Updated Response to the PCA Report - Feb 2010

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attached.

Brief update to first report Nov 08 PCA Market Study and in response to OFT1123

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Re: Updated Response to the PCA Report - Feb 2010

Personal current accounts in the UK
Legal Beagles follow up response to OFT1123
February 2010

1. Executive summary
2. Introduction
3. Charging structures
4. Transparency and competition
5. Switching between personal current accounts
6. Allowing repayment of overdrafts before default
7. Voluntary compliance vs. regulation/legislation
8. Reducing overdrafts
9. Managed loans and fee paying debt management scheme
10.Financial Inclusion & Basic Account
11.Loan Ties
12.Conclusion and summary of proposals

APPENDIX
A Legal Beagles Consumer survey
B Loan Ties - Anecdotal Evidence
C Current charging structures – Anecdotal Evidence
D Example Account Services Bill



1 Executive Summary

Legal Beagles are a free-to-join internet forum offering support, advice and
information to the general public who look for help with various consumer rights
issues. The Legal Beagles forum started in May 2007; its core contributors consist of
a diverse range of social, economic and employment backgrounds.
We are funded entirely by donations from private individuals and provide assistance
on a voluntary basis.
We work closely with many other similar forums and actively liaise with various
recognised bodies and the media.
Our forum has a rapidly increasing registered membership of over 7500 consumers
of which almost 50% are active during any month. In addition the forum has a daily
viewing of over 3500 non registered guests. As we are accessible 24 hours a day
every day of the year, we can provide real time help for people that need one-on-one
support and advice over the many consumer issues that arise from day to day.
Through helping consumers with difficulties in the main attributed to the financial
services industry, we have become recognised as having a key role in the
representation of consumers.


2 Introduction
The personal current account (PCA) may well be a cornerstone of Britain‘s retail
financial system, but for the vast majority of adults it means far more than that: it is a
central and essential component of 21st century life. PCA’s allow for the regular
payments of a consumers essential expenditure and a myriad of other transactions
that are integral to modern life.
The PCA represents the economic infrastructure by which our income, expenditure
and savings are recycled into the economy.
In this respect, we believe that the PCA is not merely a service but also an essential
utility. This is further evidenced by the government's financial inclusion scheme.
Given the historic failures within the banking system to address concerns over
competition and consumer protection, it is apparent that they cannot be left to dictate
the future direction of the PCA. This leads us to believe that voluntary compliance
will not be adhered to and that regulatory or Parliamentary intervention is necessary.
When Legal Beagles met with the OFT at the beginning of February the consumer
groups highlighted a number of issues and proposed remedies relating to PCA
charging structures which we have laid out below.
We also commissioned a brief survey and asked consumers to vote on whether they
agree with the following remedies to the main identified issues surrounding PCA’s.
This is contained in Annex A .
What follows is a report to update our response to the Market Study submitted in
November 2007 and to the OFT’s follow up report (OFT1123)

3 Charging Structures
Previously all banks had similar charging levels, which aided comparison between
banks. However, their pricing structures were much the same which combined with
other obstacles did not promote consumer confidence towards switching their PCA
provider. Currently, looking at the eight banks/building societies involved in the test
case, there is not one with the same charging structure as another and comparison
is very difficult and confusing for consumers. Many consumers feel they are worse
off under the new systems. Anecdotal evidence put forward by forum members is
included in Annex C

4 Transparency and Competition
Legal Beagles and consumers are very much in favour of the OFT’s goal in
achieving the ‘pro-competitive virtuous circle’ and as such offer additional
submissions towards this aim. In order to achieve true comparison each bank must
apply the same charging structures so that costs can be compared on a like for like
basis. Only then can differences in PCA costs between providers become
competitive. This will also improve switching rates and in turn drive banks to
compete on price leading to an overall gain in consumer welfare and control.

5 Switching between personal current accounts
While ever consumers continue to struggle to compare PCA providers, confidence
and switching rates will remain low preventing adequate competition within the
industry. Unless charging structures are standardised then comparison will remain
too complex and time consuming for the average consumer.

6 Allowing repayment of overdrafts before default
Banks should allow repayment of outstanding overdraft balances at an affordable
rate agreed by way of assessment using industry approved financial statements of
means such as the Money Advice Trust’s Common Financial Statement and piloted
CASHflow system. This is a major obstruction to a consumer when wishing to either
close or switch their PCA.

