Today the Government published its long-awaited proposals on how to provide tougher regulation of banks. The White Paper, entitled Reforming Financial Markets, contains various measures to provide better protection for consumers. This is in addition to the Consumer White Paper, which was published last week.

So, how will the Government’s latest crackdown on banks affect you?

Q: When will I be able to get free financial advice?

A: Probably by next year. A Money Guidance service is currently being piloted in the north-east and the north-west of England – and this may be rolled out nationally next year.

The pilot service aims to provide up to 750,000 people with help to gain control of their finances, and give support to those who have lost their job. The service is delivered either on the phone, online or face-to-face using partners such as Citizens Advice and the Consumer Credit Counselling Service.

If this pilot scheme is successful, the service will be available throughout the country from spring next year. It will be paid for by banks via a FSA levy, as well as using unclaimed funds from dormant accounts.

The Government has asked the FSA to establish an “independent consumer education authority” – this is in addition to the new Consumer Advocate announced last week – to coordinate personal finance education.

Q: Will financial products be made simpler?

A: Possibly, but not any time soon. The Government wants to make credit cards, current accounts and mortgages simple and more transparent – but it seems unable to say how, or when. It is considering a “traffic light” system, similar to food labelling, which may flag the riskiness of a financial product. It is unsure whether such a system should be voluntary or compulsory for banks. A more detailed consultation on the topic will take place later this year.

Q: What about financial inclusion?

A: About 1.9 million people in the UK do not have a bank account. The Government wants to tackle this problem – but we will have to wait for the pre-Budget report in November for more details.

Q: Will there be better regulation of mortgage lending?

A: The pre-Budget report will announce whether or not the FSA should regulate second-charge mortgages, buy-to-let mortgages, and mortgages that have been sold by a lender to another company.

The FSA already regulates ordinary residential mortgages, but it is publishing a paper on mortgage market reform in September, which will consider the thorny issue of 100 per cent mortgages. The Government will wait until the findings of this paper before implementing any regulatory reform of residential mortgages.

Q: Will banks provide better redress if something goes wrong?

A: The Government has noted that most of the cases referred to the Financial Ombudsman Service (FOS) involve a relatively small number of products and firms, affecting large numbers of customers – for example, mortgage endowment policies or payment protection insurance.

The Government wants banks to handle consumer complaints better and “close down emerging issues before they become widespread,” thereby reducing the need for consumers to rely on FOS, who are currently so overwhelmed that it can take up to nine months to resolve a problem.

It also wants large groups of consumers affected by the same problem to take more “collective action.” A new Consumer Advocate, who will be appointed next year, will take this action.

Q: What about the bank charges test case?

A: The Government has called on regulators and banks to find a quicker way to resolving the ongoing test case on the fairness of unauthorised overdraft fees.

More than a million people have had their complaints about bank charges put on hold whilst the test case rumbles on – but it could take years for legal proceedings to finish.

However, the White Paper contains no suggestion of what a “quicker” alternative to the test case may be.

Q: Are there any changes to the Financial Services Compensation Scheme? (FSCS)

A: There are no immediate changes – and no changes to the compensation limit have been suggested. However, the FSA is considering compensation that is not offset against any existing debts to a bank. Currently, if you have a mortgage of £100,000 and savings of £20,000 with a bank that goes bust, you would have your mortgage reduced to £80,000 instead of receiving a cash compensation pay-out.

The FSA is also considering protection for balances temporarily over the compensation limit – for example, if you have the proceeds of a house sale in your account for just a few days.

However, there will not be any changes made to the FSCS until December 2010.