Kamis, 24 Mei 2012

Banks urged to stop offering free current accounts

Banks urged to stop offering free current accounts

By Lee Boyce

PUBLISHED: 06:13 EST, 24 May 2012 | UPDATED: 08:19 EST, 24 May 2012


Banks should be forced into charging customers for using current accounts as it will help extinguish mis-selling, one of the City’s most senior regulators argues.

Andrew Bailey, executive director of the Bank of England, described free banking as a 'myth,' as it distorts the supply of banking services and encourages banks to push up fees elsewhere in their business.

Bailey, in his speech to the Westminster Business Forum, said: ‘I don’t think we will have a retail banking industry that is properly serving the interests of the public until we tackle the dangerous myth of free in-credit banking.

Free banking: Andrew Bailey described it as a ¿myth,¿ as it distorts the supply of banking services

Free banking: Andrew Bailey described it as a ¿myth,¿ as it distorts the supply of banking services

‘I also worry that the banks may not properly understand the costs of products and services they supply.

‘And I worry also that this unclear picture may have encouraged the mis-selling of products that is now causing so much trouble.’

It is not the first time he has attacked free banking â€" back in November in a conference about the future of retail banking, he muted the idea for banks to charge for current accounts.

Millions of Britons currently enjoy free banking, as long as they keep their accounts in the black.

It is likely any attempt to introduce fees for standard banking services would spark a furious backlash among the British public.

Many other European countries do charge for current accounts â€" for example, banks in Italy and Sweden have some of the highest fees for banking services â€" while in Australia, no free basic banking is offered to customers whatsoever.

FREE BANKING ROW

The issue of free banking became hotly debated as the bank charges battle reached its peak between 2006 and 2008.

Banks had been subsidising free banking for all with hefty charges for those they allowed to go into the red without permission and t he industry retaliated to the call for the end of unfair bank charges by saying this could remove current accounts with no fees.

The argument polarises opinion: One side argues bank accounts should be transparent and charge rather than treating some unfairly and levying excessive fees on those who fall into debt or buy poor products.

The other side is furious at the potential removal of upfront fee-free banking and claims it would hurt those who run their accounts responsibly.

But critics argue that there isn’t such thing as ‘free banking’ in Britain anyway.

Mike O’Connor, chief executive of Consumer Focus, said: 'The fact that banking isn’t really free is one of our worst kept secrets. Most people pay indirectly either through penalties or lost interest, depending on whether they are in the red or the black.

'What mustn’t happen is that consumers end up with the worst of both worlds â€" paying for accounts b ut still enduring unfair charges, opaque and complex products, mis-selling and poor customer service.'

Richard Lloyd, executive director Which?, said: 'It’s a complete myth that banking is free now - consumers pay over £9billion a year in fees and lost interest on their current accounts. The idea that if banks charged more, they would stop trying to mis-sell other financial products is completely unfounded.'

Mr Bailey is in line to supervise Britain's banks as the head of the new Prudential Regulatory Authority. The British Bankers' Association said it planned to hold talks with Mr Bailey as part of its ongoing review of the issue.

Chief executive Angela Knight said: 'As the industry's next chief regulator, Andrew Bailey will have chosen his words carefully.

'The UK is unique in its current free banking model: customers who keep their account in credit do not expect to pay anything extra for their normal banking services.

'I n other countries, both in Europe and elsewhere, either customers pay a fixed amount each month or there is a levy depending on the number of transactions that they undertake, plus similar costs to the UK for additional services such as unarranged overdrafts.'

Banking industry figures suggest that the first casualty of limits on free banking would be those on low incomes. Those able to deposit larger sums into their account may continue to be offered free or cheaper banking because banks would seek to cross sell these customers other products, such as credit cards, loans and mortgages.

Those on low incomes would be less attractive and may be forced to pay.

Some account holders may be willing to stomach a small fee if it was accompanied by an increase in the interest rate paid on current account balances, which is usually a paltry 0.1 per cent today.

Back in March, Santander dipped its toe in the world of charging for a current account whe n it launched its 123 account. It pays cashback on household bills as well as interest of up to three per cent on credit balances, in return for a fee of £2 a month [read more].

Andrew Bailey: Pushing for an end to free banking in Britain

Andrew Bailey: Pushing for an end to free banking in Britain

Changes may require a reform

Bailey, who is the hot favourite to head the new Prudential Regulatory Authority, which is due to start supervising British banks from next March, says the only way to implement the changes would be through Government or regulators forcing through reform, as it would be hard for a single bank to break ranks without losing customers.

