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Banks agree to make improvements to personal current account market in the UK
122/09 7 October 2009
The OFT today announced that banks have agreed to make personal current account costs more transparent and the switching process more reliable and trusted.
This announcement follows the OFT's 2008 market study, which identified three major problem areas - transparency of cost to consumers, real and perceived difficulties over switching, and the way in which unarranged overdraft charges function - that meant that this £8bn market did not work well for consumers, see press release 84/08.
Since the market study report was published the OFT has successfully worked with banks and consumer groups to identify ways in which the market could be improved.
Transparency
To improve transparency, so that consumers can more easily understand the costs of their accounts and compare with others, banks will:
Switching
To improve the switching process, the following have either been introduced or are being introduced following work with Bacs, the payment processor:
Work on unarranged overdraft charges is on-going. The OFT is pursuing a separate investigation, alongside the market study, into the fairness of unarranged overdraft charging terms under the Unfair Terms in Consumer Contracts Regulations 1999. The OFT expects to make more substantive comments on unarranged overdraft charges in due course after the pending Supreme Court judgment.
John Fingleton, OFT Chief Executive, said:
'We welcome the industry's commitment to these important steps to improve the working of the current account market. As consumers become more aware of the costs of their account and more confident in switching as a means to get better value, so banks will need to offer more competitive and innovative products and services to attract as well as retain customers.
'However, the third problem area we identified - unarranged overdraft charges - still needs to be resolved for the market to work in the best interests of bank customers.'
NOTES
1. In the context of this press release 'banks' refers to major PCA (personal current account) providers in the UK covering nearly 95 per cent of the market, including building societies.
2. The PCA market is the cornerstone of the UK's retail finance system and an essential service for 90 per cent of adult consumers. However, the OFT's market study in 2008 concluded that the PCA market was not working well for consumers. The OFT was concerned that a combination of complexity and opacity, particularly with regard to unarranged overdraft charges, makes it extremely difficult for individual customers to know how much their account could be costing them compared with others on offer. This, together with perceived difficulties in switching, has led to very low switching rates and a reduced incentive for banks to compete on price or provide new products and services.
3. The OFT's market study found that, in 2006, the aggregate revenue of banks from personal current accounts was approximately £8.3bn - £152 per active account. 81 per cent of income came from two sources: unarranged overdraft charges (£2.6bn) and net credit interest income (£4.1bn).
4. Read the executive summary of the follow-up report (pdf 175kb). The full report with further background will be available on the market studies area of the OFT website.
5. The PCA market study was launched by the OFT in April 2007 alongside the investigation into terms providing for unarranged overdraft charges already being undertaken under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The market study provided a broader context for the test case by taking into account wider questions about competition and value for money in the provision of PCAs.
6. The UTCCRs investigation began in April 2007. The first phase of the test case was launched in the High Court in July 2007. Following High Court and Court of Appeal victories for the OFT, the banks appealed to the House of Lords (now the Supreme Court). The case was heard in June 2009 and a judgment is awaited.
7. OFT market studies are carried out under section 5 of the Enterprise Act 2002 (EA02) which allows a market-wide consideration of both competition and consumer issues.
122/09 7 October 2009
The OFT today announced that banks have agreed to make personal current account costs more transparent and the switching process more reliable and trusted.
This announcement follows the OFT's 2008 market study, which identified three major problem areas - transparency of cost to consumers, real and perceived difficulties over switching, and the way in which unarranged overdraft charges function - that meant that this £8bn market did not work well for consumers, see press release 84/08.
Since the market study report was published the OFT has successfully worked with banks and consumer groups to identify ways in which the market could be improved.
Transparency
To improve transparency, so that consumers can more easily understand the costs of their accounts and compare with others, banks will:
- introduce an annual summary of the cost of their account for each customer, which will help them to focus on the value they are getting in a similar way to annual car or house insurance renewal quotes
- make charges prominent on monthly statements, so that consumers are more aware of the charges they pay
- provide average credit and debit balances, which will help consumers to estimate the potential benefits of switching bank, and
- produce illustrative scenarios showing unarranged overdraft charges, giving consumers an idea of the costs for different patterns of use.
Switching
To improve the switching process, the following have either been introduced or are being introduced following work with Bacs, the payment processor:
- steps to reduce problems that arise from transferring Direct Debits
- measures to reduce the impact on consumers of any problems with transferring Direct Debits, and
- a new consumer guide and website as part of efforts to increase consumer awareness of the automatic switching process.
Work on unarranged overdraft charges is on-going. The OFT is pursuing a separate investigation, alongside the market study, into the fairness of unarranged overdraft charging terms under the Unfair Terms in Consumer Contracts Regulations 1999. The OFT expects to make more substantive comments on unarranged overdraft charges in due course after the pending Supreme Court judgment.
John Fingleton, OFT Chief Executive, said:
'We welcome the industry's commitment to these important steps to improve the working of the current account market. As consumers become more aware of the costs of their account and more confident in switching as a means to get better value, so banks will need to offer more competitive and innovative products and services to attract as well as retain customers.
'However, the third problem area we identified - unarranged overdraft charges - still needs to be resolved for the market to work in the best interests of bank customers.'
NOTES
1. In the context of this press release 'banks' refers to major PCA (personal current account) providers in the UK covering nearly 95 per cent of the market, including building societies.
2. The PCA market is the cornerstone of the UK's retail finance system and an essential service for 90 per cent of adult consumers. However, the OFT's market study in 2008 concluded that the PCA market was not working well for consumers. The OFT was concerned that a combination of complexity and opacity, particularly with regard to unarranged overdraft charges, makes it extremely difficult for individual customers to know how much their account could be costing them compared with others on offer. This, together with perceived difficulties in switching, has led to very low switching rates and a reduced incentive for banks to compete on price or provide new products and services.
3. The OFT's market study found that, in 2006, the aggregate revenue of banks from personal current accounts was approximately £8.3bn - £152 per active account. 81 per cent of income came from two sources: unarranged overdraft charges (£2.6bn) and net credit interest income (£4.1bn).
4. Read the executive summary of the follow-up report (pdf 175kb). The full report with further background will be available on the market studies area of the OFT website.
5. The PCA market study was launched by the OFT in April 2007 alongside the investigation into terms providing for unarranged overdraft charges already being undertaken under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The market study provided a broader context for the test case by taking into account wider questions about competition and value for money in the provision of PCAs.
6. The UTCCRs investigation began in April 2007. The first phase of the test case was launched in the High Court in July 2007. Following High Court and Court of Appeal victories for the OFT, the banks appealed to the House of Lords (now the Supreme Court). The case was heard in June 2009 and a judgment is awaited.
7. OFT market studies are carried out under section 5 of the Enterprise Act 2002 (EA02) which allows a market-wide consideration of both competition and consumer issues.
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