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Lenders scam clients because they can’t sell

Pity the poor lending industry – whither its next profit line? Or perhaps it’s sympathy that lenders need rather than pity – they’re not exactly strapped for cash, are they?

But it seems that despite straining their ingenuity to squeeze their borrowers until the pips squeak, today’s focus on treating customers fairly is proving a headache for lenders.

Not, they will contend, that they want to treat customers unfairly per se. They’re only redefining the point at which they collect their profit.

In the old days lenders could lead and lag their interest rates to swell their coffers – delaying or accelerating passing on the benefits of Bank of England base rate movements to their customers and securing a handsome wad in their back pockets as a result of doing so.

Obviously there was nothing wrong with that, and the millions rolled in. Unfortunately, with a bit of consumer and media prodding, the chancellor took a different view.

So these days rate changes have to happen rather more quickly, leaving the len-ding bean counters to ponder alternative ways of extracting cash.

Enter higher application and arrangement fees – provide competitive interest rate products but charge high costs to secure them.

Lenders seem to have got away with this one. These upfront fees (no, sorry – you can often add them to the loan to generate even more interest for the lender) have shot up from an average of 199 to more than 599.

Encouraged by the success of this move, lenders have most rec-ently turned their attention to exit fees, I guess on the premise that if they can stuff the borrower coming in, why not stuff him going out as well.

But this time all has not progressed quite so smoothly.

God bless the Financial Services Authority – and did I ever think I would hear myself say that? Our sometimes turgid watchdog has spotted that these exit fees are wholly unjustifiable and, applied retrospectively, patently unfair.

So it has reached for the cane and is clearly intent on dishing out a severe whacking, financial services miscreants clearly representing the only remaining sector of the population on whom corporal punishment is not only allowed but encouraged.

And so the Treating Customers Fairly initiative rolls on, cutting a bloody swathe through the profit and loss accounts of corporate fat cats. Isn’t it interesting how our leviathan financial services operations can never seem to produce the profits they seek without recourse to the tricks of the trade when it comes to creating a surplus from the myriad add-ons that hover around core products like flies in a dunny – they’re universally rubbish at selling.

This is one of the main reasons why the one-stop shop concept so often espoused by banks and building societies will remain an elusive Holy Grail – if they ever found it none of them would be good enough to make it work. So the lenders flit from scam to scam. But just maybe they’re running out of road.


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