The Office of Fair Trading (OFT) has criticised personal current bank accounts for not serving customers well.
In its report, the OFT argued that large numbers of customers are unaware of how much they pay in charges or of the interest payable on accounts.
The complexity of many current accounts, the OFT continued, made it difficult for customers to compare one account with another, and so deterred people from switching.
The report went on to say that a significant proportion of banks’ revenues are derived “opaquely”, with 81 per cent of income coming from fees charged for insufficient funds (£2.6 billion) and interest payments (£4.1 billion).
As many as three-quarters of customers do not know the amount of interest earned on the credit in their accounts, while those who are aware experienced problems in calculating whether they could earn more with other accounts.
The consequence, the OFT said, is that some customers are paying more for their current account banking than others. In 2006, some 1.4 million people paid over £500 in charges.
John Fingleton, the OFT’s chief executive, commented: “Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving consumers well.
“Customers lack the information they need to choose the best deal, and this in turn weakens the banks’ incentives to compete. There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future.”
The OFT said that it will spend the coming months engaging with banks and consumer groups to try to achieve greater clarity and transparency, either through voluntary change or, if necessary, through other routes, including greater regulatory intervention or a reference of the market to the Competition Commission.
Phil Jones, a personal finance campaigner for Which?, the consumer group, said: “This confirms what we’ve always argued – that there is no such thing as free banking, most people have no idea how much they pay for their current account, and the market is uncompetitive.
“It’s a catch-22 situation - people aren’t switching because there’s little difference between the big banks’ current accounts and, because people aren’t switching, banks have little incentive to compete for customers. What’s needed is greater transparency, competitive rates and for switching account providers to be made easier.”
However, the British Bankers’ Association (BBA), said that the figures do not reflect the cost of managing bank accounts: “We are disappointed that the report presented only revenues without taking into perspective any of the costs being incurred in respect of running accounts.”
Angela Knight, the BBA’s chief executive, responded by saying: “It is very important that this banking model, which is what it is that the individuals and customers have asked for, that is free to them for their normal banking arrangements does remain. Frankly, you have only got to just pick up your literature, go and look in the branch, have a look on the website and you will find that everything there is clear.”
She added: “Yes, you can incur charges if you do things without making arrangements first, but do you really want to pay for ATM use, pay for statements, pay for direct debits in this country? Surely people don’t.”
Date:16 July 2008
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