The competition watchdog has called for monthly unarranged overdraft fees to be capped as part of its recommendations to overhaul the way banks work.
Over the past 18 months the Competition and Markets Authority (CMA) has been conducting an investigation into the retail banking market. In provisional findings published today, it outlined a series of measures designed to address "fundamental competition problems", which it says could save bank customers £1 billion over five years.
The watchdog found current-account customers could save an average of £116/year by switching banks, but most people think doing so is too risky, with 60% of personal banking customers having stayed with the same bank for more than 10 years.
Other recommendations from the CMA include making banks provide customers with the right information so they can easily find which account offers best value, forcing banks to publish customer satisfaction statistics, and support for the development of new online comparison tools.
For full info on how to switch bank accounts and what the best deals are, see our Best Bank Accounts guide.
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What's the CMA proposing?
The watchdog's key recommendations include:
Capping monthly charges on unarranged overdrafts.
The CMA found those heavily reliant on overdrafts are unlikely to ever switch bank accounts, so it proposes making banks set a monthly maximum charge for unarranged overdrafts on personal current accounts. In 2014, £1.2 billion of banks' revenues came from unarranged overdraft charges.
The CMA also wants banks to alert people when they're going into an unarranged overdraft, and give them time to avoid charges, as it argues some customers are not even aware of the cost they're incurring.
Developing online comparison tools to highlight best value accounts.
The CMA wants to push the development of new online comparison tools and improve the current account switch service (CASS) to make switching banks simpler and give customers more awareness of, and confidence in, the process.
With that in mind, it intends to extend the length of the CASS redirection period (currently three years or until 13 months after the last payment's gone in or out of your old account, whichever's later).
Forcing banks to publish customer satisfaction statistics.
Although the CMA is yet to explain how these will be displayed, it's calling for banks to show "prominently" customers' willingness to recommend the following:
- the provider's current account services to friends, family or colleagues
- the provider's branch services
- the provider's digital account management services
- the provider's credit services (the provision of overdrafts and loans)
- the provider's relationship management services (how it interacts with customers)
Meanwhile, MoneySavingExpert.com got a mention in the CMA's report under the section on customer satisfaction levels, with the competition watchdog highlighting a poll we ran on how our users rate the level of service on offer at their bank.
Making the sharing of information easier so customers can find the best deal.
The CMA says banks should be required to swiftly introduce an open 'application programming interface' (API) banking standard.
What this means is that personal and small business customers will be able to safely and securely share their individual transaction history with other banks and trusted third parties. This will allow bank customers to click on an app, for example, and get comparisons tailored to their individual circumstances, directing them to the bank account which offers them the best deal.
More interaction with customers.
The CMA is proposing that banks should be made to regularly prompt their customers to check they're getting good value.
'Remedial tinkering to the rules'
MoneySavingExpert founder Martin Lewis says: "It's now seven years since the Supreme Court overruled bank-charge reclaiming on a technicality and it's taken this long to see some remedial tinkering to the rules around unauthorised overdrafts.
"What's been suggested will help: a lockdown on charges, though they have dropped substantially in the intervening years; and more importantly, some breathing space to give people the chance so they are not caught financially short by accident, which then leads to charges and risks charges on those charges.
"However, while these remedies will improve the situation for people with their current bank, I'm sceptical how big an impact on overdraft competition they will have. There are already 0% overdrafts out there at both First Direct and Nationwide. These are appetising for those with smaller overdrafts, yet what's needed to give confidence for people with overdrafts to move banks is a 'switching guarantee' – that if accepted, your current overdraft will be at least matched, and at a cheaper cost."
Martin is upbeat on the prospect of banks being told to introduce APIs, but says he won't be holding his breath over it actually being done any time soon.
He adds: "This isn't the first time a data solution to make comparing easier has been tried. After the launch of the Midata project, I pledged that if the data that came back was workable, MoneySavingExpert.com would launch a banking comparison site using it.
"However, the banks imposed a 'death of 1,000 cuts' strategy to kill off that project, gradually watering it down with data that was difficult to use that hardly worked on mobile. So much so in the end it wasn't worth bothering.
"At the time we called for a shift to APIs, but the banks didn't want it. Therefore making it compulsory is a good move and should fix those problems – although I await to see what clever excuses they come up with to push it back.
"After all, UK banks do what they can to block third parties from accessing the data, as they consider it their property. We even have the perverse situation at the moment where people who try to use online budgeting and aggregator tools are told they're in breach of terms and conditions at some major UK banks. The data belongs to the user, banks need to change the way they feel about it."
What else did the CMA look at as part of its investigation?
It considered whether the largest banks should be broken up, but concluded this would not address the fundamental competition problems.
It was decided that having more smaller banks, which customers still couldn't easily choose between because of lack of transparency on fees and charges, would not really improve the market or give customers a better deal.
The CMA also considered whether to get rid of 'free if in credit (FIIC) current accounts, but opted against, adding this to its list of proposals. A FIIC current account is one that you don't pay to use when you're not in your overdraft.
But it was the view of the CMA that even though FIIC accounts are not really 'free', they do work well for many customers, and banning particular products would simply "take away choice and risk the overall cost of accounts rising, not falling".
So what happens next?
A consultation period has now opened and the CMA is inviting submissions in writing by Tuesday 7 June. It will then publish its final report on the retail banking market investigation by 12 August 2016.