Bank Account Fraud

Tuesday 15th November 2011 Westminster Hall

16:01

[Stephen Timms (East Ham) (Lab)]

I am grateful to Mr Speaker for selecting this debate, and I am delighted to see the Exchequer Secretary to the Treasury in his place, upholding as always the high standards set by previous occupants of his office.

The debate arises from troubling recent constituency cases, in which constituents who have been the victims of fraud have found themselves seriously disadvantaged by actions taken by the banking industry in response. They have suffered what seems to be arbitrary and draconian punishment without even an explanation, still less any opportunity to challenge what had been done to them. No one can object to the banking industry taking every step it can to protect itself and its customers from fraud. It is absolutely right that it should do so, but those measures need to be taken in a way that treats customers fairly, and such a requirement has not been met in the cases to which I shall refer. I hope the Minister will agree that we need a better way of protecting against fraud, which does not cause its victims such hardship.

I will put to the Minister a series of points, to which he is likely to be sympathetic and to which I will be grateful for his response. First, if customers are to be denied the opportunity to have a bank account, they should be told and not, as in my constituency cases, be left to find out for themselves, submit numerous applications to different banks and be rebuffed each time for reasons that have not been made known to them. They should be told for how long they are likely to be unable to open an account. They should be given accurate information about what alternative courses of action might be available to them. If the only account they will be able to open is with a credit union, they should be told so. My constituents have been provided with no such information and been left completely in the dark.

Secondly, there should surely be at least some allegation of wrongdoing before someone is deprived of a bank account. In the case of my constituents, as I am about to explain, no such allegation was made, but the inter-bank machinery of the financial services industry organisation, the Credit industry fraud avoidance system, was triggered anyway. Thirdly, someone who is to be denied the opportunity to have a bank account should be provided with a reason. Such people should have someone in their own bank, in CIFAS or somewhere with whom they can discuss the matter—someone who understands what is going on. Fourthly, they should be given the opportunity to challenge the refusal of an account. Being unable to hold a bank account is too serious a handicap for there to be no practical way at all to challenge what is being done.

I will set out the experiences of my constituents, which have given rise to my concerns. I first became concerned when my constituent Miss Josephine Dolor came to see me in July. She had a Halifax bank account, with a bank card, which she had last used in early November last year; she was 17 at the time. When she next tried to find the card, she could not do so. At that point, as she accepts, she made a mistake. Thinking that the card would turn up, she did not report its loss and took no action for some weeks. She recognised that the card had really been lost only when she could not find it after Christmas. She then reported its loss at the East Ham branch of Halifax on 29 December last year, some six weeks after it first went missing.

By that time, all Miss Dolor’s education maintenance allowance payments, amounting to about £100, had been withdrawn from the account. In addition, in late November, £1,000 was transferred into her account from somewhere else, and another £600 was transferred in on 9 December. By 18 December, those funds had all been withdrawn. The transfers in have since been confirmed as fraudulent and remain the subject of a fraud investigation by the bank. On 7 February, Miss Dolor was interviewed by a Halifax officer, and she explained what had happened and that she had no knowledge of how anyone else could possibly have known the personal identification number for her card—although they clearly did—and the officer said that she believed Miss Dolor’s explanation.

At that point, it would be difficult to criticise Halifax. Miss Dolor had had the opportunity to explain what had happened, and her version of events had been accepted. However, at that point things started to go badly wrong. In response to an inquiry about the closure of the account from Miss Dolor’s mother, she received a letter from Halifax customer relations dated 29 March. The letter was rather unclear. It included an apology to Miss Dolor, a reimbursement of the £100 that had been taken out of her account and a £50 payment

“for any distress our process has caused”.

It appeared that, as the Halifax officer had stated, the bank accepted that Miss Dolor was innocent of any wrongdoing. But the letter also said:

“No explanation has been provided as to how a third party may have access to your PIN. Regrettably we are not going to offer you any more accounts as a result of the fraud. This is a business decision.”

