JAN 09 - Response and consultation to OFT PCA Report

[Amethyst]

The OFT has now launched a consultation exercise to invite comments from stakeholders on the high level concerns identified in the report.


Download Personal current accounts market study - a consultation paper (137 kb)




YOU as part of LB are a STAKEHOLDER. We will be reviewing the report and looking at the Consultation Paper and decide if we wish to have YOUR say on the findings.

[borgbaiter]

Re: Response and consultation to OFT PCA Report

Hi

Hard to believe this report took over 18 months to produce.


lots of good words in there but not a scrap of action.


Borgbaiter

[Amethyst]

Re: Response and consultation to OFT PCA Report

Before they can act they have to understand what they are acting on/against and do the consultation to work out the best way to act ....this is a good step forwards imo.

[borgbaiter]

Re: Response and consultation to OFT PCA Report

Agreed but its still frustratingly slow :-)


Borgbaiter

[Amethyst]

Re: Response and consultation to OFT PCA Report

ohhhh yes am totally with you there

[Budgie]

Re: Response and consultation to OFT PCA Report

This is one of the key telling factors IMO

The average daily unarranged overdraft balance over the year in 2006 was £680 million but involved some £1.5 billion in paid item and maintenance fees. This is a return of over 220 per cent on the balances.

and the note : Excluding £1 billion in unpaid item charges, which are insufficient funds charges levied on any unpaid payment that, if
paid, would create or extend an unarranged overdraft.

So in reality the return on an average daily unarranged overdraft balance of £680million was £2.5 billion if you include all charges.

OK, I am going to waffle on a bit now.

Let's just put that in perspective, divide the figures by a million.

What the report is basically telling us is that, on average, if you borrowed £680 for a year ( via an unarranged overdraft ), then taking into account all their fees and charges that £680 loan is, on average, would cost you £2500 over the course of the year. Oh and by the way you would still owe them the £680.

That's equivalent to an APR of around 155%

If anyone ever says anything to me about us not being justified in claiming back compound interest on our charges. Grrrrrrrrrrrrrrrrr

[Amethyst]

Re: Response and consultation to OFT PCA Report

Personal current accounts in the UK

16 July 2008

The OFT is seeking comments from stakeholders on the high level concerns identified in its market study into personal current accounts in the UK.
We have found evidence of competition in the PCA market but we are concerned that certain features of the market are not working well for consumers.
The positive aspects include:

• high levels of customer satisfaction
• customers receive many day-to-day services without incurring fees
• internet and telephone banking makes it easier for customers to manage their account, and
• there are a number of providers in the market and evidence of modest competitive pressure on the four established banks by challengers.

The significant areas of concern are:

• low levels of transparency on fees that make up a high proportion of the payment that consumers make for their current account services, both in terms of their amount, frequency and the manner in which they are levied
• the complexity in the way that these charges are implemented that makes it hard for consumers to predict when they will be incurred
• a lack of simple mechanisms for consumers to control whether they use services for which they are charged
• a significant proportion of consumers consistently incur charges and appear to underestimate both their level and frequency, and
• a general perception, not unfounded, among customers that switching is both complex and risky, contributing to low levels of switching between banks and an inefficient allocation of the risks from switching.

Download Personal current accounts market study - a consultation paper (137 kb)
Download Personal current accounts in the UK - an OFT market study (pdf 1.2 mb)
See the market study page
Issues on which views are sought
The issues raised during the course of this market study can be grouped under three broad headings:

• low levels of transparency
• complexity over the charging structure making it hard for consumers to predict and control the costs they incur, and
• low levels of switching.

We would also like to explore potential measures to address these issues.
The OFT also welcomes comments on our findings regarding the ways in which the market has become distorted and the implications that this has for a well functioning market.
Responding to this consultation

We welcome comments on the market study report from all sources, but in particular we would welcome views from the banking and retail finance industry, consumer groups and other interested stakeholders. Consultees responding to this consultation are asked to supply a brief summary of the interests or organisations they represent, where appropriate.

Any suggested changes or comments on the documents should be submitted in writing (by email or alternatively by letter, as indicated below).

All responses and comments should be sent to:
Retail Banking Team
Room 1E
Office of Fair Trading
Fleetbank House
2-6 Salisbury Square
London
EC4Y 8JX
Email: Retailbanking.study@oft.gsi.gov.uk

Closing date for comments : 31 October 2008
This consultation follows the criteria set out in the Cabinet Office's Code of Practice on Consultation.

Next steps
We will collate responses to the consultation and publish a formal summary of these. Depending on the outcome of the consultation we hope to publish a further or final report early in 2009.
Our aim is for a final report containing recommendations that the banking industry, in consultation with government and other relevant stakeholders, will take forwards. However we will also consider other routes to implement remedies should that not happen.
There are several routes we will consider and would welcome feedback on:

• changes to the Banking Code
• recommendations to government or regulatory bodies, and
• a market reference to the Competition Commission.

