Overview

This bill aims to increase consumer protection by changing how banks and building societies use customer deposits for lending. It mandates that banks offer customers a choice between two types of deposit accounts: a lending intermediary services account and a custodial deposit account, clarifying how their money is used and protected.

Description

The bill introduces two new types of deposit accounts:

• Lending Intermediary Services Account: Customers lend money to the bank, which can then lend it to others. Customers relinquish title to the funds but receive interest and can request repayment. Crucially, this type of account is not covered by bank deposit insurance, and the bill requires banks to disclose potential risks, including default, late repayment, bank runs, and limitations on repayment.
• Custodial Deposit Account: Banks act as custodians, holding customer funds separately. Customers retain ownership and can withdraw funds on demand. Banks cannot lend money from these accounts.

The bill also outlines penalties, an unlimited fine, for banks and building societies that fail to offer both account types. A transition period will be established by the Chancellor of the Exchequer to handle existing accounts, allowing customers to choose how their funds and accrued interest are managed going forward.

Government Spending

The bill doesn't directly specify government spending increases or decreases. However, there may be indirect costs associated with enforcing the new regulations and potential government intervention in resolving issues arising from the transition period. No figures are provided in the bill itself.

Groups Affected

• Banks and Building Societies: They will face significant changes to their operations, requiring them to offer two distinct account types and potentially impacting their lending practices and profitability.
• Retail Customers: Will have more transparency and choice regarding how their deposits are used, offering enhanced control and potential benefits or drawbacks depending on the chosen account type. However, the loss of deposit insurance on lending intermediary accounts presents a risk.
• The Bank of England and the Financial Services Authority: Will have increased responsibilities in overseeing compliance and imposing penalties.

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