Compensation Culture

Banks in the UK are facing new proposals from the Financial Services Authority (FSA) that will force them to prominently display the compensation limits available in case of their collapse.

These new proposals have been proposed because even an expensive TV advertising campaign has not been seen to improve awareness of what compensation savers are entitled to.

A few years ago this might all have been academic. Before 2007 most consumers would never have experienced a run on a British bank, so when Northern Rock collapsed and savers desperately lined up at branches trying to access their money, almost nobody had any idea what they were entitled to claim.

In that case, the government stepped in and declared that the existing compensation limits were not good enough – perhaps because nobody ever really expected them to be tested. The limits were entirely overhauled after the financial crash, but even now with so much attention on the banks and the potential for a further crisis, people still don’t know what they can claim if a bank collapses.

The new protection scheme is fairly simple. Deposits are guaranteed up to £85,000 in each account, but other financial services where deposits can be made, such as PayPal or prepaid credit cards, won’t be covered. Interestingly any foreign banks offering retail services in the UK, like the Anglo Irish bank or ING, will have to explicitly tell customers that their deposits are not protected.

It is extremely important to ensure that customers have faith in the banking system, but the rules on compensation have already been simplified and a major TV campaign has failed to ignite any interest from consumers.

Perhaps there is just a lack of interest from the man on the street because they have less faith in what the banks say these days, or maybe they just don’t have £85,000 in cash to deposit anyway? At least the banks are now being forced to take the information they supply to customers far more seriously than ever.

Northern Rock Queue

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