Banking in Scotland

Ian Murray Excerpts

Thursday 14th October 2010 Westminster Hall

[Mr Davidson]

I am sure that those points have been noted by all concerned, including the Minister and the relevant Whip. I want to deal with the report, however, and while such matters are fascinating, the report does not deal with them. I look forward to hearing the hon. Gentleman’s contribution to the debate, which will no doubt cover anything that anyone misses out.

Let me make it clear that the Committee believes that it is of key importance to continue the supervision of banks in Scotland, because the banks’ behaviour and their success will be essential to the growth and development of the Scottish economy. We cannot build up a small or large business sector without having banks in Scotland that are able and willing to lend, understand their markets, and behave constructively and positively. I hope that that covers the point that the hon. Gentleman was making.

We wanted to identify the extent to which lending in Scotland had declined during the economic crisis. Our report contains a series of figures and statements indicating that there was a period when lending was far too loose—the banks had been intent on shovelling money out of the door, almost irrespective of whether the business propositions were viable. We were critical of the way in which bankers often seemed to be incentivised to make loans without due regard to their viability, whether they were for property or to businesses or individuals. The report states that the pendulum then swung too far in the other direction. For a period, banks were unduly restrictive. They were prepared to lend on almost nothing and found excuses to raise charges and interest rates to make it as difficult as possible for money to go out. We have now seen a swing back and there is a degree of equilibrium, but subsequent discussions that the Committee has had have not convinced me that the banks have got it right yet.

Recently, the Committee met representatives from the computer gaming industry in Dundee, the construction and road haulage industries in Edinburgh, and the local chamber of commerce in Dundee. In every case, the story we heard was the same—the banks do not understand us. No one in the construction, road haulage or computer games industries spoke up for the banks collectively. That was interesting, and not a little worrying. Everyone who expressed a view on such matters said that they did not believe that the banks had taken adequate account of the prevailing situation, and did not have a feel for their industry at the moment. They needed loans, floating capital and so on, but the banks were not willing to play along, except at exorbitant rates.

The banks have said that they are making more money available and that part of the difficulty is that lending is going down because companies are choosing to repay debt instead of taking out new debt; but it seems to me that, to some extent, the rates that the banks charge and the conditions that they seek to apply are still inhibiting meaningful lending. The Government and the Committee should give ongoing consideration to that. We have had some responses and updates from the banks involved that seem to paint a picture that is rosier than recently, but we are still receiving feedback from those who want to borrow that the banks are not being as helpful and constructive as they might be. I hope that the Minister and the Committee will be able to work together with the Scottish Parliament to ensure that we develop a mutually advantageous liaison and relationship.

[Ian Murray (Edinburgh South) (Lab)]

Will my hon. Friend comment on the experience that I have witnessed and have been told about since the report was published? A major lending bank in Edinburgh told me that it has more money than it has ever had to lend, but that people are not coming forward to borrow it. I suspect that that might be due to the expectation of those who would like to borrow that they are being priced out of the market, or would not be granted loans.

Another major mismatch in the banking sector is between front-line staff, who have a relationship with industries, and the underwriters in the background. There is anecdotal evidence to suggest that when people seek to borrow money, the front-line staff with whom they have a relationship believe that the criteria have been met, but the underwriters subsequently use different criteria. Has the Committee come across those issues since the report was published?

[Mr Davidson]

The first is certainly true. We have been told that money is available but is not being taken up, and money is being paid back faster than it is going out. We have not adequately explored the point at which decisions are made, not made, or knocked between front office and back office, and my hon. Friend gives us a valuable pointer. Having met representatives from three industries that are significant and important to the welfare of the Scottish economy, and having heard the same story from them all, it seems that something is still not right in the relationship between banking and its customers in Scotland.

When we met the CBI representatives, we did not quiz them as directly as we might have done because it was an informal meeting, but the same sort of message was coming back. I know from meeting various development groups in my local area, including construction companies, that people are concerned about the lack of co-operation that they receive from the banks. That is one area of the report where further work is required, and I hope that the Minister will be suitably co-operative on that.

I will now look at how banks deal with individual customers. We all deal with the public and we are aware from our activities and surgeries that there is a fair number of rascals, chancers, villains and incompetents in most constituencies, except my own. The banks are not necessarily dealing with paragons of virtue on every occasion and there are people who borrow irresponsibly. However, the volume of complaints present at the time of our report seemed far greater than could reasonably be expected. The stories that we have heard since from Citizens Advice, and the experiences in my surgery and those mentioned by my hon. Friend the Member for Dundee West (Jim McGovern), suggest that the banks continue to be less than completely understanding and helpful when dealing with customers in financial difficulty.

A number of examples of bad practice are quoted in the report, and it is perhaps appropriate to mention them so that they are on the record. In its evidence to us, Citizens Advice highlighted:

“Unfair overdraft charges; banks being more aggressive in their behaviour towards debtors; banks encouraging debtors to take out more products as part of their repayment; banks demanding higher repayments from clients in order to repay debt quicker;.”

Banks are also using the “right of set off” to transfer cash around people’s accounts. None of those are examples of particularly good practice. Many of us were worried by the way that banks were utilising call centres to a far greater extent than we believed was justifiable. In many cases, call centres were ringing up customers several times a day, and they often seemed to be in complete ignorance of arrangements that had been made with another section of the bank. Those call centres were often based abroad and perhaps there were difficulties in communication. The people who rang up and talked to the customer seemed to have no flexibility or power to negotiate or discuss matters, but simply reiterated that they wanted money back. Hon. Members will understand how stressful that was to people who, in many cases, were already highly stressed because of their financial position.

To some extent, the assurances that we had from the banks reminded me of Bart Simpson, who, when he was accused of anything, would say, “It wasn’t me, nobody saw me and you can’t prove it.” The banks tended to say, “We never did that, it wasn’t as bad as you say and we don’t do it now.” Clearly, the banks are now at some pains to distance themselves from some practices that have been going on, but I do not think that they have abandoned them entirely. We have been told that banks now show greater forbearance before taking people through the repossession process, and feedback I have received suggests that that is true. The Government are probably in a better position to clarify the figures. That is certainly a matter that we want to pursue.

We continue to receive feedback from Citizens Advice and other organisations suggesting that cases continue where one arm of a bank strikes a deal with a customer who is in financial difficulties, but another section continues to pursue the customer, irrespective of the deal done; and irrespective of the bank having been notified that somebody wants to use Citizens Advice or another intermediary as a representative, it continues to pursue the customer directly in order to harass them into making additional payments. There must be a degree of responsibility on the part of the banks. We understand that the banks need to try to recover their money, and, particularly when many of them are state-owned and state-financed to a great extent, we do not want to put them in a position where people can escape their obligations, but a balance must be struck. Paragraph 113 of the report states:

“We conclude that banks continue to use aggressive tactics towards customers who have fallen into debt.”,

We should all be concerned about that. We have been told by a number of bank staff that some of the processes and procedures that I have described continue. That is concerning.