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Banks could scrap their free accounts: Inquiry into big four charges may lead to new fees

  • Competition and Markets Authority to probe big banks control over sector
  • Millions 'can't be bothered' to move banks because of confusing charges
  • Lloyds, Royal Bank of Scotland, Barclays and HSBC under investigation 
  • Fears that competition in the industry has fallen since financial crisis
  • Concerns raised that customers pressured into paying for accounts
  • Business leaders say 'dysfunctional banking sector impeding growth'

Millions of customers are paying £400 or more a year in unnecessary overdraft fees because Britain's biggest banks make it too hard to compare charges.  Alex Chisholm, head of the Competition and Markets Authority (CMA), said today that customers 'cannot be bothered' to move banks because it is too difficult to work out if they will be better off.  It came as the CMA this morning launched a major investigation to challenge the stranglehold of Britain's big four banks on the finances of families and small businesses.  The CMA is concerned that customers are being misled by the finance giants, which promote their services as ‘free banking’.   Lloyds, Royal Bank of Scotland, Barclays and HSBC are accused of controlling 77 per cent of the nation’s 65million personal accounts but offering poor service and rip-off deals.

The Competition & Markets Authority says not enough customers are shifting to lenders with high levels of service, reducing choice in the market.  There are also calls for a 'nuclear option', which would be to break the big four banks up to allow more competition.  Alex Chisholm told the BBC this morning that their complex overdraft charges have left some customers with fees of £400 a year because they can’t find better deals ‘The market is not working well for public. Many customers are dissatisfied by the banks and they find it difficult to compare the charges', he said  ‘The actual costs that people pay in overdraft charges can be quite considerable. There are 25million people with overdrafts and of those around two million a year are paying £400 a year or more in overdraft charge so that can be a considerable amount to pay.  It has got easier to switch accounts, within seven days, but that is just a three or four per cent a year. It must be that people find it difficult to compare and certainly if you want to compare what you would pay if you are overdrawn it is difficult to say. I think people are left scratching their heads and they think I cannot work this out and I cannot be bothered’. 

The CMA's new investigation will look into why customers are reluctant to switch banks and the difficulties they have in comparing different accounts.  The CMA is also interested in why the market shares of the big four have not changed over time.   Mr Chisholm added: 'Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy 'After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector.'

Commenting the announcement, John Longworth, Director General of the British Chambers of Commerce said: 'This is undoubtedly the right decision as businesses want more competition and greater choice in the banking sector.  'For many years Britain's dysfunctional banking sector has struggled to meet the needs of small to medium size enterprises (SMEs), impeding the growth prospects of some of our most promising young companies. The independent Business Banking Insight confirmed that a large number of firms across the country are unhappy with the level of service they receive from their bank.  This investigation represents a unique opportunity which must be seized, in order to deliver real change in the banking sector.'  He added: 'We call on the government to commit to implementing the findings of the CMA's investigation to restore trust, transparency and relationships between lenders and businesses.' 

The probe will look at ways to make the banks spell out their charges in a simple format that would allow customers to make comparisons between them.  Another option likely to be considered is replacing ‘free banking’ with up-front monthly fees for accounts.  This generates about £8billion in revenues from current account customers every year.  In the past, bank bosses have said any attempt to disrupt their policies could lead to the blanket introduction of monthly fees on current accounts.  Charges of £5 to £20 a month could be applied to accounts to cover a fixed number of cash withdrawals, cheques and bill payments through standing orders. Anyone going beyond this would pay extra fees.

The Financial Conduct Authority received 319,505 complaints about current accounts in the first six months of this year, 11 per cent more than in the same period last year.   Investigators fear competition has diminished since the financial crash of 2007-8 because brands like the Halifax have been swallowed up by Lloyds, while others have disappeared completely.  Efforts to encourage new small lenders to enter the market have had limited success, with only a few – including Metro Bank, Tesco Bank and TSB – making any real impact.  There is also damning evidence that the banks continue to fail small businesses by failing to offer loans.   

It was hoped that a system to help people switch bank within seven working days would boost competition, improve service and reduce fees. However, relatively few people have done so.  The CMA said today that it is concerned about continuing barriers of entry and expansion in the sector, which limit the ability of smaller and newer providers to develop their businesses.  The investigation will be conducted by a market reference group, drawn from the CMA's panel of independent members.  The group will be appointed shortly and will publish a timetable for the investigation. Investigations of this kind can take up to 18 months. 

Martin Lewis, founder of the MoneySavingExpert website, was among the consumer campaigners suggesting the inquiry could lead to the introduction of monthly fees. This would be more transparent, he said, but ‘incredibly unpopular’.  Richard Lloyd, of the campaign group Which?, said: ‘It is now crunch time for the biggest banks that dominate a market blighted by a lack of trust and poor customer service  ‘We want the CMA to expose the cost to consumers of a lack of competition in the current account market and to pave the way for reform.’  MP Andrew Tyrie, chairman of the Treasury Select Committee, said consumers and small businesses had been getting a ‘poor deal for decades because of a lack of effective competition and genuine choice in banking’. 

The banks rejected the need for an inquiry. Anthony Browne, chief executive of the British Bankers’ Association, said: ‘There are already substantial changes currently under way across the banking industry to strengthen competition.'  

 

Source: Mail Online

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