Yep, the banks really are gouging their customers

August 11, 2009

Michael Saunders will get no thanks from his employers at Citicorp for pointing out how UK interest rates have swung dramatically against the borrower over the last two years.


Bank Rate has plunged by 5.25 percent since July 2007, and two-year swap rates have fallen by 4.1 percent, but surprise surprise, the only rates that have come down anything like as far are those paid to the hapless retail depositor. For many of those wanting to borrow, the price has gone in the opposite direction – if they can get the money at all, that is.

Put another way, the price of a 5,000 pound personal loan has risen by more than 9 percent relative to Bank rate. This process of price gouging is called “rebuilding bank balance sheets.”


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At least bankers do occasionally do things for their customers and therefore for society at large. Contrast this with bloggers, who contribute nothing to the human race except pushing up the prices of everything we buy in the shops through their parasitism off advertising budgets.

I had learnt never to criticise my betters by the age of five. It’s a lesson you could profit from learning.

Posted by Ian Kemmish | Report as abusive

astonishing but true re personal loans. I applied for a car loan and was offered a 10.7% deal which, given the base rate and the current deflationary environment, left me feeling it might be cheaper going to a pawnbroker.

Posted by mike | Report as abusive

What this blogger and the doom-sayers in society at large fail to understand is that, since the credit crunch has hit, Banks are under massive pressure from all angles. Firstly, the FSA et al are climbing all over the Banks, insisting on higher Teir 1 cap ratios etc, so the Banks have to retain more money, making it more difficult to give good retuns and to lend cheaply. Then the inter-bank markets, a one-time source of cheap funds have also dried up. There is no cheap borrowing for the Banks so they cannot lend it out cheaply. Finally, there is an increased risk in lending, particularly to business/corporates as we are in a recession. You have to price for risk and as there is a higher risk of businesses going under, the interest is higher. It’s not rocket science, neither is it a big con.

We have all enjoyed cheap borrowing – some continue to (those on a variable/tracker mortgage tracking around/below base rate for example) but it’s easy to forget that and go for sensationalist headlines though isn’t it?

Posted by Adam K | Report as abusive

Banks DO gouge. Not all the time. Here in the States, let’s say you have $100 in bank. You write one check for $90, 10 for $1 each, putting you into overdraft. The $90 check was the last written, but they will instead let that one go through and charge you $30 for each $1 check. THAT’s gouging!

Posted by UScitizen | Report as abusive

The recession is making the job of the MMC easy when it comes to identifying monopolistic behaviour.

Compare if you will:-

The UK Passport Office recently announced that it was putting up fees 10% in response to a 10% reduction in the number of applications. It was wrapped in management speak as still being a ‘fantastic product’ (probably the best British passports in the world?).

General Motors did not seriously consider doubling the price of their cars in response to halving sales. They have real competition, and their response to falling demand is to reduce their margins.

No prizes for figuring which group the banks fall into.

The government finds it expedient to let them gouge us rather than raise taxes to bail them out – just a pity they just embezzle it among themselves rather than building their capital base.

Maybe one day we’ll get real competition from Virgin Bank or a cheap mass-produced chinese bank whan we want to borrow money against solid collateral for businesses and houses. We’ll still go to the big four for our futures/interest stripped coupon swaptions our whatever their wealth destroying so-called ‘products’ are called these days.

Posted by Steve Marshall | Report as abusive

Oh and by the way Adam K is way out of date – interbank rates have dropped to about 0.75% – they lend to each other at this rate even though some of them are practically insolvent.
They lend to us at 7% even if we put both grannies up as hostages.
Pricing for risk or gouging?

Posted by Steve Marshall | Report as abusive

Of course they have to gouge to support that form of embezzling known as outrageous salary/bonous structure. Talent is required to make sales…so be it. Adherance to rules and analysis of risk runs a bank. Banks have no sales. Their product is the rent on capital. Beyond that position no bank should be. Maybe we need to build a better box.

Posted by DanO | Report as abusive

Talent is possibly(?) required to make sales of IPO’s or bonds or other instruments – ie investment banking activities.

IMHO bugger all talent involved in mortgage lending. The real economy actually needs competitive retail banks. If investment banking failures inevitably lead to costly retail banking then we need a UK Glass-Steagall Act and we need to break up the monopoly.

