After being pulled into an early July meeting with regulators over uncompetitive savings rates, some UK banks are now blaming data protection laws for consumer financial woes.
The high-street banks claim that the national data protection laws prevent them from sending emails to customers about account options with better savings rates. However, regulators say that the rules do not restrict communications that contain entirely factual statements about interest rates offered and means of switching accounts.
Regulators say “opted out” customers can still be contacted about better savings rates
The UK’s biggest banks have been weathering criticisms of profiteering as of late as savings rates fail to keep pace with rising interest rates and inflation. One explanation that some banks are offering in response is that they do offer more competitive products, but that the UK’s GDPR-derived data protection laws forbid them from communicating them to customers. Banks that have taken this tack include HSBC and Barclays.
Banks say that when customers opt out of receiving marketing materials, that prevents them from communicating about new products or promotions that could improve their savings rates. But the Financial Conduct Authority (FCA) and the Information Commissioner’s Office (ICO) have both rejected that notion, sending a joint letter to banks pointing out that communications that contain factual information about savings rates and that inform customers as to how to switch products are not limited by data protection laws and can legally be sent even to customers that have totally opted out of marketing materials.
The poor savings rates have the most impact on those with “easy access” or “instant access” savings accounts, which impose little to nothing in the way of penalties on withdrawals. A Treasury Committee report published in June estimated that about 60% of household deposits are held in some sort of instant access accounts, an obviously popular option due to their simplicity and liquidity (and one that is heavily advertised). However, UK bank customers have other account options available with better terms for savings rates if they are willing to accept more traditional restrictions on withdrawals, such as a limited amount per month or regular limits on amounts that can be removed without penalty.
The banks argue that the data protection laws prevent them from doing follow-up direct advertising with this majority of customers that comes to them for instant access accounts. The government position has been more that the banks are taking advantage of the situation, and that savings rates should see a general increase in response to present financial conditions.
In mid-July, FCA chief executive Nikhil Rathi told the Treasury Committee that the agency would be closely examining whether account terms and savings rates are offering fair value to consumers, using a variety of “factors and metrics.” The Bank of England base rate is now at 5%, but instant access savings rates are generally around 1% and almost never rise higher than 1.75%. Some financial forecasts from earlier in the year saw easy access rates averaging out at around 3.75% by the end of the year as banks engaged in bidding wars for customers, but this has not yet come to pass.
The Treasury Committee has promised banks that it will balance considerations of convenience with what it thinks an appropriate rate should be at present, but it is also not limiting itself to examining just savings rates. It will also evaluate in-person and phone-based customer service, online banking services, the margins that banks are earning on these products, and customer complaints.
UK data protection laws still undergoing post-Brexit re-evaluations
The UK’s current data protection laws were formed in 2018, when the nation adopted the General Data Protection Regulation terms along with the rest of the EU in the period prior to the Brexit finalization. The UK is now largely free to set its own standards, but has kept the GDPR structure in place for the most part.
The UK now must balance keeping these standards intact, for the sake of retaining “equivalent data transfer partner” status with the EU, with some of its own desired changes to the law. In March the UK government introduced a revision to the proposed Data Protection and Digital Information that outlined some of its policy goals: reduced consent requirements for scientific or academic research tasks, reducing barriers to international data flows, changes to cookie rules and a new structure for the ICO among them. Given that the mood in the government is generally pro-business and very amenable to relaxing data privacy requirements for the sake of the economy, this has led to a great deal of speculation about whether the UK will continue to be considered an EU equivalent or will find itself in the more tumultuous relationship status the US now occupies after its changes to data protection laws.