In a disappointing turn of events it appears that good old UK tax dollars are hard at work paying for biscuits in the beautiful glass walled meeting rooms at the FSA but not showing a return on investment in consumer protection. Despite clear and flagrant abuses regarding the selling of Payment Protection Insurance (PPI) and anything that resembles Treating Customers Fairly (TCF) the FSA is missing in action (MIA).

Andrew Ellson, Personal Finance Editor of the Times wrote a great article, Watchdog Offers Little Protection, on the sad performance of the FSA when it comes to taking action against lenders and PPI issues.

“Despite widespread criticism, intense regulatory scrutiny and tens of thousands of disgruntled customers, lenders continue to mis-sell payment protection insurance (PPI) on an industrial scale. The Financial Services Authority (FSA), which published the latest instalment of its two-year investigation into PPI this week, says that almost every bank, building society or loan provider still ignores some or all of the rules.”, he reported.

Andrew also caught the essence of the effectiveness of the FSA when he said “Yet as embarrassing as the report is to the industry, which seems to consider its own guidelines as an inconvenience that can be ignored, it is humiliating for the FSA. After two years of trying to straighten out lenders, it has become like a teacher who has lost control of the classroom – nothing it says or does seems to stop the unruly behaviour. The lenders are well aware of their obligations, yet most do little, if anything, to change their ways. No wonder when the profit from selling loan insurance far outweighs the possible consequences of regulatory censure.”

Sadly those of us that work to see good things happen in the consumer debt world can see little real reason why any lender would even make an attempt to put up even good looking window treatments when the FSA seems to be as effective as a limp noodle in a wet bag when it comes to enforcement.

At the very least the FSA would accomplish more just naming and shaming the bad actors publically in a press release or even just on their site, for free. Forget the fines, that probably generate less revenue that the cost of the investigation, out the bad actors for all to see.

While the FSA has been distracted with two floors of staff telling PPI Johnny to go stand in the corner, and he ignores her, they could have done ten minutes of investigation on the double-over, laugh-till-you-pee joke of Treating Customers Fairly.

As far as the real world is concerned, FSA regulated companies not only fail to understand what the definition of “fairly” is but have little idea what either “customers” or “treat” mean as well. Let me see if I can help. Customer – poor dumb bastard that believed the marketing hype and bought your financial product. Treat – not as in “trick or treat”. Fairly – Ah hell, go ask your Mum.

Probably the same bus of lenders that are disregarding the regulations are the same bunch that have put in writing their intentions to not consider debtor repayment arrangements and to simply say no to attempts when people want to repay their debt in difficult financial times.

Groups like The Insolvency Exchange (TIX) have even published written directives to Insolvency Practitioners that specifically say that HSBC (LON:HSBA) will not even entertain any repayment offer that does not meet the HSBC arbitrary threshold. (HSBC chart)  The threshold is not based on science. Someone just pulled the number out of the air and has cast consumers below that threshold into financial ruin and pain. How in the world does that treat customers fairly? Even when pushed on this issue, Northern Rock said in writing that its policy was to treat customers similarly, and they think that is fair. If that’s what the FSA wanted it would be called TCS. It is interesting to note that Northern Rock (LON:NRK chart) was all about fairness when it went cap in hand to the BoE asking for a spare 20 billion pounds, or more! Sorry, that was probably more a demand to Treat the FU Bank Fairly (TFUBF). How do you feel about that Adam Appletart?

One kind reader wrote me recently and said he used to be MD at a recognised sub-prime lender. He said, “Why do banks take TCF seriously? - Very nice move by the FSA on that one i.e. when I was on my TCF course I asked what the rules were - answer = there are no rules, the FSA will look at what you do and decide after the event whether it is fair i.e. a value judgment. Other banking codes are rule based and rules can be interpreted and argued with lawyers and compliance officers.”

So is the reality that consumers have little real hope of expecting to receive fair treatment from lenders? Sadly, I’m afraid for now, the answer is “Yes” and the banks know it. The ginormous abuse and blatant ignorance of TCF will continue. Here's a thought, let's change it to Treating Customers Fairly Badly (TCFB) and then all the banks will be in compliance.

Bring in the lions! There are more customers in line.