Separately, we will also be considering whether failure to adopt any particular future recommendations could lead to enforcement under the UTCCRs or the Consumer Protection from Unfair Trading Regulations 2008. Naturally, we would give the businesses the opportunity to remedy any breaches of the law we identified before taking enforcement action.
Data use statement for responses
Please note that we may choose to refer to comments received in response to this consultation in future publications. In deciding whether to do so, we will have regard to the need for excluding from publication, as far as that is practicable, any information relating to the private affairs of an individual or any commercial information relating to a business which, if published, would or might, in our opinion, significantly harm the individual's interests, or, as the case may be, the legitimate business interests of that business ('confidential information'). If you consider that your response contains such information, that information should be marked 'confidential information' and an explanation given as to why you consider it is confidential. All information received is subject to Part 9 of the Enterprise Act 2002.

[Amethyst]

Re: Response and consultation to OFT PCA Report

We welcome comments on the market study report from all sources, but in particular we would welcome views from the banking and retail finance industry, consumer groups and other interested stakeholders. Consultees responding to this consultation are asked to supply a brief summary of the interests or organisations they represent, where appropriate.


The consultation period began on 16 July 2008 and will run until 31 October 2008.

[Amethyst]

Re: Response and consultation to OFT PCA Report

This is the Consultation Paper: -

3 ISSUES ON WHICH VIEWS ARE SOUGHT

The issues raised during the course of this market study can be grouped under three broad headings:

• low levels of transparency

• complexity over the charging structure making it hard for consumers to predict and control the costs they incur, and

• low levels of switching.


The OFT welcomes a discussion about each of these areas and would like to hear the views of banks and other financial institutions, consumer groups and other interested organisations during this consultation exercise. We would also like to explore potential measures to address these issues.

The OFT also welcomes comments on our findings regarding the ways in which the market has become distorted and the implications that this has for a well functioning market.

A discussion of each of these areas follows, including examples of the sorts of questions on which we seek views. The examples given are not prescriptive or exhaustive. Rather they are included to facilitate the consultation process by stimulating debate.

Low level of transparency

The findings from our study indicate that, due to a lack of vital information which is held by banks but which is not easily available in a user friendly format, consumers have limited understanding of the true cost of running their personal current account and the potential gains from switching to a new account from an alternative bank.

We would therefore like to consider proposals which, if implemented, would allow customers to have available the right information, in an easily digestible format to help them to understand the true cost of running their account and hence manage it more effectively. We would like to be able to consider measures which would provide them with the tools to compare accounts more easily and to assess whether they are getting value for money. Our study found apparent high levels of customer satisfaction with the service they receive from banks. We should be interested to hear views on this, and whether comparative data about customer service levels would be helpful.

Examples of the sorts of questions on which we seek views include, but are not confined to:

• the information consumers would find most helpful to enable them to compare PCAs and to decide whether to switch, or choose account if a new customer, (both generic and customer specific), and whether such information should be available in standardised format, and whether it should be held electronically

• the trade off that may exist between the need for information and the potential for being overloaded

• whether there would be benefits for consumers in having comparative data about customer service levels across banks available, and whether this would improve the competitive process, and

• which elements of customer service are important and how they should be measured.

We note the initiatives put in place by the banking industry to improve financial literacy and the transparency of information available, particularly via the Banking Code. We note further that in a recent Discussion Paper the Financial Services Authority (FSA) has proposed to publish the complaints data provided by firms in their regular returns, as well as some of the data gathered by the Financial Ombudsman Service (FOS). The Independent review of the FOS’s accessibility and transparency led by Lord Hunt recommends the FSA and the FOS should work together with industry and consumer stakeholders to enable joint publication of performance data on a firm-specific basis. The FOS Board is minded to accept this recommendation in principle. We too are supportive in principle.

[Amethyst]

Re: Response and consultation to OFT PCA Report

Low levels of switching

We acknowledge innovations that have taken place in attempting to ensure a smoother switching process, particularly with the Bacs switching model. However, making switching easier will not, on its own, change the market for the reasons outlined previously. There has to be a desire and willingness to switch on the part of consumers to exert competitive pressure on banks. Even where there is a desire, however, our findings show that consumers have reservations. There is a general perception among consumers that switching is both complex and risky. The results of our survey show that such reservations are not totally unfounded, and are contributing to low levels of switching between banks.

We would therefore like to consider proposals which, if implemented, would give consumers who have identified potential benefits from switching and have a desire to switch, confidence in the process. We welcome views on whether there are underlying problems with the switching process and on any potential measures to address any problems identified.

Examples of the sorts of questions on which we seek views include but are not confined to:

• whether a high degree of confidence in switching is important for the market, and, if so, how confidence in switching should be improved (for example, whether data on successful switching should be published)

• whether the impact of confidence in the switching process varies across different types of consumers

• which part of the switching process is most important to get right (for example, how the role of third parties should be addressed), and who should bear the consequences of switching going wrong, and

• whether third parties may have a role in using customer-specific data to help consumers compare different bank offers.

