Inquiry has its work cut out to make banking better, warns Which?

Which? is calling on the Competition and Markets Authority (CMA) to ensure its retail banking market investigation goes beyond fixing the basics and commits to testing a range of measures to make the market work for consumers.

In its new submission to the CMA’s inquiry into Personal Current Accounts, Which? says that as a minimum the regulator must require banks to provide clearer, more transparent information on the cost of accounts, and ensure that consumers can make easy comparisons and switch providers without hassle. But the consumer champion warns that these changes alone will not be enough to transform the market.

With only one in ten (12%) people able to identify the best account for an unauthorised overdraft user and just four in ten (39%) able to spot which is best for staying in credit, it’s clear the basics of price transparency must be overhauled. However, the CMA will have to go further because of the sheer number of people who either cannot or will not switch.

Which? wants the inquiry to set out creative solutions to spur banks into genuinely competing and improving the way they treat all customers in three key areas:

  • Fairness: The CMA should look at forcing banks to more proactively help customers who regularly use an unauthorised overdraft, as well as increasing compensation levels for customers who experience poor service.
  • Control:The CMA should consider how banks can put people in control of their overdrafts, for example by notifying customers about hitting their current account limits before they go into the red.
  • Transparency: The CMA should explore how to make more use of information about the behaviour of banks to regularly name and shame the worst providers.

Which? wants the CMA now to conduct much more detailed research and to develop remedies that recognise the different ways that people use current accounts – including those who are shopping around for the best interest rates and people who struggle to manage their household finances.

This should include more focus on quality and service, as a Which? review of more than one hundred Financial Ombudsman Service cases has found some common themes which should be investigated further. These include banks failing to show proper consideration to those in financial difficulty or experiencing difficult personal circumstances, poor service and delays in responding to customers.

The CMA has yet to say what remedies it will propose for the market that will make a real difference to consumers. It is critical that next month it sets out proposed solutions that can be properly tested, so that the inquiry really does deliver for consumers.

Which? executive director, Richard Lloyd, said: 

“We need the CMA to ensure its investigation is focused on reforms that will deliver genuinely better banking services for all consumers. With few consumers moving their finances to different providers, and the existing big banks continuing to hold substantial market power, the inquiry must look beyond ideas to improve information and switching. When it reports next month the CMA should propose changes that will incentivise banks to better respond to the needs of their customers.”

Notes to editors: 

  1. Methodology for review of FOS data: We conducted a brief review of 112 Financial Ombudsman Service cases on current account issues, where decisions were made in the consumer’s favour, which took place between 3rd April 2013 and 4th June 2015.​
  2. Methodology:Populus, on behalf of Which?, surveyed 2,063 GB adults online between 8th and 10th May 2015. Of these, 1,367 passed our data checks and proceeded to undertake the questionnaire. Data were weighted to be representative of the GB population.

We showed each respondent two of the below four scenarios, each with a list of five accounts to choose from. The accounts were all examples of real bank accounts on the market at the time of research. Respondents were asked to select the best and worst value account for the particular scenario.

  • In credit scenario:Last month, Alan paid his salary of £2000 into his account on the 1st of the month. He withdrew £500 cash on the 8th of the month and paid £500 worth of bills on the 15th. He had a £1000 balance on the last day of the month.
  • Authorised overdraft scenario:Charlie has an arranged authorised overdraft with her bank of £500.  Last month, on the 15th, she went overdrawn by £200. She was overdrawn by £200 until the end of the month.
  • Authorised and unauthorised overdraft scenario:Ben has an agreed authorised overdraft of £100 with his bank. Last month: On the 14th a direct debit payment meant that he was overdrawn in his authorised overdraft by £50. A further payment of £60 on the 18th took him into his unauthorised overdraft. On the 20th, Ben paid in £40 into his account so that he was in his unauthorised overdraft for 2 days. On the 24th, Ben paid another £60 into his account. He remained £10 in his authorised overdraft until the end of the month (the 30th).
  • Unauthorised overdraft scenario: Donna hasn’t agreed an authorised overdraft with her bank. Last month she started the month with a balance of £100 in her account. At the start of the 1stshe made a direct debit payment of £200 out of her account. On the 2nd another direct debit for £60 was paid leaving her overdrawn by £160. She was overdrawn for two days until she paid £200 cash in on the 4th.

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