/ Money

Have the CMA’s banking fixes fallen short of the mark?

Bank fix

The Competition and Markets Authority (CMA) has today unveiled its grand plan to improve competition in banking. But we think the proposals have fallen short of the mark.

Back in October, I wrote about the CMA’s recommendations for improving competition in banking. And it’s fair to say pretty much everyone, including many banks themselves (well the challenger banks at least), was left feeling underwhelmed.

But to the CMA’s credit, they did say they’d go away and take suggestions on board. Well today’s new, updated proposals show that sadly, not much has changed.


Better banks

The problem is that the cost of using a current account depends on how you use it, but charging structures can be complicated, and pretty expensive if you slip into an unarranged overdraft. And despite banks rarely achieving decent satisfaction ratings, people don’t switch, leaving the big four banks with a dominant market share.

So if you throw in relatively low satisfaction, disillusioned customers thinking all banks are the same, and a small group of customers being charged through the roof, but not switching and not being helped to manage their situation, the diagnosis is not good.

Now there are some recommendations in the CMA’s report (PDF) that are undoubtedly good.

Recommendations like making banks regularly prompt their customers to check they’re getting good value from their provider, and making switching easier, are sensible housekeeping stuff that, in truth, banks should be doing anyway.

There’s also already been some good progress made on a new app to help people compare what bank is best for them, based on their actual account usage. Plus proposals requiring banks to alert people when they are about to go into their overdrafts, and giving them grace periods to avoid charges – these are certainly welcome steps in the right direction.

Fallen Short of the mark

But where the CMA has fallen short is what they’ve billed as a ‘cap’ on unarranged overdraft charges.

In reality, it’s not much of a cap. Banks are only being required to set their own maximum monthly charge and disclose this to their customers. It fails to mention that some banks already have a limit on the monthly cost of unarranged overdraft charges.

Also, while the CMA believes that transparency will help customers compare and encourage them to switch to a cheaper provider, it does so in the knowledge that heavy overdraft users are the least likely group to switch.

And if any of you are wondering about customer service in banking – well the CMA is proposing to require banks to display a small number of core indicators of service quality, like willingness to recommend the bank to a friend. There are also proposals to publish other quality measures to help people compare between providers.

But it’s not yet clear how this will work. What we’d like to see is some customer engagement, to test whether the information being presented is what people actually want to know.

Next steps

While this is technically only the CMA’s provisional decision, after almost two years or investigating and rejecting calls for stronger action, it’s unlikely it will change its mind.

So it’s now over to the Financial Conduct Authority to implement the CMA’s remedies and judge whether they go far enough.

What do you think? Do you think that this a missed opportunity to improve banking?

Do you think banks that hit customers with unfair charges should be held to account?

Yes (99%, 4,903 Votes)

No (1%, 38 Votes)

Don't know (0%, 13 Votes)

Total Voters: 4,954

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Comments
Ivan Jacoby says:
17 May 2016

Do we really expect Offshore Cameron and Mandelson – sorry Osbourne to regulate their friends in the banking world.

Banks are providing a so called service which suits them and their share holders, not what many of their customers need. Branches are moving further and further away from many customers – this particularly hits the elderly and small businesses. They say you can use post offices, but many of them are also closing. You try and speak to a local branch on the phone – it is all centralised and robotic, no such thing as a personal service nowadays and loyalty is not rewarded but has become a dirty word.

Yes a sensible comment, quite agree.

While I understand there may be a reason for charges on breaking the agreed overcharge facility, I think this charge is out of all proportion!
The Banks seem to place a huge emphasis on this, but frequently fail, unless challenged!, to accept there are many occasions when this happens through no fault of the customer. From personal experience, one area which always caused problems for me was the bank holidays!
The Banks seem unable to accept, that with these days interfering with the normal calendar, a bank holiday will inevitably throw into complete confusion many of the accepted norms, thereby inadvertently breaking the rules. This needs looking at.