.......................

[Amethyst]

Re: Response and consultation to OFT PCA Report

EVALUATING REMEDIES


This document invites comments on actions that the OFT or the banks might take for the purpose of remedying, mitigating or preventing any detrimental effects on consumers that may be the result of the findings of the study. Views are sought on the nature of any problems in the PCA market, the benefit that any intervention would be aiming to achieve and the actions that would be required to meet this objective.

The OFT believes that there is a distinction between different types of remedies:


• first there are remedies that support delivery of a well functioning market. These may be remedies that a competitive market might be expected to deliver but that no business has an incentive to implement unilaterally. For example, while a well-functioning market may result in efficient switching procedures, no bank has a unilateral incentive to make it easier for customers to switch away from it to competitors, and

• secondly, there are remedies that replicate what a well functioning market would deliver. These might help move a market to a better equilibrium but can be more intrusive (for example price setting).

Ideally, remedies that support delivery of a well-functioning market would remove the need to implement remedies designed to replicate that market. In reality there may be a case for putting temporary remedies in place to achieve replication until the remedies designed to deliver a well-functioning market are effective. We would welcome views on this. The contrary position, on which we would also welcome views, is that any such remedies implemented may have the effect of depressing competition in the market.
In considering possible remedies, the OFT will take into account the reasonableness and practicality of any measures proposed, the associated costs and relevant consumer benefits, and any possible unintended consequences in terms of dampening existing levels of competition. For example, such benefits may comprise lower prices,
Office of Fair Trading higher quality or greater choice and greater innovation. Provision of information in standard electronic form that assists with product comparison may benefit consumers but could also impose costs of banks. Any parties wishing to make recommendations should include comments on why they believe the benefits would be likely to outweigh any associated costs.

..............

[Amethyst]

Re: Response and consultation to OFT PCA Report

Most important bit (in my eyes anyway)

Complexity of the charging structure making it hard for consumers to predict and control the costs they incur

Our research has found that, in 2006, 31 per cent of bank revenue came from the charges applied to PCAs on occasions when customers’ transactions would or do move them into unarranged overdraft. These charges are hard for consumers to understand, predict and control. As a result there seems to be a significant cross subsidisation from those consumers who incur insufficient funds charges to those who do not.

There are benefits for some consumers in having an unarranged overdraft facility and PCA providers should have the right economic incentive to provide such a facility. We would like to see measures that help consumers have greater control over the incidence of charges allowing them, where possible, to choose whether or not to incur any charges at all.

We would therefore like to consider proposals which, if implemented, would give customers more control over their accounts and thus enable them to manage their finances better. Making the level and application of charges more transparent to consumers will also drive greater competition on charges for those for whom this is a significant cost.

Examples of the sorts of questions on which we seek views include but are not confined to:

• how the balance should be struck between PCA providers facilitating consumer control of their finances and consumers’ personal responsibilities for their own actions

• the factors, if any, that should determine the level of charges (for example, how much risk customers should take for the consequences of not having the right amount of funds in their account), and

• the measures that would make it easier for consumers to monitor and control their finances.

[Amethyst]

Re: Response and consultation to OFT PCA Report

Bumpety bump

There are several routes we will consider and would welcome feedback on:

• changes to the Banking Code
• recommendations to government or regulatory bodies, and
• a market reference to the Competition Commission.

Separately, we will also be considering whether failure to adopt any particular future recommendations could lead to enforcement under the UTCCRs or the Consumer Protection from Unfair Trading Regulations 2008. Naturally, we would give the businesses the opportunity to remedy any breaches of the law we identified before taking enforcement action.

[StoneLaughter]

Re: Response and consultation to OFT PCA Report

IMO an overdraft limit should be just that - a LIMIT. If a customer tries to exceed it (via DD, SO, direct payment, card) they should simply be denied. There should be no charge for this, as the customer is already in trouble with the person they tried to pay. If they bounce a cheque they should be charged a nominal fee of, say £5, once the account is in credit. A guaranteed cheque has to be honoured by Law - so the cheque should be honoured immediately and debited from the account once the account has returned inside the necessary balance. There should also be a nominal charge for this as it is clearly a service.

In short - there should be no such thing as a "default charge" or an "unscheduled borrowing charge". There should be no such thing as unscheduled borrowing. The bank sets an overdraft limit - and it should be hard and fast.

[enaid]

Re: Response and consultation to OFT PCA Report

I too think it should a limit and not in any way flexible
I think it should never be raised and you are then asked to decline the rise, it should be the other way round.
I suppose as we speak the banks have their brains working on other ways to fleece us and they will come up with something.
I do think that we should act a litte more responsible with our money and not abuse the system. I think I may get hammered for that, but some do, I know my lad did.
I just think if we are a little better at managing when we can, then when we can't there maybe a little more help available for us.
Oh and I thought this was rather good, in the days when we were in control lol

"I warn you, Sir! The discourtesy of this bank is beyond all limits. One word more and I — I withdraw my overdraft!"