Additional guidance on the Banking Code will offer greater protection for customers who borrow from banks, building societies and credit card companies.  The new guidance, which is published on April 1, covers the following lending situations:

• Consolidation loans: Where a consolidation loan is provided for a customer who the subscriber considers to be in financial difficulties, the subscriber should take reasonable steps to ensure that any in-house borrowing is repaid with the proceeds of the consolidation loan.

• Joint income borrowing: Where the income of two people is used to assess the ability to repay a loan, the loan should normally be granted in joint names.

• Referral of declined loan applications: Where, after declining an application for credit, the subscriber refers the customer to another lender, they should make sure that the customer is aware that this does not necessarily mean that the application will be successful.

• Assessing a customer’s ability to repay: A credit assessment should include at least two of the following four points: Income and financial commitments; how finances have been handled in the past; information from credit reference agencies or, subject to the customer’s permission from other sources such as the customer’s employer or landlord; credit assessment techniques such as credit scoring.
• Consideration of additional information: When assessing an application for credit, lenders are encouraged to consider the purpose of the borrowing in relation to the period of repayment.

Ian Mullen, chief executive of the British Bankers’ Association said: “One of the key attributes of the Banking Code Guidance is its ability to be adapted to reflect new developments in the market place.  The introduction of the new guidance is a prime example of this in action and formalises good practices that are already widely employed by the industry.”

Seymour Fortescue, chief executive of the Banking Code Standards Board added: 'The BCSB actively monitors compliance with the Banking Code, including its provisions on credit assessment. In the context of rising concerns about personal indebtedness, our reviews have suggested ways in which the Code could be strengthened. We are pleased that our recommendations have been accepted by the industry and believe they should encourage responsible lending and responsible borrowing. Greater care with joint lending and consolidation loans should result in fewer problems for borrowers and lower bad debts for banks. We will continue to monitor this important part of the Code, seeking to improve high standards of compliance by all subscribers.’

ENDS

For further information contact:

Brian Capon, head of media relations BBA 020 7216 8810

Sandra Quinn, communications director, APACS 020 7711 6234

Rachel Blackmore, external affairs manager, BSA 020 7440 2218

Notes to editors:

The Banking Code is a voluntary code which sets the standards of good banking practice for banks, building societies and credit card companies to follow when they are dealing with personal customers in the United Kingdom.  As a voluntary code, it allows competition and market forces to work to encourage higher standards for the benefit of customers.  The first Banking Code was introduced in December 1991 and the latest Code, the seventh, took effect from 1 March 2005.  The Banking Code is sponsored by the British Bankers’ Association, the Building Societies Association and APACS.

The Guidance to the Code provides information on how the Code should be interpreted. It is intended primarily for subscribers, but is publicly available on the sponsors’ websites and that of the Banking Code Standards Board.

The Banking Code covers non-mortgage lending by banks, building societies and credit card companies. Mortgage lending is regulated by the Financial Services Authority.

The Code is monitored by the Banking Code Standards Board whose directors include a majority of independent members as well as representatives of financial institutions.

The Banking Code is independently reviewed every three years and there is provision for an interim review to take place where appropriate.

Subscribers to the Banking Code have three months from publication of the Guidance to implement the new measures, except those for consolidation loans and joint income borrowing for which there is a six month implementation period.