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Banks should cap overdraft fees, says competition watchdog Banks should cap overdraft fees, says competition watchdog
(about 1 hour later)
Banks should cap unarranged overdraft fees and warn customers before they go overdrawn, the competition watchdog has said.Banks should cap unarranged overdraft fees and warn customers before they go overdrawn, the competition watchdog has said.
The Competition and Markets Authority says this and other measures could save bank customers £1bn over five years.The Competition and Markets Authority says this and other measures could save bank customers £1bn over five years.
The provisional conclusions of the 18-month study into personal and business banking suggest competition is weak in the banking industry.The provisional conclusions of the 18-month study into personal and business banking suggest competition is weak in the banking industry.
But consumer group Which? said the report was a missed opportunity.But consumer group Which? said the report was a missed opportunity.
Many banks already cap their overdraft fees, but the CMA said some do not. Many banks already cap overdraft fees, but the CMA said some do not.
HSBC charges a maximum fee of £80 a month, for example, while Royal Bank of Scotland charges a maximum of £90. At one end of the scale, Barclays charges a maximum of £35 a month. At the other end, Halifax charges a maximum of £100.
The average unauthorised overdraft fee - when the bank has not agreed to a customer going overdrawn - is £57.50 a month, according to Moneyfacts.The average unauthorised overdraft fee - when the bank has not agreed to a customer going overdrawn - is £57.50 a month, according to Moneyfacts.
If someone were to go overdrawn every month, they could therefore pay as much as £690 a year. Interest is charged daily on top of that, at an average annual rate of 12.85%. At that average fee, if someone were to go overdrawn every month they could end up paying £690 a year. Interest is charged daily on top of that, at an average annual rate of 12.85%.
The CMA said that UK banks made £1.2bn from such charges in 2014.The CMA said that UK banks made £1.2bn from such charges in 2014.
'Weak' competition'Weak' competition
The CMA said it was hard for customers to work out whether they were getting good value from their banks because charges were so complicated. In addition, many customers thought it was difficult and risky to change banks. Overall, 60% of customers have stayed with the same bank for more than 10 years, and 90% of business customers get their loans from banks where they have their own current account.
As a result, the watchdog said nearly half of consumers had stayed with their bank for more than 10 years and nearly 40% for more than 20 years. To stimulate more competition the CMA also suggested:
That is despite the CMA finding that current account customers could save up to £260 a year by switching to a better deal. The CMA said that if customers switched accounts, they could on average save £116 a year. Those who use unauthorised overdrafts could save £153.
It also found more than 90% of small and medium-sized companies took out business loans with the bank where they held their current account. The competition body confirmed its earlier finding that the biggest banks should not be broken up, as that would not "significantly improve" the market.
The CMA confirmed its earlier finding that the biggest banks should not be broken up, as that would not "significantly improve" the market.
Market 'not working'Market 'not working'
Alasdair Smith, chair of the Retail Banking Investigation, said: "For too long, banks have been able to sit back and not work hard enough for their personal and small business customers." Alasdair Smith, chair of the CMA's Retail Banking Investigation, said: "For too long, banks have been able to sit back and not work hard enough for their personal and small business customers."
The CMA also proposed plans to "push" the development of new online comparison services and improve the current account switch service (CASS) to make it easier to switch banks.
Mr Smith told BBC Radio 4's Today programme: "The banking market is not working well for customers or for small businesses at the moment, primarily because it's very hard for customers to work out what their bank really costs them."Mr Smith told BBC Radio 4's Today programme: "The banking market is not working well for customers or for small businesses at the moment, primarily because it's very hard for customers to work out what their bank really costs them."
The CMA wanted to "revolutionise" the quality of information, which would go "much further" than price comparison websites, he added.
He said that the best bank for someone depended on how they used their bank account, so technology would put together information about an individual's bank usage and charges and point people in the right direction of better offers.He said that the best bank for someone depended on how they used their bank account, so technology would put together information about an individual's bank usage and charges and point people in the right direction of better offers.
'Missed chance''Missed chance'
However, consumer group Which? criticised the findings of the inquiry.However, consumer group Which? criticised the findings of the inquiry.
Alex Neill, Which? director of policy and campaigns, said: "After 18 months, this inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago.Alex Neill, Which? director of policy and campaigns, said: "After 18 months, this inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago.
"Steps to stimulate switching are welcome but the chance to deliver better banking for all consumers has been missed," she added."Steps to stimulate switching are welcome but the chance to deliver better banking for all consumers has been missed," she added.
She said the Financial Conduct Authority should "tackle the unfair, punitive charges faced by unauthorised overdraft users, some of whom are hit with fees far in excess of payday loans."She said the Financial Conduct Authority should "tackle the unfair, punitive charges faced by unauthorised overdraft users, some of whom are hit with fees far in excess of payday loans."
Paul Pester, the chief executive of TSB, said: "Today's report falls a long way short of introducing the radical reforms the banking industry needs.Paul Pester, the chief executive of TSB, said: "Today's report falls a long way short of introducing the radical reforms the banking industry needs.
"The CMA has missed a golden opportunity and is on its way to short-changing millions of Brits by failing to go far enough in its measures to break the stranglehold of the 'Big Five'.""The CMA has missed a golden opportunity and is on its way to short-changing millions of Brits by failing to go far enough in its measures to break the stranglehold of the 'Big Five'."