大象传媒

Unfair banking

• Robert Peston
• 16 Jul 08, 08:19 AM

Strong bankers will weep. But so too should most of us as bank customers.

Because the of how banks make money from concludes that charges are opaque, that there isn't sufficient competition in this market and that excessive profits are probably being made.

And it also finds that "the bulk of consumers pay little or no attention to the key elements of either insufficient funds charges or the interest they earn on credit balances". Are we thick, or what?

The other headlines are:

1) Banks make more out of personal current accounts than they do out of savings and credit cards combined;

2) The bulk of what they make out of current accounts comes from those controversial charges on customers who exceed their agreed borrowing limits (a stonking 拢2.6bn) and from net interest on debits and credits ( 拢4.1bn from paying us next-to-nothing on credit balances and charging us an arm-plus-other-limb on overdrafts);

3) Customers responsible for 1.4m accounts pay over 拢500 a year in charges, and four million incurred over 拢200;

4) Total aggregate revenue for banks from personal current accounts was 拢8.3bn in 2006, or 拢152 per active account (shout it loud: "these accounts are not free");

5) Insufficient-fund charges increased by 17% between 2003 and 2007;

6) Banks made 拢1.5bn in paid item and maintenance fees on an average aggregated unarranged overdraft balance in 2006 of 拢680m - a tasty return of 220% (I'd like some of that please);

7) More than a fifth of us are unaware of charges till we incur them;

8) Only 6% of customers switched to a new bank in the past 12 months, one of the lowest switching rates in Europe;

9) There's been some attempt by and to compete on price (which most would see as a good thing) but the big banks, , , and compete on "quality" (or to put it another way, they make a bundle from the status quo).

The big point, according to the OFT, is that this is not a healthy market in which excessive profits are eliminated through competition: it is concerned that "additional profits made from less visible elements" are not being "fully competed away in terms of lower fees in other areas".

It adds that too much profit comes from vulnerable, low income and low saving consumers, or those who incur the fat charges for borrowing more than has been agreed. And this group is cross-subsidising better-remunerated and better-organised customers, who are given the so-called "free" banking service.

That's unfair, the OFT implies - and many would concur.

The implication is that the competition watchdog will endeavour to push through a radical reconstruction of this market.

If it were to succeed, the banks would end up making less profit from current account services, which is a horrible prospect for them when they're facing quite a squeeze from their imprudent lending of the past few years.

And many of us might have to get used to paying an explicit charge for banking services.

Although if the OFT were to succeed in actually improving competition in this market, we won't necessarily be worse off. It's simply that we'll know what we're paying, rather than kidding ourselves that our current account services are free.

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