Current accounts not serving customers well, says watchdog, as banks narrowly escape referral to Competition Commission
Current account charges are too complex and competition among providers poor, the Office of Fair Trading said as it warned banks they must improve the deals they offer.
The OFT said on Friday “significant further” changes to current accounts were required and warned the market was not “working well for consumers or the wider economy”. However, the watchdog decided not to refer the banks to the Competition Commission for a full investigation. Instead it will conduct another review in 2015.
Banks make £139 from every active current account, the OFT said. Charges vary widely – someone who goes overdrawn by £50 for three days without authorisation can pay anything from £15 to £36, depending on the provider.
The amount made by banks has dropped from £152 in 2008, but over the same period the concentration of accounts among the large providers has increased.
The OFT pointed out that new entrants to the market remained rare, overdraft charging structures complex and comparing products was difficult. It also found consumers were not confident about switching accounts.
“Personal current accounts are critical to the efficient functioning of the UK economy. Despite some improvements, this market is still not serving consumers as well as it should,” said the OFT chief executive, Clive Maxwell.
“Customers still find it difficult to assess which account offers the best deal and lack confidence that they can switch accounts easily. This prevents them from driving effective competition between providers.”
He said banks needed to become more competitive to avoid further action by the competition authorities.
Richard Lloyd, the executive director of Which?, said: “This is the latest damning verdict on how badly people are still being let down by the banking industry. “Everyone – consumers, the government, leading bankers and now the OFT – seems to agree that big change is needed in banking, and that much greater competition on the high street is urgently needed to make the banks work for customers, not bankers.”
He added it was disappointing to see current account providers avoid immediate action by the competition authorities. “If the reforms under way do not quickly make a real difference to consumers, the whole of retail banking must be referred to the Competition Commission without any further delay.”
Among the major changes to the market over the coming months is an improved switching service, promised by banks as part of the review by Sir John Vickers’ independent commission on banking. From September banks will be given up to seven days to switch a customer’s current account and must transfer direct debits and standing orders “seamlessly”. It currently takes an average of 18 days.
“For these changes to improve the effectiveness of competition in this market, banks and building societies need to act now to improve the quality of service and value for money they provide their customers,” Maxwell said.
Lloyds Banking Group is selling 632 branches to the Co-operative Bank in a move that is expected to bolster competition by creating a bank with a 7% share of the current account market.
The OFT last conducted an analysis of current accounts in 2008, and in its latest report found there had been some improvements since then, including a near £1bn-a-year saving from a reduction in unauthorised overdraft charges. However, the providers of current accounts have increased their revenues from arranged lending charges by £432m, while revenues from debit interest have increased by £107m since then.
The OFT also provided examples of reductions in unpaid item charges (Upic), which occur when a customer exceeds an arranged overdraft limit. Barclays lowered its Upic from £35 to £8 in August 2008; RBS reduced its from £38 to £5 in October 2009; and Lloyds TSB cut its from £20 to £10 in December 2010. HSBC has not changed its Upic level, which can be up to £25.