7 Voluntary compliance vs. regulation/legislation
Given the historic failures within the banking system to address concerns over
competition and consumer protection, it is apparent that they cannot be left to dictate
the future direction of the PCA. This leads us to believe that voluntary compliance
will not be adhered to and that regulatory or Parliamentary intervention is necessary.

8 Reducing consumer’s overdrafts
Many consumers find it difficult to manage, reduce and eventually cease to have
need of their agreed/unauthorised overdraft facility. Should charges be ‘billed’
separately then this would provide a much needed way forward enabling consumers
greater flexibility and more scope to consider switching PCA providers. Banks should
give consideration to vulnerable consumers in financial difficulties who wish to
reduce their overdraft at an affordable rate before it becomes a problem. Account
holders whos only income consists of benefit/pension payments will still be able to
use their income for its intended purpose, essential expenditure, without it being
swallowed up by overdraft charges.


9 Managed loans and fee paying debt management schemes
Banks should be prevented from coercing consumers to take out managed loans at
high rates of interest over a long period of time in order to repay overdraft balances,
especially if the consumer is identified as being in financial hardship and would be
better suited to shorter term repayment arrangements with fees and interest frozen.
Only free and impartial debt management schemes should be recommended by the
banks as opposed to third party fee paying debt management schemes where the
bank receives a referral commission from the scheme provider.

10 Financial Inclusion & Basic Accounts
As suggested in our survey, each bank should offer at least one truly charge-free
basic account to ALL customers that operates only when in credit - much in the
same way as a pre pay debit card or pay-as-you-go mobile phone works where no
charges are applied when attempting to make a purchase or a call when not in
credit.

Systems are already in place for this market and would incur no extra costs to
providers. This appears to be an increasingly popular option to low income/benefit
groups and works well for consumers without further impact or detriment to their
welfare and finances. If funds are unavailable the transaction is declined at the point
of sale without cost to either the supplier or the consumer. The Government and
banks should consider this as an available option to recipients of benefit/pension
payments as part of their financial inclusion initiative. This would also enable
vulnerable consumers to exercise their First Right of Appropriation over funds. We
have found that all the banks fail to allow consumers to do due to lack of awareness
or because they take preference of their right to set off funds.

11 Loan Ties
We are experiencing an increasing number of consumers who are incurring
unauthorised overdraft charges on their current accounts due to restrictions on the
source of loan repayments. This normally occurs where the loan is held with the
same provider as the current account. Other difficulties include;
• The consumer is unable to cancel the original loan payment method.
• Cancelling the loan payment to find it is set up again by the bank without
notification or permission.
• The banks refusal to accept alternative methods of loan repayment, e.g direct
debit from an alternative current account provider.

12 Conclusions and summary of proposals
The biggest proposal to change in current banking provision on this response is
Charge notification & Billing - the switch away from charges being uncontrollably
removed from consumer’s accounts. Our research concludes that consumers would
be in favour of receiving separate 'bills', requesting payment for the services used
within a statement period.

Bank accounts should be regarded as a utility service, much as electricity, gas,
telephone, water and other essential services supplied to consumers in the UK
whereas;

• ‘Bills’ for services used would accompany consumer’s monthly account
transaction statements, clearly identifying the cost of their PCA and making
the consumer more aware of the charges/services used. This would promote
greater comparison and switching of PCA providers, thus creating natural
competition within the PCA marketplace.

• Consumers would have greater control and flexibility of how and when they
pay for the services used. This could be by Debit Card from the account the
charges were incurred on, or any other account they may hold. By cash over
the counter, by online bill payment or direct debit services.

• Bills will make account charges more prominent to customers as suggested in
the OFT’s follow up report.1

• Charges incurred will not lead to further charges on customer’s current
accounts, by way of charges on charges, increased overdraft, charges being
taken forcing other transactions to become instant overdraft requests incurring
further fees.

• Customers will be billed at the end of each statement period and given 28
days to pay their bill. If a bill is paid after the due date, a fair and transparent
late payment fee may be applied.

• ‘Billing’ accounts may be subject to standard utility debt collection practices
and the bank may impose restrictions on services offered until the bill is paid.

• All standard and non standard account service fees would be billed.

• Credit and Debit Interest on Account Balances will remain to be applied to the
Current Account. This should appear highlighted and separately in a summary
box on the regular transaction statement.


Legal Beagles hope to continue working with the OFT and the industry to reach a
satisfactory outcome for consumers and await further guidance from the OFT.
Should you wish to discuss our proposals further then do not hesitate to contact
admin@legalbeagles.info