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From the OFT PCA Report
First, there seems to be a significant cross subsidisation from those consumers who incur insufficient funds charges to those who do not; and to a considerable extent this is from socially vulnerable, low income and low saving consumers to higher income, higher saving ones.
Vulnerable consumers
5.66 In line with current account holders generally, 66 per cent of basic bank account holders have
never switched (compared with 64 per cent for all respondents), and 24 per cent222 have
switched only once. Furthermore, 80 per cent of those on low income (76 per cent of basic
bank account holders) who had never switched had never even considered switching
(compared with 74 per cent for all respondents). This means that 55 per cent of consumers
on low income have never considered switching their accounts.
5.67 Results from our consumer survey show that, when switching did occur vulnerable
consumers generally consider the same things important as when they are looking to open
an account for the first time. There are, however, some differences. Among those
consumers with low savings, those who were switching account providers were significantly
more likely to take into account the products and services on offer than those looking to open
an account for the first time (20 per cent compared with eight per cent). Furthermore, among
consumers on low income, those who were switching banks were more likely to take into
account lower charges or a free/low charged overdraft than those opening an account for the
first time (eight per cent compared with two per cent).
5.68 A majority of low income consumers from our consumer survey (69 per cent) considered that
they lacked the required knowledge to choose between current account providers. Only one
of the price comparison websites we looked at currently offers consumers the option of
comparing basic bank accounts.
5.66 In line with current account holders generally, 66 per cent of basic bank account holders have
never switched (compared with 64 per cent for all respondents), and 24 per cent222 have
switched only once. Furthermore, 80 per cent of those on low income (76 per cent of basic
bank account holders) who had never switched had never even considered switching
(compared with 74 per cent for all respondents). This means that 55 per cent of consumers
on low income have never considered switching their accounts.
5.67 Results from our consumer survey show that, when switching did occur vulnerable
consumers generally consider the same things important as when they are looking to open
an account for the first time. There are, however, some differences. Among those
consumers with low savings, those who were switching account providers were significantly
more likely to take into account the products and services on offer than those looking to open
an account for the first time (20 per cent compared with eight per cent). Furthermore, among
consumers on low income, those who were switching banks were more likely to take into
account lower charges or a free/low charged overdraft than those opening an account for the
first time (eight per cent compared with two per cent).
5.68 A majority of low income consumers from our consumer survey (69 per cent) considered that
they lacked the required knowledge to choose between current account providers. Only one
of the price comparison websites we looked at currently offers consumers the option of
comparing basic bank accounts.
4.124 In general, vulnerable consumers face many of the same issues that affect other consumers
in the current account market, such as poor understanding of current account features and
charges. Problems faced by vulnerable consumers can, however, be more pronounced and in
some instances unique to this category of consumer.
in the current account market, such as poor understanding of current account features and
charges. Problems faced by vulnerable consumers can, however, be more pronounced and in
some instances unique to this category of consumer.
4.116 Another key message from our discussions with consumer groups was the adverse effect
that the fear of incurring charges can have on the vulnerable. This is confirmed in a report by
Bacs169 which refers to customers’ perceived fear of:
• losing control of their bank account or balance
• companies being able to remove money whenever they choose
• banks making mistakes, for example with direct debits, taking out too much money or
taking money on the wrong date
• the impact that charges would have on their budget, and
• not trusting their ability to save enough money or have the required funds to make
regular payments.
that the fear of incurring charges can have on the vulnerable. This is confirmed in a report by
Bacs169 which refers to customers’ perceived fear of:
• losing control of their bank account or balance
• companies being able to remove money whenever they choose
• banks making mistakes, for example with direct debits, taking out too much money or
taking money on the wrong date
• the impact that charges would have on their budget, and
• not trusting their ability to save enough money or have the required funds to make
regular payments.
How vulnerable customers operate current accounts
Use of current accounts
4.108 The issues that arise for vulnerable consumers are similar to those with conventional current
accounts but with some key differences. In line with other consumers from our consumer
survey, vulnerable consumers tend to use in-branch banking to deposit cheques (44 per cent),
to deposit money (43 per cent), and to withdraw money (41 per cent). They were unlikely to
use telephone banking (55 per cent don’t use telephone banking compared with 45 per cent
of all current account holders) or internet banking (59 per cent don’t use internet banking
compared with 48 per cent of all current account holders).
4.109 The major difference between mainstream current accounts and basic bank accounts is that
a basic bank account seldom has a cheque book facility and never offers an overdraft. The
lack of an overdraft, whether arranged or not, removes an element of interest rate and
charge costs that can affect account holders. However basic banks accounts can still incur
unpaid item charges.
