Banking code to become legally binding

3 December 2008

The voluntary code of conduct, governing the way that banks deal with both individual and business customers, is to become compulsory.

Following on from the new Banking Reform Bill, introduced in the Queen's Speech, the government announced that banks that fail to treat customers fairly and according to the banking code of conduct could face a range of sanctions, including fines.

Small businesses have complained that banks, in response to the credit crunch, are increasing loan charges, altering overdraft terms and conditions and imposing restrictive loan arrangements at short notice.

The government has expressed the worry that the reluctance of banks to lend to otherwise healthy small firms could jeopardise their ability to survive the current economic downturn.

The new statutory code will prevent banks from withdrawing credit or amending loan arrangements without reasonable notice.