That blunt termination of the account was only the start of Miss Dolor’s problems. She subsequently found out the hard way that it was impossible for her to open an account with any other bank, because Halifax has registered her with CIFAS. Lloyds Banking Group, the parent of Halifax, tells me that that is a requirement of its membership of CIFAS. CIFAS, though, says that it is not a requirement and that it is up to the bank how the case is registered. Lloyds certainly did not warn Miss Dolor of the consequences of the “misuse of facility” registration that it had made of her. In my view, Lloyds should certainly have explained that to her. I understand why Lloyds registered my constituent: because the withdrawal from the account was carried out using her card—that is not in dispute—and her PIN. Miss Dolor told me that she has no idea how anyone could have known her PIN. It is not written down anywhere, she has not told anyone what it is, not even her mother, and she is not aware of anyone ever watching her use it, although of course fraudsters have some clever techniques for obtaining such information. There is certainly no dispute that someone had the PIN. On one occasion, a fraudulent withdrawal was apparently made in a branch using a signature that did not to me look very much like Miss Dolor’s.

CIFAS told me yesterday, however:

“If Halifax had considered that Miss Dolor was a victim of fraud they would have filed her case as such. If she had been filed as a victim, Miss Dolor’s ability to hold bank accounts, or indeed open new ones, would have remained unhindered...Halifax chose to register this case as a ‘misuse of facility’ which identified Ms Dolor as being a fraudster”.

At the same time as apologising to Ms Dolor and issuing her with compensation, Halifax was registering her with CIFAS as a fraudster, and that registration was subsequently supported by the Financial Ombudsman Service. As a member of CIFAS, Halifax is required to register the details of all proven fraud cases, but I understand that that is not a legal obligation, simply a condition of CIFAS membership. Being the subject of a misuse-of-facility registration with CIFAS has had disastrous consequences for Miss Dolor. Her account with Halifax was summarily closed, and she has since been unable to open an account with any other bank or the Post Office.

One of the most disturbing aspects of the matter for me is that no one explained to Miss Dolor that that was going to happen. Halifax gave the impression that it accepted that she was the victim, and it gave her compensation. It did not inform her that she would no longer be able to have a bank account. She had to find out the hard way. The other banks told her not that that was because of her registration with CIFAS, but simply that she did not meet their criteria for opening an account. There was a real danger in the summer that, because Miss Dolor had no account into which to pay her student loan cheque, she was going to have to give up her university place. In the end, she was able to open an account with a local credit union. She cannot access that account from her university home, so it is awkward for her, but it meant that it was at least possible for her to commence her course in September.

One letter from Halifax suggested that she should open a basic account somewhere. She has tried but has been rejected twice, because that is not possible given her registration. Surely her bank should understand the consequences of its action against her, and inform her of those consequences. That did not happen, and when I pressed Lloyds, its response was:

“Our letter of 29 March 2011 went into detail about CIFAS.”

That was simply untrue. The letter of 29 March should have explained that the misuse-of-facility registration with CIFAS would make it impossible for Ms Dolor to obtain a bank account anywhere. What it actually said was that

“extra checks will be made for you when you are applying for financial products...your credit file has not been updated to hold negative information”.

It reads as though Lloyds was doing her a favour. In fact, Lloyds almost prevented her from starting her university course. Surely customers are entitled to expect their bank to be straight with them.

When a person applies to open a bank account, each bank runs that person’s details through the CIFAS database. If they are found to have a misuse-of-facility registration on CIFAS, it seems that they are told that

“further checks have shown you do not meet the bank’s criteria for an account”,

and that is the end of the story. There is no appeal and no further recourse. Miss Dolor inquired at just about every High street bank, and at the Post Office. She has never had the opportunity to discuss the position with anyone. She has simply received the same automated response every time. My constituent, who is an enthusiastic, intelligent, young woman who aspires to a career in law, has been placed in limbo. As far as one can tell, she has not even been accused of any wrongdoing, let alone found guilty of anything. She is the victim of a fraud, yet she is still, one year after her card was stolen, unable to open a bank account anywhere.