4.110 Charges are a significant issue for vulnerable consumers. For example, when using a
mainstream current account, respondents with savings of less than £1,000 were the most
likely groups of consumer to use arranged overdraft. Twenty one per cent of this group said
they were ‘permanently’ overdrawn, and a further 25 per cent said they were ’usually’
overdrawn. In other words almost half this group of people is habitually ‘in the red’.
4.111 Our consumer survey showed that the best predictor of whether a consumer has incurred
charges is whether they are financially constrained.163 For example:
• those with less than £1,000 in household savings were significantly more likely to have
been charged in the past 12 months for going into their unarranged overdraft164 (48 per
cent compared to 18 per cent of those with at least £1,000 of savings)
Use of current accounts
4.108 The issues that arise for vulnerable consumers are similar to those with conventional current
accounts but with some key differences. In line with other consumers from our consumer
survey, vulnerable consumers tend to use in-branch banking to deposit cheques (44 per cent),
to deposit money (43 per cent), and to withdraw money (41 per cent). They were unlikely to
use telephone banking (55 per cent don’t use telephone banking compared with 45 per cent
of all current account holders) or internet banking (59 per cent don’t use internet banking
compared with 48 per cent of all current account holders).
4.109 The major difference between mainstream current accounts and basic bank accounts is that
a basic bank account seldom has a cheque book facility and never offers an overdraft. The
lack of an overdraft, whether arranged or not, removes an element of interest rate and
charge costs that can affect account holders. However basic banks accounts can still incur
unpaid item charges.
4.110 Charges are a significant issue for vulnerable consumers. For example, when using a
mainstream current account, respondents with savings of less than £1,000 were the most
likely groups of consumer to use arranged overdraft. Twenty one per cent of this group said
they were ‘permanently’ overdrawn, and a further 25 per cent said they were ’usually’
overdrawn. In other words almost half this group of people is habitually ‘in the red’.
4.111 Our consumer survey showed that the best predictor of whether a consumer has incurred
charges is whether they are financially constrained.163 For example:
• those with less than £1,000 in household savings were significantly more likely to have
been charged in the past 12 months for going into their unarranged overdraft164 (48 per
cent compared to 18 per cent of those with at least £1,000 of savings)
Box 2.5: Factors that can contribute to consumer vulnerability43
• Age (either young or old) – for example, teenage householders may include a
disproportionate number of students (who may have high debts), while the over-80s may
include a disproportionate number of those with mobility problems or dementia44
• Visual, hearing or mobility impairment – for example, the elderly or disabled can face
difficulty in using telephone, internet or branch banking services
• Learning difficulties or confusion (dementia) – limited ability to understand product features
or charging structures
• Restricted communication – no access to telephone or (increasingly) the internet means that
consumers can be limited in their banking options
• Language – either being unable to speak, read or write English sufficiently well, or those
who are comfortable with English but have difficulty understanding the literature used by
banks. This is especially important when trying to open accounts or understand the account
features available
• People living in rural or deprived areas – may have limited access to, and choice of, branch
networks or banks. This problem can be exacerbated by branch closures
• People with difficulties demonstrating permanent residence – for example ex-prisoners or
recent immigrants may face difficulty satisfying the identity criteria for opening an account, and
• Those who are financially constrained – including those with debts or who are unemployed,
leaving them vulnerable to a sudden change in their financial circumstances.
• Age (either young or old) – for example, teenage householders may include a
disproportionate number of students (who may have high debts), while the over-80s may
include a disproportionate number of those with mobility problems or dementia44
• Visual, hearing or mobility impairment – for example, the elderly or disabled can face
difficulty in using telephone, internet or branch banking services
• Learning difficulties or confusion (dementia) – limited ability to understand product features
or charging structures
• Restricted communication – no access to telephone or (increasingly) the internet means that
consumers can be limited in their banking options
• Language – either being unable to speak, read or write English sufficiently well, or those
who are comfortable with English but have difficulty understanding the literature used by
banks. This is especially important when trying to open accounts or understand the account
features available
• People living in rural or deprived areas – may have limited access to, and choice of, branch
networks or banks. This problem can be exacerbated by branch closures
• People with difficulties demonstrating permanent residence – for example ex-prisoners or
recent immigrants may face difficulty satisfying the identity criteria for opening an account, and
• Those who are financially constrained – including those with debts or who are unemployed,
leaving them vulnerable to a sudden change in their financial circumstances.
