FCA and data watchdog to warn banks on failure to alert over better savings deals

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The UK’s financial regulator and information watchdog will warn banks that they cannot hide behind data protection rules if they fail to alert savers to better deals.

Under pressure to pass on the benefits of higher rates, banks told the Financial Conduct Authority at a meeting earlier this month that they could not tell certain savers about deals if they had opted out of marketing communications, according to people familiar with the situation.

But on Tuesday the FCA and the Information Commissioner’s Office are planning to send a letter to UK Finance, the banking lobby group, disputing that position, according to two people familiar with the situation.

The letter is expected to tell lenders that they can communicate better savings rates to customers and still meet data protection rules under the General Data Protection Regulation (GDPR).

“It is unacceptable for banks to use erroneous or misguided interpretations of data protection regulations as a reason for not supporting customers,” said one person close to the ICO.

Banks have faced stinging criticism for failing to sufficiently increase savings rates while mortgage costs continue to surge. Andrew Bailey, governor of the Bank of England, last week called on banks to pass on higher rates to savers. Jeremy Hunt, the chancellor, also warned lenders that they face a regulatory crackdown if they fail to increase savings rates.

A person familiar with the meeting earlier in the month said the FCA explained to the banks how they can contact customers, noting that “the ball is in [the banks’] court now on highlighting savings deals”. 

The person added that the letter would provide further guidance on how banks can communicate to their customers to make them aware of the best savings rates.

The Bank of England has increased rates 13 consecutive times since December 2021, pushing up base rates to 5 per cent. On Monday, the average rate on a two-year fixed mortgage rose to 6.78 per cent compared to the average rate of 5.12 per cent on a two-year savings product, according to Moneyfacts. The average easy access rate is 2.61 per cent.

MPs, who are pushing for banks to do more to help savers, have already expressed scepticism about banks saying they cannot contact customers because of GDPR rules, which allow regulators to impose fines of up to 4 per cent of a company’s global revenues if they fail to properly use or protect personal data.

Harriett Baldwin, chair of the parliamentary Treasury Committee, last week said she was unconvinced by the banks’ citation of GDPR rules calling it a “very implausible excuse”.

Rob Masson, chief executive of the DPO Centre, a data protection consultancy, described banks’ argument as “rubbish”, adding that it was the Privacy and Electronic Communications Regulations which set out the rules for marketing via electronic means and which is separate though complementary to the GDPR.

“If they’re using electronic marketing rules to say they can’t communicate with customers, there’s an argument, you can’t email that advice, but there’s no reason they couldn’t be sending it in the post,” he said. “That’s pretty thin ice they’re on.”

Nick Phillips, intellectual property partner at law firm Edwin Coe, said: “Companies are not allowed to send marketing messages without an individual’s consent. But they are allowed to send system messages — for example alerting customers they have changed their terms and conditions . . . provided the messages are neutral in tone. It’s quite a difficult area of the law, though — and is one which people often get wrong.” 

Lloyds Banking Group will contact 2.4mn savings customers over the coming weeks who it believes may be able to switch to other savings products.

UK Finance said: “We look forward to reviewing any correspondence from the ICO on this issue.” The FCA and ICO declined to comment.