Banks Take Action on Boiler Room Share Scams
Some banks in UK have begun screening customer transactions to clamp down on so-called “boiler room” fraud.
It is estimated by the Financial Services Authority that up to 30,000 people a year are losing hundreds of millions of pounds to these share scams.
It happens when criminals call potential investors attempting to sell shares which are effectively worthless.
Barclays and HSBC have told the BBC they suspend transactions if they are being paid to known boiler room firms.
The two banks use a warning list published by the Financial Services Authority (FSA) which contains the names of hundreds of companies.
The FSA says the companies are not authorised and pose a high degree of risk to customers.
Barclays told BBC Radio 4’s Money Box programme it had blocked around 150 transactions since introducing a screening system in February, potentially saving customers millions of pounds.
It said although around 90% of customers contacted chose to cancel the transaction once they were told the company was on the warning list, 10% insisted on it going through.
HSBC has been screening transactions since 2006 and also said it has saved its customers millions of pounds.
A spokesman told Money Box: “If we receive requests for payments to any of these companies we will delay payments until we have checked with our customers to ensure that they are aware of the company’s activities.
“Usually, when customers realise that the companies in question are on the non-authorised list, they want to stop the payments.”
Lloyds TSB and Nationwide would not comment on their security procedures.
Operation Archway
The Financial Services Authority has been working with police officers from Operation Archway in London for several years to try to tackle boiler room fraud.
Officers say fraudsters often persuade investors to part with tens of thousands of pounds and they get about 100 calls a week from victims.
Detective Superintendent Bob Wishart told the programme the banks are playing a significant role in reducing losses.
“We’re having some notable successes. If we can help them identify potential fraud and a bank is a 100% happy that it is a potential fraud, then it can take the appropriate action,” he said.
Jonathan Phelan, FSA head of Retail Enforcement, agrees the banks are making an important contribution but believes there are limits to how successful screening by banks alone can be.
“We are in discussion with banks,” he added. “It is a very difficult area. There’s a certain amount of intrusion about it, so one has to be careful about promoting it too much.”
The Financial Services Authority and the police insist they are having some success at closing down and prosecuting the criminals involved.
The FSA said it has recently closed down six boiler room agents and recovered close to three million pounds of investors money from four boiler room operations.
Officers from Operation Archway said they are currently involved in a dozen major boiler room investigations.
The FSA says it is illegal for any broker either in the UK or abroad to cold call customers and anyone who receives such a call should hang up immediately.
Ruling Given on Some NatWest Bank Charges
Some customers of the NatWest bank might have a new opportunity to reclaim their bank overdraft charges.
A High Court judge has ruled that the bank’s terms and conditions, used from 2001 to July 2003, may have included unfair penalties for going overdrawn.
The ruling by Mr Justice Andrew Smith is one of a several in the long running test case on bank charges.
Most overdraft claims in county courts have been halted since July 2007 while the High Court resolves the issue.
“The court found that a single historic NatWest term prohibited customers from using a card to go overdrawn but this does not mean that that term is a penalty,” said a NatWest spokesman.
The consumers’ organisation Which? said in theory some NatWest customers could now ask their courts to reopen their claims, but warned it would not easy going.
“Firstly, the judge this week only said Natwest’s 2001 charges may be penalties, not that they are penalties,” said Which? lawyer, Chris Warner.
“This means the customer would need to show that the charges were actually penalties by proving that the charge did not reflect the bank’s costs.
“Also, as the issue of charges reflecting the cost to the bank is part of the OFT’s ongoing fairness assessment, Natwest may be able to convince the court to stay any cases brought against it until the OFT’s investigation is complete,” he added.
Marc Gander, of the Consumer Action Group (CAG), said some of his members were now thinking of returning to court, after being charged under the NatWest’s 2001 conditions.
“It affects personal and business customers, but only for a limited period of time,” he said.
“The bigger question is whether the contracts will be subject to the consumer contract regulations.”
The banking industry and the Office of Fair Trading (OFT) are waiting for the Appeal Court to hand down its judgement on a bank appeal against an earlier ruling by Mr Justice Smith.
Last year he dealt a blow to the right of banks to levy high overdraft charges when he decided that the 1999 regulations, regarding unfair terms in consumer contracts, gave the OFT the right to scrutinise those charges.
This week’s judgement by Mr Justice Smith was one of three residual decisions, made on whether or not charges levied under old or “historic” terms and conditions could also be penalties under common law, and therefore unrecoverable.
Last October he cleared most of the old contracts used by seven banks and the Nationwide building society, who are the parties to the test case with the OFT.
However he needed more time to consider some of the terms and conditions used in the past by the Abbey, Lloyds TSB and RBS NatWest.
This week he gave the first two of those banks the rulings they had been seeking; that their former current account conditions did not fall foul of common law.
But he found against the NatWest.
“I still consider the relevant term in the NatWest 2001 conditions to be contractual and to impose a contractual prohibition on the customer,” said the judge.
“I therefore remain unpersuaded that the relevant term in the NatWest 2001 conditions is not capable of being penal,” he added.
The significance of the judge’s decision is that if a clause in a contract imposes an obligation not to do something – such as not going overdrawn on a current account without permission – then any money charged for breaking that condition must not be more than is actually necessary to compensate the bank.
That is because under common law it is illegal for any penalty charges or fees, imposed by a business, to be excessive.
Campaigners have argued that typically it does not cost a bank more than about £2 to tell someone they have gone overdrawn and to repay their unauthorised borrowing.
In contrast, bank charges have sometimes been more than £30 each time a customer has gone into the red or had a cheque bounced.
