Price of Ulster Bank Customers’ Six Weeks of “Inconvenience”? About €25

Government wants CIOs personally liable for future U.K. bank IT failures

3 min read
Price of Ulster Bank Customers’ Six Weeks of “Inconvenience”? About €25

Oscar Wilde once defined a cynic as someone who knows the price of everything but the value of nothing. Ulster Bank chief executive Jim Brown has put a cynical price on the inconvenience his 600 000 customers suffered from the bank's IT system outage that denied them access to their accounts for at least six weeks.

After inexplicably delaying for over a month, Ulster Bank finally announced its long promised and “simple” customer compensation plan (pdf) last Friday. Wilde would have surely questioned the bank's earnestness.

First, the plan states that personal customers “who visited and transacted at a branch during the period of the incident (19 June–18 July 2012) more frequently than in the equivalent period before the incident (19 May – 18 June 2012)” would receive a whopping €25 for their effort. Those who didn’t visit their branch more often during the time period (or spent their time calling the help lines instead) get nothing; the same is apparently true for those folks who aren’t customers of Ulster Bank but got caught up in the IT meltdown because their funds had to be processed by the bank’s systems.

The mid-July cutoff is as cynical as the compensation amount. It was only in late August that Ulster Bank management declared the bank’s operations were finally back to “business as usual,” and even then many customers were still having problems. The compensation period only covers the time when the IT system wasn’t working—the “inconvenience” of the aftermath doesn’t figure into the calculation. I suspect customers visited Ulster Bank branches a lot more after the 18th of July to try to straighten out their accounts than during the period when it was well known the bank’s IT systems were still on the fritz.

The bank went on to say, as before, that “all fees, charges and debit interest charged in error and correcting any credit interest owed as a result of this incident” will be refunded. However, it admitted it may take another six weeks for the refunds to finally show up on customer accounts.

In addition, personal and small and medium enterprise (SME) customers who incurred out of pocket expenses will get an inconvenience fee amounting up to 20 percent of their proven expenses up to €600 (that is, for a maximum payment of €120). Personal and SME customers will also see a minor 3-month interest rate boost to their accounts, and a likewise short waiver of some account fees.

Interestingly, the bank has been quiet on what it is doing to compensate large enterprise customers.

For customers worried about their credit being affected by the prolonged outage and not being able to pay their bills on time, the bank will help them get a credit report. However, you have to give your details to a bank staff member who will then send it to the Irish Credit Bureau. Customers should not expect to be compensated for their time spent doing this, or for the time needed straightening out their credit if it indeed got hosed.

And as a final "have a nice day," the bank closed the letter with a reminder that the additional payment of 20 percent on top of out of pocket expenses and the automatic one-off payment of €25 “are treated by the Revenue Commissioners as capital receipts and may, depending on your personal circumstances, be taxable.”

As I said, reaction hasn’t been exactly one of dancing in the streets.  Customers and politicians alike called the plan “underwhelming,” “too little too late,” “miserly,”  “an insult”—well, you get the picture.  CEO Brown, however, seems genuinely puzzled by the outcry. He defended the plan, telling the Independent, “I'm happy with it. I think it goes far enough.” He also indicated that the bank’s compensation expenses may reach €100 million, up from the original estimate of €35 million currently set aside. From his perspective, the bank is no doubt bending over backwards to put a fair value on its customers' troubles.

The total cost of the outage may go a little bit higher now that the consulting company PWC has been selected by Ulster Bank’s parent company RBS Group to investigate the cause of the outage and to ensure that all RBS Group banks (RBS and NatWest are the others) have contingency plans in place to deal with potential outages in the future.

Monday's Financial Times reported that on 22 August the U.K. government’s Financial Services Authority sent a letter to the chairman and boards of the nine largest banks and building societies asking them to “explicitly detail efforts” to avoid problems like that which hit the RBS Group, as well as to provide “the names of senior managers who could be held personally responsible if information technology systems go awry.”

There may well be more than a couple of U.K. bank CIO positions opening up soon. Interested? Make sure the job includes superb executive liability insurance.

Adding pressure on the banks, the FT noted, is the Parliament’s Treasury Select Committee, which will also be looking into the issue and wants to be convinced “that such a failure cannot happen again.”

I bet the banks are thinking that's a lot of government oversight for only 25 euros worth of customer inconvenience.

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This computer rendering depicts the pattern on a photonic chip that the author and his colleagues have devised for performing neural-network calculations using light.

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