Banks to improve current account market

The OFT announced that banks have agreed to make personal current account costs more transparent and the switching process more reliable and trusted.

This announcement follows the OFT's 2008 market study, which identified three major problem areas - transparency of cost to consumers, real and perceived difficulties over switching, and the way in which unarranged overdraft charges function - that meant that this £8bn market did not work well for consumers, see press release 84/08.

Since the market study report was published the OFT has successfully worked with banks and consumer groups to identify ways in which the market could be improved.

Transparency
To improve transparency, so that consumers can more easily understand the costs of their accounts and compare with others, banks will:

introduce an annual summary of the cost of their account for each customer, which will help them to focus on the value they are getting in a similar way to annual car or house insurance renewal quotes

make charges prominent on monthly statements, so that consumers are more aware of the charges they pay

provide average credit and debit balances, which will help consumers to estimate the potential benefits of switching bank, and

produce illustrative scenarios showing unarranged overdraft charges, giving consumers an idea of the costs for different patterns of use.

The OFT is also taking steps to help consumers understand and compare the costs of their accounts through new advice and tools, including an interest calculator, on its Consumer Direct website.

Switching
To improve the switching process, the following have either been introduced or are being introduced following work with Bacs, the payment processor:

steps to reduce problems that arise from transferring Direct Debits

measures to reduce the impact on consumers of any problems with transferring Direct Debits, and

a new consumer guide and website as part of efforts to increase consumer awareness of the automatic switching process.

Charges
Work on unarranged overdraft charges is on-going. The OFT is pursuing a separate investigation, alongside the market study, into the fairness of unarranged overdraft charging terms under the Unfair Terms in Consumer Contracts Regulations 1999. The OFT expects to make more substantive comments on unarranged overdraft charges in due course after the pending Supreme Court judgment.

John Fingleton, OFT Chief Executive, said: 'We welcome the industry's commitment to these important steps to improve the working of the current account market. As consumers become more aware of the costs of their account and more confident in switching as a means to get better value, so banks will need to offer more competitive and innovative products and services to attract as well as retain customers.

'However, the third problem area we identified - unarranged overdraft charges - still needs to be resolved for the market to work in the best interests of bank customers.'