OFT criticises current account market
The market in personal current accounts is not working well for consumers, according to the Office of Fair Trading (OFT).
The report found that much of banks’ revenue from current accounts is derived opaquely, with 81% of income coming from insufficient fund charges and net credit interest income.
A significant number of customers do not know how much they actually pay in bank charges, either before or after they are incurred. Over three-quarters do not know the credit interest rate of their current account, and even those that do lack the means to calculate the interest they forgo.
The complexity and lack of transparency of personal current accounts makes it extremely difficult for individual customers to compare their bank account with other offers. There is thus little incentive for consumers to switch – especially as people generally believe that it is complex and risky to switch accounts.
Also, when the switching process does go wrong consumers can find themselves bearing a significant proportion of the resulting costs. The result is that only 6% of customers surveyed had switched in the last 12 months – one of the lowest switching rates in Europe.
John Fingleton, OFT chief executive, said: “Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving consumers well.
“Customers lack the information they need to choose the best deal, and this in turn weakens the banks’ incentives to compete. There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future.”
Michelle Slade, analyst at Moneyfacts, said: “The big-named banks have for a long time relied on brand and customer loyalty. As a result, many consumers find themselves in accounts paying little or no credit interest and being charged high fees when they have insufficient funds in their accounts.
“The fact that these institutions pay no or little credit interest is disgraceful. With inflation as high as it is, anyone with money with these banks is effectively losing money.”