High street banks face fresh OFT probe

http://www.guardian.co.uk/money/2012/jul/13/high-street-banks-oft-investigation

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Poor customer service, high charges and problems switching current accounts are to be investigated by the Office of Fair Trading in the latest headache for Britain's high street banks.

The watchdog said it will examine the hurdles customers face when switching banks, and concealed or unfair charges on current accounts. It comes just four years after the last major investigation into the £8bn current account market, which identified significant problems in areas such as overdraft charges. The OFT said it wanted to investigate whether any improvements had been made since then. .

The probe comes in the wake of the IT meltdown at the Royal Bank of Scotland banking group that left millions of people without access to their money, the continuing Barclays Libor-fixing scandal and misselling to small businesses.

If the watchdog finds evidence of a lack of competition in the market, the banks will face a referral to the Competition Commission for a fuller investigation.

"We are concerned that a lack of effective competition means the retail banking sector is not working in the interest of customers and businesses," said Claire Hart, director of the OFT. "We want to see banks become more customer-focused and this will be the central theme of our programme of work going forward."

Following the 2008 OFT investigation, banks promised to improve the transparency of current accounts and make consumers more aware of the charges they pay.

But hopes that the greater competition would break the stranglehold of the big four banks have fallen flat, with the level of switching remaining sluggish and complaints high.

Figures from the Financial Ombudsman Service (FOS) show that current accounts were the third most complained-about financial product the ombudsman received last year.

So far this year, more than 15,000 inquiries have been made to its frontline helpdesk, including those about disputed transactions, financial hardship and debt, and delays in switching accounts.

A new area of concern for the ombudsman are so-called packaged accounts where a customer pays a monthly fee – typically about £17-£20 – for a current account that includes items such as travel insurance, breakdown cover and mobile phone insurance.

"In some cases we see, the consumer says that they did not realise their old account had been upgraded to a packaged account and that they had not given their consent to this change," said a spokesman for the FOS.

He added: "In many cases complaints made to us about current accounts are multilayered and include problems with more than one aspect of the account."

The investigation is the latest round in a prolonged battle between the watchdog and the banks. The OFT fought a court battle against the banks over the fairness of unarranged overdraft fees, but was forced to drop the case in December 2009 following a supreme court ruling in favour of the banks.

In recent weeks, building societies, the Co-op and newer banks such as Metro say they have benefited from the latest crises to hit the high-street giants. In the week following the IT problems at the RBS group and the scandal surrounding Barclays' interest rate manipulation the Co-operative Bank saw a 25% increase in online applications week-on-week.

Nationwide said that in the last week the number of people switching their main current account to the building society has jumped 67% compared to the week before RBS and Barclays' problems emerged.

Adam Scorer, director of external affairs at Consumer Focus said he welcomed the OFT review. He said: "We've long held concerns that low levels of switching in financial services is a symptom of a sector which isn't as competitive as it should be. Misselling, unfair charges, high levels of complaints, opaque products with complex terms and conditions, and a sector dominated by a handful of big banks and building societies are also signs that customers are not being well served. The time is right for a major shake-up of the personal current account market."

The OFT plans to publish the findings of its investigation by the end of 2012.