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Upfront charges

• Robert Peston
• 17 May 07, 08:50 AM

Today's proposal from Andrew Tyrie that banks should send their customers regular statements of how much they have been charged - including both actual charges and what they skim by paying interest rates below the market rate - is significant for two reasons.

First it comes from a Tory MP - and is possibly a manifestation of a Conservative party that increasingly sees votes in being the champion of the consumer rather than the voice of business.

Second, it's remarkably close to thinking that's been going on inside the Office of Fair Trading for some time - though has not yet been made public.

The competition watchdog is examining how banks make their profits from providing current account services, as an adjunct to an investigation of the fairness of penalty charges for those who breach their overdraft limits.

The OFT fears that what it describes as "so-called free banking" disguises a multitude of hidden charges and may not represent the great value for customers that the banks claim.

Those charges range from quite substantial transaction fees every time we use our debit cards abroad, to the interest we forego by holding our cash in current accounts that pay zero or low interest rates, and the interest lost when money is held in transit.

Tyrie's recommendation - which, as I say, is already being mulled by the OFT - is for the banks to send us a regular estimate of those charges.

What would be the good of that?

Well, it should give most of us much greater confidence to shop around for the best banking deal.

What's the downside?

Well, there would be incremental costs for the banks.

And there would be plenty of rows about how to calculate the implicit cost to each of us of receiving sub-market interest payments.

Should the reference rate be the bank base rate? Or should there be some standardised deduction for administration costs?

And the problem would be even worse if we were sent an estimate of how much we are paying over the odds in overdraft interest rates. The banks, rightly, would want to make some allowance for the riskiness of lending to each of us - but capturing the financial cost of that would not be easy or cheap.

The bigger criticism of the Tyrie plan is that it could be seen as excessively nannyish, an unwarranted interference in the god-given right of all commercial businesses to charge us how and when they like.

Maybe so.

But it is incredibly difficult to compare the costs of current-account services provided by different banks.

What amazes me - and I've told bank chief executives this over many years - is that none of them have sought to break ranks by providing a really simple charging structure that would engender consumer confidence.

I've long thought that the first bank to do this of its own accord would take a big step towards becoming the Tesco of the banking sector (alright, I know some of you will grimace here – but you know what I mean).

The palpable fact that there isn't the banking equivalent of Tesco suggest to me that the market isn't as properly competitive as perhaps it ought to be – and that it mightn’t be such a bad thing to force the banks to tell us what they really charge.

Click here to read Andrew Tyrie's proposal (word document)

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