Posted by Steve Marsha | Report as abusive

I’m off to open an account at Tesco in that case….
A thought – in the last recession circa 1990 I knew someone who worked for a “finance” company that lent to folks the banks wouldn’t touch for property loans – er what they now call sub prime I think. When the bubble burst the company went into liquidation…. This time around the mainstream banks were all doing the same thing – don’t tell me no-one saw this coming… Seems the banker boys have arranged things so well they win on the way up and on the way down too… ghastly

Posted by B E Mused | Report as abusive

Im not so versed in UK banking laws and not much in American ones either but I know here in America when I deposit $1000 into a bank, that bank has a legal right to then loan out $9000 based upon my $1000 deposit. Say I’m an employee who’s paycheck just came from the treasury dept. who just got that money from the all magical federal reserve. The only institution in America with a REAL money tree. The treasury pays me with money the fed creates out of thin air, direct deposits that into their choice of banks and the banks begin to loan/invest off of my direct deposit…… One doesn’t have to spend long pondering this one to see where it leads… gouging, fer sure and in the UK I’d bet it’s real similar to here in America. Gouged is not the word for it.

Posted by jason | Report as abusive

there’s one rule for ordinary people and another for people with money and power. Whether you’re Mugabe, Hazel Blears or Fred the Shred (by no means equals in evil) money and influence talks buy a different form of life opportunity to the man in the street.

The problem with the banking sector is, not strictly the methods and subsequent failures of their sector, but rather the extent of the reward culture which prevails regardless of either success or even merely business propriety.

It is this level of pompous disregard which will continue to rile small businesses and ordinary borrowers and savers.

Posted by Steve Vincent | Report as abusive

I feel that there could be greater competition in the banking sector. It should be easy for newer banks to take market share from the less-than-competent established banks.
Perhaps we consumers should shop around more.

Posted by JohnB | Report as abusive

re: Steve Marshall. The interbank rates are only dropping due to a lack of appetite and lack of ability to lend now. HBoS and Northern Rock went through them like kids in a sweet shop. The funding available is not on the terms Banks want. Why are rates stilla 7% for a Personal Loan? Because the base rate won’t stay this low forever and the banks that are left have to justify what they lend and why they are lending it or the FSA slaps the fines about. It’s the same or mortgaged lending. HSBC and Nationwide are ledning at decent rates but neither are going to offer a 2% fix for 3 years as base will be well over that in 3 years and it would be commercial suicide. Still, good to blame everyone. Oh, and has anyone asked exactly where the profits are coming from for the banks that are making money? Is it the UK Retail sector? No.

Posted by Adam K | Report as abusive

We were recently offered a loan from lloyds at 17% this was described to us as a “preferential rate” for an old and trusted customer. Robbery is the phrase that springs to mind, not sure where ian is comming from describing these people as our “betters”, The over inflated ego’s of the bankers have cost the world dear and I wonder who could have done a worse job. They should have been left to go bust like any other bussiness the is badly run, perhaps if the money that was poured into the banks had been split amongst the population the cash windfall to individuals would have been more likely to be spent, thus returning it to circulation. the arrogance of of some of the defenders of our so called “betters” is mind blowing.

Posted by Dominic wymark | Report as abusive

We might get a Sarbanes-Oxley effect in the UK where compliance with the new regulatory environment is such a burden that it acts as a insuperable barrier to new entrants. We really need two tier regulation where pure retail banks have a much easier environment.

Not long ago the UK was a happy hunting ground for car manufacturers where an effective cartel enabled them to gouge us massively for new cars. I’m waiting to read that Santander is making 90% of their profits on their UK operations – give it two years.

Nobody want to go to a casino with three zeroes on the roulette wheels funding croupiers making ten time as much as they are. We will vote with our feet if there is a sensible alternative.

The EU anti-trust laws might just save us from these vultures.

Posted by Steve Marshall | Report as abusive

Joe public has a choice in all of this – stay passive and watch the bubble grow again and pick up the tab again or find ourselves irrecoverably bankrupt.


collectively lobby political representatives incessantly to effect fundamental change in our banking, public sector and other industrial systesm (this will take several/mant years but other than picking up stakes and pikes and attempting to overthrow congress and parliament seems the only way).

Whatever you decide to do, you are unwise to rely on Govt or regulators to make the necessary fundamental changes for you.

Posted by mike r | Report as abusive