Alan Bond says:
18 May 2016

It was established in law before the first world war that anyone (and that includes banks) can only levy charges to the level of their actual loss. Punitive charges, the nature of which are widespread in banking today, are therefore illegal and need to be properly challenged. It should NOT be down to the individual customer to take action to redress this. Instead the OFT should have taken the opportunity to press home the advantage it gained a few years back by pressing for the law to be changed to protect bank customers. This it has signally failed to do. No doubt this government would do nothing as they are in the pockets of the banksters but it doesn’t mean that a future government cannot take action to eliminate what is, in truth, demanding money with menaces. We need action now because there are people who have been brought to bankruptcy by the actions of banks in levying these charges. The fact is that these charges are NOT enforceable in law and the banks know it. The simple remedy is to change banks as soon as these charges start piling up and then to ignore the threatening letters as the banksters know that they cannot enforce these penalties though recourse to the law.

While I whole heartedly agree with your statement, I do hope that I am wrong but the chance of being treated with respect and in a proper manner by these corporations have long disappeared. These corporations have gained control of Law makers and Governments in parts. These corporations are in control of using Governments by studious means of changing the Laws of the Land to ensure that they are able to govern without many objections. Where by as Australian cigarette company tried to take the Uruguayan Country to court for the loss of revenue when they abolished the Advertisement of cigarettes of the front of packaging. In this country where the present Conservative Government are changing the Boundary Laws to try and ensure a positive outcome in future elections. there are many others that one could be mentioned.

Chris Brazendale says:
17 May 2016

I think the only way to control banks is to own one (guess what we already own 83% of one) . It could then be run in such a way as to put people before profit and could bring all the other banks into line by competing in the marketplace. There is nothing wrong with public ownership.

Would people really like to place their hard-earned in a bank that doesn’t make profits?

Chris does not say the banks should not make a surplus, just not a profit to provide large dividends to others, I see nothing wrong with that idea, Co-operative bank comes to mind?

Robert J Rathbone says:
17 May 2016

When tha banks are fined for misconduct, the fine is paid by us, the people who have money in the bank. We get a puny 0.25% on our savings while the banks charge 6% compound to borrowers. Savers are being screwed by the corrupt word banking system who have got togethar to keep interest rates for savers low. Banks who have employees who do not conduct themselves correctly should not be fined, the employee should face a criminal trial and the head of the bank should also be pulled before the same court to explain what has happened and why did they not take corrective action. If found guilty, both should face a jail term, a criminal record and a stiff personal fine. I would not object to contributing towards the board and keep of these real criminals.

I bank with the Co-op and I find they are very fair, nice to deal with and honest. I cannot say the same for the so-called Big Six high street banks. I was badly let down by the NatWest bank some years ago and have never forgiven them!

The banks should be public like North Dakota in America where the money is used for local projects in the community and not to fund huge bonuses. Credit is debt when issued by the private banks. We need to get back to the free money issued by the central banks and not that issued as debt and with interest being paid to the private banks. The whole system needs overhauling not tinkering.

dear angela, this is the only idea so far that makes sense to me. and to think that there is already a bank operating along these lines. I wonder how we could bring the whole banking system back into line which are more along the lines of the major religious ideas on banking, including the Islamic banks which seem to be straying from their original intention.

Have always felt that banks should be nationalised. Let the country benefit not Fat Cats in the City.

I feel that banks who hold our money make money on top should not take money from us. The whole banking process is currupt and unjust. I feel the biggest fraud after the Governments, Filthy Rich, are Banks or shall I say they go hand in hand with all those I have mentioned. Rob from the poor to feed the rich.

Banksters are Gangsters…simply government-sponsored thieves

I agree – there is very little opportunity to deal directly with our banks. I can understand the financial reasons for outsourcing their callcentres to the Indian subcontinent, but if I seldom get any help because I simply cannot understand the very polite and wellmeaning person on the other end of the line, I am not being helped. There is no phone number for my branch of my bank. I am a faceless number to be bombarded with unwanted and spurious mailshots on expensive glossy paper that I don’t want.

All the call centre staff employed by the coop bank are UK based. Mostly Manchester people too and very easy to understand.

The co-op bank used to be owned by its members. Now it is partially owned by hedge fund manangers . I hope that this does not mean that increased profits now come before ethics.

What we need is fundamental money and banking reform as advocated by the monetary research and education group Positive Money. Which has been very good at presenting good, clear, easy to understand information about how the products we buy work. I would love to see you do a report about how commercial banks create virtually our entire money supply out of nothing more substantial than numbers in a deposit account, when they make loans for mortgages etc. Then when the debt is repaid the money is destroyed, so we have to keep on taking out new loans to replace the old ones or else we would have no money!

