Banks resist legislation forcing them to introduce alternative funders.

Are they wrong or right?

This article in The Telegraph seems to take the line that the banks are being unreasonable and that the legislation is a good thing.

Personally, I beg to differ - and here are the reasons why..


Firstly, lets be clear that I support 100% the concept of alternative funding - it's a drum we have banged loudly for the last 10 years - back when the Government were still in love with the banks.

I also wholeheartedly support the notion that the banks can play a part in helping the referral process, and that the Government can add value by educating and creating awareness of the availability of alternative funding tools.

So why could I possibly be agreeing with the banks in opposing legislation?

2 reasons:

1. Legislation vs Education:


The Government seem to constantly favour legislation over education.  As with the recent Mortgage Market Review, this appears to be legislating the bleeding obvious.

It is evident that many businesses stumble when the banks say no - what they need is some support and guidance, not a new set of laws laid down to force the situation.

Forward thinking bank managers have been working with brokers and specialist lenders for decades. It is a system that works well - the only change needed is to create a code which both permits & encourages referal to external sources.

Legislation is a blunt-edged tool which creates resentment, bureaucracy and self-interest.

Education, code of conduct and communication lead to positive results.


2. Vested Interests.

Key to this legislation is the creation of a funders' platform - currently consisting of a relatively small selection of funders offering a limited selection of alternative products.

Significantly, the selection revolves wholly around peer-to-peer or crowd funding which suggests that the Government has firmly nailed it flag to the 'crowd-funding' mast as the alternative to bank lending.

Crowd-funding is an alternative, in exactly the same way that solar panels are an alternative to Gas. It is not the alternative - in our direct experience crowd-funded facilities currently accommodate less than 15% of our clients' requirements.


3. Direct Selling:

As the situation stands, the declining bank will be forced to provide your details to the alternative lending platform.

You will then be called by specific lenders who will sell you their service - there is no mention of onus on the to ensure that it is the right or best facility for your specific needs.

Ambulance chasing?

To continue the energy analogy, this is akin to the Government forcing British Gas to give customer details to a small handful of solar, LED and Biomass companies and encouraging them to cold-call you.


Having build a business based on independent advice without product bias I'm afraid that this really does look like a dreadfully misguided attempt to legislate a perfectly functioning market.