“The OFT and RBS group are considering their positions pending finalisation of the order,” said an OFT spokeswoman.
This means either side could appeal, which might delay any attempt to start a case in the county courts.
And this week the Financial Services Authority (FSA) gave the banks another six months in which they could park any claims for the return of bank charges.
“The fact that the FSA’s waiver, which has just been extended by another six months, is still in place with the exception of financial hardship cases and it could be very difficult for anyone to make a successful claim at this stage,” said Chris Warner of Which?
FSA Issues Warning As Mortgage Arrears Rise
The UK’s financial watchdog has said Mortgage firms should treat customers fairly as the number of homeowners facing arrears and repossessions rises.
The Financial Services Authority’s comments came as it reported a 40% rise in new cases of repossessions in the first quarter of 2008 to 9,152.
In the same period the number of home loans in arrears rose by 15%.
The watchdog warned a flexible approach was needed from lenders when recovering these arrears.
“More people are struggling to meet their mortgage payments and it is vital that firms treat them fairly,” said Lesley Titcomb, of the FSA.
“This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession should always be the last resort.”
Mortgage squeeze
The figures, drawn from data provided by regulated mortgage lenders and administrators, also gives more evidence of the squeeze on the availability of mortgages.
New lending peaked in the third quarter of 2007, but the share of new lending being used for loans for house purchases has fallen since then, the data shows.
The proportion of mortgages where homeowners borrowed more than 90% of a home’s value fell from a peak of 15% of new lending in 2007 to 10% in the first three months of 2008.
But the percentage of borrowers with a poor credit history has fallen.
“We believe these new figures paint a terrifying picture showing real people – hard-working families, young first-time buyers and even renters – all living in the shadow of repossession and ultimately homelessness,” said Adam Sampson of charity Shelter.
The FSA should tackle “merciless mortgage lenders”, he added, as there was concern that some lenders might try to pursue a repossession rather than try to work out a solution.
‘Fair treatment’
It is the first time that the FSA has published figures in this way.
It has asked specialist lenders not to operate a “one size fits all” approach that was too focussed on recovering arrears without taking account of the borrower’s circumstances.
It added that some were too quick to take court action and needed to improve training on dealing with mortgage arrears.
The watchdog also followed up on a review of 250 firms offering mortgage advice.
More evidence of whether customers were able to afford repayments was needed, the FSA found.
Seven small mortgage advisers are also likely to face enforcement action after the review.
Repossessions
The Council of Mortgage Lenders (CML) says that there are 11.8 million mortgages in the UK that are currently being paid off.
However, it has predicted that, with more of us feeling the pinch due to the credit crunch, there will be 45,000 repossessions in 2008, up from 27,100 in the previous year.
The growing numbers are partly the result of rising house prices in recent years, which gave lenders an interest in encouraging people to sell.
With high mortgage repayments, and rising household food and fuel bills, the number of people missing payments on their home loans is rising.
The Ministry of Justice said in May that the number of people facing repossession orders – an early stage of the repossession process – rose by 17% in the first quarter of the year.
There were 27,530 orders in the quarter, up from 23,438 during the same period in 2007.
The government said it was doing more to help those in financial trouble, such as extending free debt advice services and free legal representation at county courts.
“The rate of repossessions is not on the same scale as in early 90s. But that doesn’t mean we don’t recognise the problems that some borrowers are facing because of global economic pressures,” said a Department for Communities and Local Government spokesman.
There was also some better news for new borrowers as a number of the major lenders have also cut their interest rates for new fixed-rate mortgages in recent days.
FSA Demands Tougher Mortgage Fraud Action
The (FSA) Financial Services Authority has told lenders to tighten up their defences against mortgage fraud.
This year alone it has banned or fined 17 mortgage brokers who have been implicated in making actual or potentially fraudulent applications.
The regulator says it is monitoring 200 more broking firms to ensure they have sufficient checks in place.
And it also warns that certain lenders may not be guarding themselves against fraud with sufficient diligence.
“The FSA continues to take very seriously the question of whether lenders’ systems and controls for dealing with mortgage fraud are proportionate to the risk,” said Philip Robinson, director of the FSA’s financial crime and intelligence division.
“We are likely to take particular note of cases where weaknesses in due diligence and customer checks – or in outsourced relationships with third parties – may have contributed to a heightened mortgage fraud risk,” he warned.
Easy Credit
The FSA’s call for tougher defences against fraud is targeted at the whole mortgage industry, including the British Bankers’ Association (BBA) and the Council of Mortgage Lenders (CML).
The regulator says the problem became widespread in recent years because of “easy credit conditions and a cut down application processes.”
The FSA is currently liaising with many police forces around the country in its efforts to stop criminals defrauding lenders by making bogus applications for home loans.
The CML’s director general, Michael Coogan, welcomed the tougher stance.
“People may not think of lenders as victims of crime, but unless fraudsters are tackled then honest customers are the ones who end up paying more,” he said.
“We expect that even more lenders will now participate in the voluntary initiative designed to identify and investigate broker fraud,” he added.
Tip Offs Wanted
Since 2006 the FSA has been asking lenders to report suspect mortgage brokers to it.
It has received more than 300 tip offs so far, but is disappointed that only 35 out of the UK’s 150 lenders have made any reports to the authorities.
It now expects the rest to fall into line.
Despite the downturn in the property market in the past year, and the slump in mortgage lending caused by the credit crunch, the FSA warned that the problem of mortgage fraud could revive along with activity in the market.
And it says it may require senior staff at mortgage brokers to become individually approved by the regulator, something which is not necessary under current regulations.