Another constituent, Mr Ravi Borra, contacted me last month on finding himself in a similar situation. He is an MBA student at Coventry university’s London campus. To support himself he has worked full time as a waiter at St Pancras station during his vacation. For that he received just over £1,000 for a month’s work, and he was paid by cheque. After paying that cheque into his bank account in good faith, he was contacted by his bank—again, it is Lloyds—which informed him that the cheque had been flagged as being fraudulent, his account had been suspended, and he had been registered on CIFAS. Like Miss Dolor, he cannot open an account elsewhere, and when he attempted to do so, he was told repeatedly that his application did not pass the qualifying tests. He filed a complaint with Lloyds in September, and was contacted by the fraud department a few days later and was told that, although it could not reopen his old account, it could set up a new account for him. Mr Borra was happy with that compromise. He received his PIN number and debit card for his new account, but the very next day he received a letter from Lloyds saying that

“recent risk assessment on your accounts has highlighted concerns and as a result we have taken the decision to close all the accounts you currently hold with us in two months time...in the meantime, I have placed a block on all your accounts which stop all transactions”.

Mr Borra finds himself in a complete nightmare. He did a month’s work for which he has received no payment. He cannot open a bank account. No one will tell him what is going on. He cannot even apply to extend his student visa and it seems that he may be unable to finish his studies.

Late yesterday, CIFAS told me that Mr Borra’s registration with it was cancelled by Lloyds last month, but no one has told Mr Borra that, and the new block on his new account was imposed after the deletion. He has told me today that he still cannot open an account anywhere, for reasons that are at the moment unknown. Lloyds says that it is simply complying with its obligation as a CIFAS member, but CIFAS says that when someone is registered with it, it cannot delete that data. The prerogative for doing so lies with its members—the banks—and the registration remains on the database for a minimum of one year. One year without a bank account seriously disrupts a person’s life. There seems to be nothing my constituents, who have not been accused of anything, can do to open a bank account and resume their lives.

The Minister will recognise that being without a bank account is a serious disadvantage and may mean not being able to start a university course or take up a job. People should not lightly or accidentally be deprived of the chance to have an account, but that is what seems to have happened in these cases. As far as I can tell, no one decided that my constituents should be denied the chance of having a bank account. Rather, actions by their bank triggered a response from the machinery that has been put in place, with the effect that they cannot have a bank account for at least a year. Surely that is too serious a sanction to allow it to happen by accident. Being denied a bank account is appalling for anyone, and contrary to Government policy. As we move towards the introduction of universal credit, this Government, like the previous one, are encouraging people to have bank accounts, but in arbitrarily closing accounts the banks are undermining Government policy as well as causing hardship to their customers.

I hope the Minister agrees that people such as those I referred to should not be treated in that way. Perhaps he can offer some hope that those who find themselves in that nightmarish situation may be offered a means of finding a way out.

16:17

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to serve under your chairmanship, Mr Gale. I congratulate the right hon. Member for East Ham (Stephen Timms) on securing the debate.

I sympathise with the right hon. Gentleman’s constituents, whose experiences he described so vividly. He knows that it is difficult for the Government to comment on specific cases, but it is clearly unacceptable that individuals who have been victims of fraud—that seems to be the case that he set out—should be systematically denied access to a bank account. As far as I am aware, there is no legal or regulatory reason for this to happen.

As the right hon. Gentleman said, the consequences in this day and age of someone being denied a bank account are considerable, and I entirely agree with him that that should not lightly or accidentally be denied. It is worth making the wider point that the Government want to ensure that we improve levels of financial inclusion, as indeed did the Government in which he served with such distinction. We believe that banks should serve the economy, and we are committed to improving access to banking and the transparency of financial products for consumers.

Having access to appropriate banking services is an important element of modern life, and it can help to alleviate some of the problems faced by low-income families. A bank account enables individuals to make and receive payments through a variety of channels, have a more secure place to keep money and reduce the cost of household bills. The number of individuals without bank accounts has fallen in recent years, but the Government remain keen to see the situation improve further, and in particular to identify groups who may have specific difficulties in accessing a bank account.