He also believes the changes would help stop mis-selling in future - at present, the banking industry is currently paying out billions of pounds in compensation to customers mis-sold payment protection insurance.

But despite banks being ordered to compensate PPI mis-selling victims, thousands of borrowers mis-sold rip-off insurance are being forced to endure long delays, as the Financial Ombudsman Service (FOS) deals with thousands of new complaints every day.

On Tuesday, we revealed how 60 per cent of all complaints to the FOS were related to PPI mis-selling, while 24 per cent related to banking and credit issues [read full story].

Here's what other readers have said. Why not add your thoughts, or debate this issue live on our message boards.

The comments below have not been moderated.

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This man is an idiot and clearly thinks we are too. does he really think it is fair for the working man to be forced into having his hard earned cash paid into a bank and to have to pay for the privelige..and further have to then arrange to withdraw it...if this is what he wants every single working person should demand wages be paid in cash to them every week. and tel the banks what to do....lets see how many bankers get their bonuses then after massive reductions of fluid cash deposits.

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The banks hold a monoply on your money operations these days as your wages are paid directly to them and if you want the best deals on energy you need to use the direct debit system. - Allan, Addlestone, 24/5/2012 14:18-------- Sorry Allan but a `monopoly` is the control of a market by ONE operator. How many banks do we have in the UK and in every High Street? It might be said that Tesco hold a monopoly in a particular area but this could never be said of the banks; particularly with on-line banking. Just go to any money comparison web site. It is YOUR EMPLOYER who demands that your wages go into an account - it could be a building society - NOT the banks. Similarly it is the energy companies who offer discounts for DD payments. How can you even start to suggest that that is part of a bank monopoly?

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What does this mean? They charge everyone (including responsible account users), so generate income to cover overdraws, and then don't charge for overdraws? (Falls on floor laughing). The scenario is we pay for something that was always free as long as you're responsible, yet people still get charged for overdraws. It's more income for the banks and more outgoings for responsible people.

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Andrew Bailey is talking tripe. Nationwide gives free european travel cover if you pay in £750 per month to your main current Flex Account. That equates to an annual income of £9000 not a difficult sum to achieve. If the bank can afford free travel insurance then it must be making enough to cover this cost as I have never known any bank to operate as a charity. If it comes to charges I would rather forego the travel insurance than pay charges to operate a current account. The banks hold a monoply on your money operations these days as your wages are paid directly to them and if you want the best deals on energy you need to use the direct debit system.

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Proof positive this man works for the City, not the country. He shouldn't be there.

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Its an absolute disgrace and an insult to ask people, who keep their account in credit, to cough up in more charges. We already pay by LOANING the banks our money and get no interest in return. That alone should be more than enough to pay for all the services the banks provide for a current account: ie direct debits, standing orders etc etc. These people who want current account charges to start do not live in the real world - I AM SICK TO DEATH OF PAYING FOR OTHER PEOPLES/BANKS DOWNFALLS . - oh and by the way, who pays for, and gets me out of the muck, when needed???? NO ONE!

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Gosh, they're employing comedians now at the B of E, as well as half-wits and dreamers. When can I hope to see the dancing girls?

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Andrew Bailey has some questions to answer, why is he commenting about Free Banking when a) The banks create the products b) The banks sells the products to the customers c) Customers do not design products for Banks to sell. d) Banks REAP rewards from the credit balances they pull together to lend overnight to other customers and clients and earn a very good % profit on the customers money. e) The banks customers do not receive any benefit from this business the Banks do Hence Andrew Bailey either does not know this in which case as Caroline says what is his knowledge based on? or If he does, then why say this? maybe to ensure his position in the new order replacing the FSA? Lastly - Just because you pay for something does not guarantee the product is best and most suited for the customer - Just see the list of paid for products that people are complaining about now! This just puts more money into the banking bosses paycheck not in peoples bank accounts.

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Who indeed is paying him to say this. .. .. Why should those of us who are prudent and keep our accounts in credit have to pay so that the reckless with their overdrafts can pay a bit less. .. .. Please do not appoint him he is probably just a mouthpiece for bankers and not a customer representative.

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And there was me thinking that Merv was the only idiot at the BOE.

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