Give us our money back stop pitching money from us and storing it in your piggy banks

I speak as a banker who served 28 years in the UK and abroad, in the days when we were proud of the job. The most disappointing aspect of this report is this. There is no such thing as an “unauthorised overdraft”.
It is, after all, THE BANK THAT ALLOWS the account to exceed it’s limit, arrangement etc. And the reason that the bank ALLOWS the excess is that it can immediately “fine” the customer and add daily charges, otherwise termed “make as much money as possible from it”.
The correct, (even moral), procedure is that the bank denies payment of items that would cause an excess. The term we all know is “to bounce” the items. The banks are perfectly entitled to make a charge, (that must be defined in their terms & conditions), for bouncing items. But, of course, that charge is likely to be considerably smaller than the accrued money to be made from fines and daily charges.

Patrick – I agree with everything you say.

It would be great to see regulations that curbed irresponsible banks whilst allowing reasonable profits to be made by responsible banks.

I’m old enough to remember the days when we had very many more building society lenders in the UK. Regrettably, bribed by promise of quick windfalls (e.g. 30 pieces of silver each?) their customers voted to allow them to de-mutualise, so they could become banks.

Yes, and then many of the former building societies were taken over by banks who imposed their more mercenary culture on them. There are now very few branches of mutual building societies in most areas. In the whole of Norfolk, apart from a Nationwide in most market towns and in the City of Norwich and a few branches of the Norwich & Peterborough, there are only three other mutuals [Leeds, Chelsea and Britannia (which is part of the Cooperative Bank)] with one branch each in the city. Since N&P and Chelsea are themselves part of the Yorkshire BS that’s not much diversification for people who want to spread their wealth around a number of institutions to avoid the FSCS limitations on compensation but keep it within the mutual sector.

Are we all surprised ? Of course not. The only thing worse than the Banks are the regulators. What a waste of time and money. The question is why are they utterly useless or are they controlled. Since 2010 our “services” industry is propping up a “scam” of a booming economy …ie our banks are creating monopoly money that assists the Governments failings. Go Figure …. The issue of course is we are all paying …again …. and again and yet again. The economics of take a little off a lot of people, they won’t notice and then once its “normal” do it again …and again ….and you know the rest. Are we all getting more for our money that should be the measurement of the CMA. So 1,000s of fewer banks, no cheques (better for the elderly), more fraud on cards (we all pay for it) poor value products, Apps on Phones that we are responsible for ! So I’d say NO. If they are making bigger and bigger profits at the expense of their customers then basic maths tells me this is short road to implosion. ….. Another bail out …. and we’ll all pay again. On the brightside a handfull will have massive pensions for very long lives.

Leaving banks to determine their own ‘caps’, as the CMA has done, will result in a cartel, leaving the customer with ‘Hobson’s choice’ insofar as changing banks is concerned. It’s the same old story. Regulatory bodies do not regulate, they capitulate to greedy bankers and such like. Not the slightest concern for customers who are being ripped off.

Retail Banks are supposed to provide a service to their individual customers, the little men, but the majority appear to run to the advantage of the management and stockholders.

I’ve just (accidentally) become overdrawn, which is a very rare occurrence. My bank, Co-operative, has allowed me to go scot-free on charges on this occasion, saying I would be charged next time. Thank you Co-operative Bank for this understanding and welcome gesture.

I had exactly the same experience with Barclays, going just over the free £15 threshold. I didn’t ask for a refund of the 75p a day charges but wrote to point out the high cost being imposed in % terms. I had a very nice phone call very quickly which cancelled all charges and set up a mobile phone text message warning service.

One point missed solar in the discussion is the inability of the British banks to automate transfers to the European banks via the IBAN based system. Free for users in EU with banks using IBAN, 20 pnds per transaction charged by UK banks! Why?

In the past banks looked after their customers and treated themas individuals each requiring different things. Not any more. Now a customer is an article to get as much money as possible from them. Many of their shoddy tactics to sell customers things they don’t need have been found out thank goodness. However they probably have not learnt their lesson and will still see customers in the same way. How many of us actually know the local bank manager personally? Very very few I suspect.

Wayne says:
18 May 2016

ALL banks are privately owned. The bank regulators are in effect regulated by the banks. Like any privately
owned business, the banks will do their best to make money out of the customers who they serve.