While the situations described by the right hon. Gentleman are clearly invidious, it is not clear how many individuals are affected by this sort of difficulty. This is the first time that I have personally been made aware of this issue. As far as the Treasury is aware, it is not widespread. The right hon. Gentleman may have identified a growing problem that we need to look at. His industry and dedication as a constituency MP have highlighted not one but two cases that happen to have occurred among his constituents.

The issue falls within the remit of the Financial Secretary to the Treasury. He is not available to attend the debate, but he will be asking officials to investigate how this matter may have arisen and how many consumers may be affected. We will write to the right hon. Gentleman to explain the findings, and I am grateful to him for highlighting this particular issue. Clearly, we need to understand whether the problem is widespread.

The right hon. Gentleman set out four points, and I shall try to respond as best I can. I will take his first and third points together. He asked whether individuals should be informed if they are going to be denied a bank account and, if so, whether they should be provided with a reason. Those are eminently sensible and reasonable points. Consumers have the right to ask for a reason if they are denied a bank account, as set out in the Money Advice Service’s guide to bank accounts, which is available on its website. Consumers may also complain to the specific firm if they are unhappy with the outcome, and they can take their complaint to the Financial Ombudsman Service.

The decision to offer a bank account is ultimately a commercial decision. Current account providers are not obliged to provide a specific reason for not offering an account. However, it is worth highlighting the Financial Services Authority’s principle that financial institutions are required to treat their customers fairly, which is relevant in these circumstances.

The right hon. Gentleman questioned whether consumers should be denied a bank account where there has been no allegation of wrongdoing. Again, decisions as to whether to offer a bank account are a commercial matter for the financial institution concerned, and the Government do not intervene in such decisions. However, there is no legal or regulatory reason for victims of fraud to be denied a bank account. The circumstances that he set out appear to be of some concern.

The fourth question asked by the right hon. Gentleman was whether consumers should be given the opportunity to challenge the refusal of an account. If consumers are unhappy with the decision taken, they may complain to the specific firm concerned, and if they are unhappy with the outcome, they can take their complaint to the Financial Ombudsman Service. I reiterate the point that if a financial institution, or more specifically a bank, has been in breach of the FSA principle of treating customers fairly, the individual customer can raise that with the bank and with the Financial Ombudsman Service. If the explanation that is given to a customer is wrong—for example, if there is misleading information about how CIFAS works and its impacts—without wanting to be drawn too much into specific cases, it seems there is a case that the customer is not being treated fairly.

[Stephen Timms]

Part of the difficulty arose when the banks to which an application was made simply said to Miss Dolor, “You do not meet the criteria for an account.” I do not know whether that meets the terms of providing an explanation, but it clearly did not shed any light on the matter for her. If she had been told that she had been registered in such and such a way with CIFAS, she would have understood what was happening. The whole process was opaque. Does the Minister agree that some effort should be made to provide some illuminating information rather than a kind of stonewall response? It might meet the letter of the requirement, but in practice it does not help the customer at all.

[Mr Gauke]

I have considerable sympathy with the point that the right hon. Gentleman makes. Again, I do not want to be drawn into an individual case, but clearly it is not terribly helpful when the response may be technically accurate, but does not get to the heart of the matter. As he has set out, the individual customer, a member of the public, will be concerned if they find themselves in that most difficult of situations where they are being denied a bank account, but without any real understanding as to why. As in the cases that he has highlighted, an individual may go from bank to bank without being given any real indication as to why they are in that difficult position. In such circumstances, I sympathise with him and his constituents.

The Government want to ensure that everyone can access the financial services that they need to play a full part in society. I am grateful to the right hon. Gentleman for raising this issue in today’s debate. I assure him that we will consider the matter and investigate whether it is widespread. I want to assure him that it will be taken into account as part of the Government’s ongoing work to improve financial inclusion and access to bank accounts. He has rightly set out some of the difficulties that exist for individuals if they are not able to access a bank account. If the attempt to tackle fraud is working in such a way that the innocent are being punished, we need to address that by working with the FSA and the high street banks.

I reiterate my thanks to the right hon. Gentleman for raising the matter. My colleague, the Financial Secretary, will reply to him with further details after we have had an opportunity further to investigate the extent of the problem. If there is anything that we can do to address this matter, we are certainly keen to do so.