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Banks ‘should set monthly maximum overdraft fees’

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Written by: Paloma Kubiak
17/05/2016
Banks should set a monthly cap for unarranged overdraft fees, the competition watchdog has proposed.

The Competition and Markets Authority (CMA) has unveiled a package of proposals to improve personal current accounts, which would benefit customers to the tune of £1bn over the next five years.

As part of its inquiry into the sector, the CMA said “competitive pressures are weak so banks do not need to work hard enough on price or quality of service”.

It found customers have to work hard to find out if they’re getting good value, while bank charges are “complicated” and “opaque”.

As a result, nearly 60% of personal customers have stayed with the same bank for over 10 years.

The CMA said customers could save on average £116 a year by switching to a cheaper product.

What’s the CMA proposing and why?

Under the proposals, banks would set a monthly maximum charge for unarranged overdrafts on personal current accounts and alert people when they are going into an unarranged overdraft to give them time to avoid the charges.

The competition watchdog is also calling for improvements to the current account switch service (CASS) to raise awareness and confidence in the process.

See YourMoney.com’s 300,000 switch current accounts in first quarter this year for more information on CASS.

The CMA wants banks to introduce an Application Programming Interface (API) standard to give customers the ability to share their transaction history with other banks and third parties securely.

“This will enable bank customers to click on an app, for instance, and get comparisons tailored to their individual circumstances, directing them to the bank account which offers them the best deal,” the CMA said.

A final report on the retail banking market investigation is due by 12 August 2016.

‘Unlikely to make a difference to those with deeper debt issues’

Andrew Hagger of Moneycomms.co.uk said while forcing banks to show a monthly maximum charge (MMC) for unauthorised overdraft charges will enable consumers to see which banks are cheaper, the reality is that customers who are frequently in excess of their agreed overdraft limit will still find it difficult to transfer their accounts to a new provider.

“Although no mandatory MMC has been imposed, the range of maximum monthly charges varies quite widely at present – e.g. Barclays £35 to Halifax £100 – it will be interesting to see if any providers reduce their maximum charges in the coming months in light of the CMA report and whether this will have a detrimental impact on credit interest or rewards currently paid.

“A robust but easy to use current account comparison service is ultimately what’s needed and it will be interesting to see what this looks like once delivered – it needs to be straightforward to use and less clunky than mi-data if it is to succeed.”

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