Bank accounts too complex for comparisons

16 July 2008

OFT says "industry not clear enough"

According to the Office of Fair Trading (OFT), personal current accounts are “not working well” for consumers.

The watchdog said that the industry, worth £8bn, was not providing clear enough information for consumers, many of whom do not know how much interest they earn from their current account or how much they pay in bank charges.

The OFT said that this complexity meant that consumers were less likely to look into switching banks because they do not know what to compare.

Hitting back, the banking industry said the OFT’s figures were not a true representation of the costs faced by banks when they offer current accounts.

In their report, the OFT claim that three-quarters of customers do not know how much interest they earn on the current account balances.

This complexity is making it hard for consumers to compare bank accounts from different banks, said the OFT.

The OFT earmarked this as the reason why only 6% of the customers they surveyed had switched bank accounts in the course of the past 12 months.

John Fingleton, chief executive at the OFT, said: “Personal current accounts are a vital gateway to effective participation in the economy.

“But this market is not service consumers well,” he added.

The OFT report showed that the most common type of bank account was the model that implied that the account was free if and when the customer was in credit.

It then went on to suggest that, although the accounts appear to be “free”, customers actually do pay because they receive a lot less interest than the banks make.

The report said: “This model has a cost for consumers, which is not always apparent to them, in the form of interest foregone.”

However, Angela Knight of the British Bankers’ Association (BBA) said: “There are more than 80% of people who do not pay any fee for banking services. It is second to none to anything in the world.”

On speaking to the BBC Radio 4 Today programme she said: “It is very important that this banking model, which is what it is that the individuals and customers have asked for, that it is free to them for their normal banking arrangements does remain.

“Frankly, you have only got to just pick up your literature, go and look in the branch, have a look on the website and you will find that everything there is clear.

“Yes, you can incur charges if you do things without making arrangements first, but do you really want to pay for ATM use, pay for statements, pay for direct debits in the country? Surely people don’t,” she added.

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