Banks should take responsibility for customer gambles

While some applauded the move, many felt Lloyds' action was just another symptom of a growing nanny-state. In short, people should make their own mistakes.

My view is simply this: you should not borrow to gamble. Is buying bitcoin a gamble? I cannot see how it is anything but. Fans of crypto-currencies are quick to praise its potential, but it is the blockchain technology than underpins it that has the potential. Crypto-currencies themselves simply appear to be unregulated investments set up by shadowy figures.

For example, no-one knows who Satoshi Nakamoto – the supposed creator of bitcoin – is, or if he even exists.

But the whole controversy raised the question of responsibility when it comes to people’s money. Should Lloyds Bank be responsible for protecting consumers? Why should it not be? The financial adviser industry has long been blamed for clients’ financial cock-ups. And that is right. When a person turns to someone else for professional help, they should be able to rely on that help.

When people borrow money to take financial risks, I reckon the banks have a massive responsibility

By the same token financial advisers must be happy to accept responsibility for what happens when clients follow their advice. Fact finds are a great way to establish a client’s attitude to risk and ensure that whatever advice eventually offered is appropriate.

These days, of course, there is a whole regulated process to ensure the advice given is right. Advisers cannot offer a client a cup of tea without filling in a form in triplicate reporting the fact.

I can imagine the extra work required to ensure advisers applied for the right permissions ahead of Mifid II coming into force last month. But beyond the pain of the red tape, everyone must agree that it is right that advisers account properly for their advice. All the mis-selling scandals of the past couple of decades have been linked to dodgy advice, so having the paper or email trail is essential to show advisers have acted honestly and honourably.

Apart from anything else, it helps to ensure that potential clients have some confidence in an adviser’s honesty and integrity.

Back to those mis-selling scandals. The biggest historic mis-selling scandal to hit the UK financial services industry was the wide-scale flogging of useless and expensive payment protection insurance policies. The compensation bill for that is still rising, but is about the £40bn mark. 

Banks  were responsible for that, but do you know which bank has had to pay out the most compensation to customers who were mis-sold PPI? The answer is Lloyds Bank. It has so far had to stump up more than £18bn to people who were misled and who ended up paying a packet for the dodgy insurance that most of them would never have been able to claim against.

With that background, has Lloyds felt compelled to act now to stop its customers making costly bitcoin mistakes, which could led to fresh compensation claims? No. No bank will not be held responsible for whatever mistakes its customers make with their money. The reason the bank introduced the ban – following similar moves by American credit companies Bank of America, Citigroup, JP Morgan, Capital One and Discover – was the rising credit risk.

In simple terms, banks are worried that the more money that is spent on risky speculations, the greater likelihood that credit cardholders will end up bust and unable to repay the money they borrowed. So Lloyds’ move is nothing to do with protecting the consumer and all about protecting itself.

That is a great shame. It is time banks took responsibility for their part in their customer’s financial mistakes. That does not mean I believe people should have to check with their bank before they spend a penny. Far from it. Whatever cash people have is theirs to do what they like with. It is no-one else’s business.

But when people borrow money to take financial risks, I reckon the banks have a massive responsibility. They are effectively enabling people to get into financial difficulties.

If financial advisers let their clients punt all their cash into unregulated crypto-currencies and they then lost the lot, there would be a huge stink. But banks can get away with encouraging people to borrow money – cash they can use to take a financial risk with.

If banks were held responsible for the costly financial mistakes their customers made – in the same way financial advisers are – they would be forced to act more responsibly. It is time we made them do so. They make enough profit from credit card customers to be able to afford to be responsible about their lending.

Simon Read is a freelance journalist