According to the future regulator responsible for the UK’s financial stability, banks should stop offering so-called free current accounts if Britain wants to stamp out mis-selling scandals. But is he right?
Andrew Bailey, executive director of the Bank of England, is in line to supervise Britain’s banks as the head of the new Prudential Regulatory Authority.
In his speech to the Westminster Business Forum, Mr Bailey described free banking as a ‘myth’ and that it may have encouraged banks to mis-sell products. But would introducing fees for standard banking services be a good idea?
He argued that a single bank wouldn’t be able to break the ranks by itself without losing business, nor would the industry be able to start charging ‘without appearing to collude’, so Mr Bailey said regulatory ‘intervention’ may be required.
Confusing bank account charges
Banks have a myriad of different ways of charging us for our bank accounts. They pay no interest when you’re in credit, and if you exceed your overdraft limit you could be hit with unauthorised overdraft charges of up to £35.
All of this adds up to a lot of money for the banks – over £9 billion a year alone from current accounts. So having a current account isn’t free and figuring out how much you pay for it can be complex. In fact, our research last year found that even a maths PhD student found it difficult to understand the different overdraft charging structures.
As for whether banks would change their behaviour if they were to introduce extra fees, I don’t see how that could be true. As Richard Lloyd, our executive director, said today:
‘The idea that if banks charged more, they would stop trying to mis-sell high margin products is completely unfounded.’
Standing up to the banks
Our Watchdog not Lapdog campaign has been calling on regulators to promote competition and stand up to the banks. We don’t think it should be the job of a regulator to engineer cosy, fireside chats with the banks where they will all get together and agree that charges for hard-pressed consumers need to increase.
Instead, we need to see greater transparency about the true cost of banking. Mr Bailey should be putting pressure on banks to offer all of us downloadable electronic information so that people can clearly see how much they currently pay for their existing account and whether they could get a better deal elsewhere.
So, if banks introduced extra fees for current accounts, do you think it would stop them trying to mis-sell poor quality products? And how would you like your bank to explain the cost of your current account?
Would charging for standard current accounts stop banks mis-selling?
No - current accounts aren't free anyway, so it won't stop banks mis-selling (90%, 132 Votes)
Maybe - it depends on how it's done (9%, 13 Votes)
Yes - banks would stop mis-selling if they charged upfront (1%, 2 Votes)
Total Voters: 147