Are ALL early closure penalties actually enforceable and lawful?

masonic

Well one thing is for sure, it is not a decision that should be taken rashly, and with all of the potential negative consequences it would need to be researched, planned and implemented by a body with detailed industry knowledge. Perhaps this is one of the reasons for the banking exception to the general consumer protection laws discussed above: so that this responsibility lies with the industry regulator.

uk1

masonic said:

Well one thing is for sure, it is not a decision that should be taken rashly, and with all of the potential negative consequences it would need to be researched, planned and implemented by a body with detailed industry knowledge. Perhaps this is one of the reasons for the banking exception to the general consumer protection laws discussed above: so that this responsibility lies with the industry regulator.

Legislation doesn’t rely with the industry regulator.  The legislation lies with Parliament.  The regulator simply ensures that the law is complied with. 

Anyway. I’m unable to recall a single time when consumers have been disadvantaged by enhanced consumer protection.  

masonic

uk1 said:

masonic said:

Well one thing is for sure, it is not a decision that should be taken rashly, and with all of the potential negative consequences it would need to be researched, planned and implemented by a body with detailed industry knowledge. Perhaps this is one of the reasons for the banking exception to the general consumer protection laws discussed above: so that this responsibility lies with the industry regulator.

Legislation doesn’t rely with the industry regulator.  The legislation lies with Parliament.  The regulator simply ensures that the law is complied with. 

Anyway. 

Legislation carves out the role of the industry regulator. This role gives the regulator discretion to set rules that are binding on the firms they regulate and go beyond their statutory obligations. Where necessary, the industry regulator will work with legislators to put appropriate legislation in place and can influence this legislation.

masonic

uk1 said:

I’m unable to recall a single time when consumers have been disadvantaged by enhanced consumer protection.  

To some extent that will be due to survivorship bias. Damaging consumer protection measures won't tend to last very long (perhaps they won't make it to implementation). Consumer protection can on the face of it seem desirable, but can fail in implementation.

One example of consumers disadvantaged by protection measures relates to energy standing charges, where reforms intended to simplify energy contracts and reduce the number of different tariffs a supplier could offer effectively outlawed 'no standing charges' deals whereby very low users could benefit from paying nothing when they used nothing. More recently, every household is now paying ~80% more in electricity standing charges. This is the result of the poorly implemented and costly Supplier of Last Resort regime, which was intended to protect credit balances, but was a very poor consumer measure that led to energy suppliers using customers as creditors. This was used to reassure customers about new entrants to the market, enticed in an attempt to stimulate competition and bring down prices for consumers, but resulted in suppliers taking advantage and going bust in droves when their efforts to undercut the established providers by cutting out hedging and other measures to protect themselves from wholesale price fluctuations came back to bite them. This goes to illustrate that the devil is in the detail, and even an industry body can get things badly wrong. Given the recent activity in Westminster, I have even less confidence in Parliament getting things right in isolation.

eskbanker

uk1 said:
I’m unable to recall a single time when consumers have been disadvantaged by enhanced consumer protection.  

In the context of financial services, one obvious example would be the changes to the overdraft charging regime in 2020, arising from a desire to simplify these, a cause championed enthusiastically by MSE and others.

After extensive consultation, the FCA mandated a simple interest-based charge instead of the various pricing models in place up to then, and insisted that the same rate be applied to both authorised and unauthorised overdrafts.

As predicted by some on here, the impact of this was that overall costs increased for huge numbers of borrowers thanks to higher rates, limits were reduced, and access to unauthorised borrowing was prevented via tighter controls to decline more transactions, so a change that consumer organisations and the FCA proudly felt would be positive was in fact generally negative, thanks to the balloon-squeezing effect I mentioned earlier.

https://www.moneysavingexpert.com/news/2018/12/fixed-daily-and-monthly-overdraft-charges-to-be-banned/

In other cases, the linkage between cause and effect may be less obvious, so, for example, the PPI bandwagon resulted in significant cost to the industry (obviously many would say they deserved that self-inflicted grief), which has to come from somewhere, whether that's increased charges or lower interest rates, etc, so what may be popularly portrayed as the little guys taking on the evil big banks and winning will often be pyrrhic victories.

There will be similar tales of unintended consequences in areas such as credit cards (banning explicit surcharges, thereby shifting associated costs elsewhere, and mandating lower interchange rates, which resulted in card companies offering fewer perks) and pensions (greater notional freedoms ultimately translated into tighter controls that hindered transfers out of DB schemes) and no doubt there will be others that don't immediately spring to mind, so the usual caveat applies: be careful what you wish for....

masonic

eskbanker said:

pensions (greater notional freedoms ultimately translated into tighter controls that hindered transfers out of DB schemes)

One such control was the need to obtain regulated financial advice, which reminds me of another example... The 'advice gap' whereby reforms introduced in the Retail Distribution Review around charging models for financial advice disadvantaged those with modest amounts of assets, who can no longer obtain affordable financial advice. The last report on this suggested fewer people than ever were taking advice, and an estimated 6 million people want advice but cannot access it, either because of prohibitive cost or because their custom is no longer viable to advisers. This can have pretty dire consequences if they then turn to social media to research investments. One has to wonder if the likes of LCF and Blackmore bonds would have suckered so many if it wasn't for this situation.