group practices, and to have adequate governance and oversight over their decision-making on accounts. We expect banks to satisfy themselves that they are:

  • providing reasons to customers as to why they may be terminating a bank account, and supporting customers should they wish to appeal such a decision
  • giving customers adequate notice and thereby adequate time to challenge a decision or to find a replacement bank
  • maintaining adequate management information on account terminations and declined applications including the reasons for their decisions and the level of internal review conducted to ensure the decisions were reasonable.

Expectations and follow up work

You and your senior management should carefully consider the contents of this letter and take necessary steps to gain assurance that your bank’s interest rate pricing and account acceptance/closure policies, procedures and governance, provide a transparent and fair experience for customers. Prompt and reasonable steps should be taken to close any gaps identified.

We will write to banks in due course to ask them to demonstrate that they have appropriate conduct risk management information and are monitoring the quality of products and services they offer to Jersey customers. We will also ask the banks to benchmark where they are against the good practices set out in the letter and Annex B.

In the meantime, we will:

  • monitor how banks make information available on their website including the clarity of standards to which they operate

  • assess how banks ensure they are providing adequate standards of service, including by investing in digital channels

  • update our analysis of interest rates should the base rate fall, to monitor how banks take decisions and ensure customers are treated fairly in those circumstances.

We expect the banks to ensure they individually and collectively are explaining to customers why products available in the UK may not be available to customers in Jersey, or may be priced differently. This information should be transparent and easily accessible through all customer communication channels, including appropriately trained staff who are able to accurately provide answers to queries raised in this respect.

I would like to thank the banks for their cooperation with the JFSC in this exercise.

Annex A – Background to assessment of interest rate and account acceptance/closures by banks

Principle 2 of the Deposit-taking Code of Practice (the Banking Code) states that “A registered person must have due regard for the interests of its customers.” 

To help us analyse the impact of rate increases and the fairness of decision making, we requested that banks provide us with data and information on:

  • how interest rates on both mortgages and savings had been adjusted in line with UK Base Rate changes
  • the operations of the bank that are in place to support customers in financial difficulties and any commitment the banks are making to reflect the standards in the UK Mortgage Charter.
  • examples of communications sent to customers explaining the way rate changes impact their lending and savings products and how they can avail themselves of help from the bank.

Historically, the JFSC has been made aware of customer complaints where potential or actual account holders have not been given a reason for the decline/closure of their account. We have also received complaints that in some instances, a limited amount of time may be provided to find alternative banking arrangements. Some customers have subsequently been at risk of exclusion from banking services as a result.

We evaluated the banks against the Banking Code’s Principle 2, “A registered person must have due regard for their customers” and Principle 4, “A registered person must be transparent in its business arrangements”. In this regard, we asked the same banks to provide us with information on their account opening risk appetite and/or policy framework and the processes they use should they decide to terminate an account. The information included examples of standard communications sent to customers to explain any decision made and the timeframe the bank provides in the event of an account closure.

Following an analysis of the information and data received, we held meetings with each of the banks to discuss any findings or observations. This is being followed up in writing.

Annex B – Good practices observed

Customer support

  • clear information on the bank’s websites
  • being prepared for any increase in customer queries which may result from customer concerns about their financial wellbeing including:
    • a suite of tools available to assist customers through the more difficult times
    • trained and adequate resources to react to sudden increases
  • voluntary aligning to the UK Mortgage Charter
  • assessing the impact of fixed rate expiry six months in advance to identify any customers who may need assistance and proactively making contact well in advance of a higher mortgage rate coming into effect
  • adjusting stress testing, affordability assessments and product features such as maximum LTVs to reduce the risk of the mortgage product suite
  • use of intelligent systems to forecast potential future vulnerable customers and procedures in place to engage with customers well in advance of expiring fixed mortgage rates
  • easily accessible, dedicated and skilled teams for concerned customers to contact to discuss support available when in need.
  • pricing committees viewing interest rate changes to products not only through a commercial lens but also considering treating customers fairly, including by making timely changes
  • offering customers the ability to lock in a fixed mortgage deal six months ahead or the ability to manage their new deal and request a better like for like deal with their lender right up until the new term starts, providing customer with suitable ways to manage their household budgets
  • reacting in reasonable timeframes to pass on interest rate increases to savers, with some banks introducing new savings accounts with enhanced rates, and advertising to both new and existing customers on websites and social media.

Account management

  • one bank provides 90 days’ notice to customers to close an account, thereby giving the customers more time to find alternative banking arrangements and time to appeal the bank’s decision
  • some banks provide reasons for terminating an account, being open and transparent and giving customers greater confidence to challenge account closures
  • where customers are relationship managed, discussions with the customers have happened in the lead up to the notice being given
  • some banks have updated their policies and procedures in line with the new requirements being introduced by the UK Treasury in respect of account closures.