OFT announces 'quick fix' on bank charges will disadvantage consumers

By: Submissions

In response to consumer concerns over bank current account charges, the OFT has today announced an in-depth study of retail bank pricing. This will sit alongside a formal investigation into the fairness of bank current account charges.  Full details of the study will be announced in late April, and it is expected to be completed by the end of the year.

This study follows an initial review carried out by the OFT into these charges. The finding of this initial review is that the OFT shares the public concern about the level and incidence of bank current account charges, but it recognises that the application of the general principles it set out in 2006 to the banking industry is not straightforward and that a more detailed examination is needed.

The decision to undertake a study reflects the OFT's desire to take a strategic approach to the examination of the fairness of these charges in the wider context of competition in the UK retail banking sector.

John Fingleton, OFT Chief Executive said: 'The UK retail banking market performs well in many dimensions, especially relative to international norms. However, the issue of bank current account charges is a matter of real concern to the banks' customers, and raises wider questions about competition and transparency of pricing. The initial scoping work we have undertaken has demonstrated to us that this is not only an issue for those people who are being charged, but also for customers who are not defaulting on their bank accounts.

'A quick-fix solution is not the answer as this might be of limited long-term benefit and could have unintended and far-reaching consequences across the whole sector and on consumers as a whole. We will look forward to co-operation from the banking sector in reaching a conclusion to this matter which is satisfactory to consumers and which will strengthen competition, efficiency and customer outcomes in the UK retail banking sector.'

NOTES

1. On 7 September 2006, the OFT announced that it was to carry out a short study into current account charges. See press release 130/06 .

2. This initial review was not intended to lead to the setting of a specific threshold for intervention by OFT at this stage. As indicated in September it was intended as a preliminary assessment of the issues, to see whether a further detailed investigation of the fairness of individual bank default charges may be necessary.

3.  In the course of the scoping  work OFT has liaised closely with the Financial Services Authority and Financial Ombudsman Service and held discussions with the British Bankers' Association about the activities banks engage in when dealing with a default by a customer and the relevance of banking law to this issue.

4. In April 2006 the OFT set out principles for considering the fairness of credit card default charges. One question for the new study is to consider how these principles might apply to bank accounts.

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