/ Money

Banishing ‘free’ bank accounts won’t stop mis-selling

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

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Well this has made me lose what little faith I had in the future regulator.

If they’re worried about banks misbehaving then they need to go after them with a vengeance to force them to clean up their acts.

I understand that like any company operating in the UK they need to make money and providing a service is a very poor second to that. But it’s no excuse to throw in the towel already.

Take PPI. All the banks are now doing is paying what they “stole” and in some cases with a great degree of difficulty and I bet they’re not paying interest on that money. The regulator should be making them pay back double what they “stole” and without needing people to claim. I’d like to see a bank misbehave if they get treated that harshly. And FYI I’ve never had PPI so I couldn’t benefit from this.

If I read this correctly; The banks are being told that in order for them not to defraud their customers again [a device known in newspeak as mis-selling]. They may levy charges on us instead, this seems akin to telling granny to give you a tenner a week out of her pension so you wont mug her again!

We give banks our money to speculate with, any profit they make on these speculations they keep and do not share with us, now we have to pay them for using our cash, oh yes they use money in current accounts to play with. If they lose our cash until recently, they would say ‘sorry it’s all gone, bye’ and shut up shop, at l;east now we can get a little back [if the Government honour its promise :-)]
I believed that banks offered ‘services’ in order to get us to bank with them, so they could get more of our money to speculate with, thus making bigger profits’. Just a short while ago they were offering interest on current accounts to attract more customers.

I feel that ‘certain interested parties’ believe that banks are so vital to our lives that we cannot do without them, and therefore [like gas & electricity] they can ramp up charges as much as they like, and we will have to pay.

The mention of Overdraft fees is extremely misleading and I think Which should clarify this in this article. An overdraft is borrowing money from the bank, for which you pay a fee it is in fact a loan and charges for this loan cannot be considered charges for a current account. The only ‘cost’ to us is our share of the profit made by the bank when speculating with our money.
The banks give us the service in return for this, cash machines and all the electronic whizzamijig that makes the whole thing work.
Slap fees on an already strapped nation, and see how quickly we get back to dealing is cash.

Derek says:
18 June 2012

We have to admit that banks do provide an essential service. Most of us would find it hard to use cash for everything ! But isn’t it time customers with a lot of automatic payments could genuinely change banks without ending up in a complete financial mess? And should not the regulator, the shareholders (especially the big ones) or the government really made the Banks sit up and take notice and become honest and transparent about their terms – not using legaleze or Bank Jargon – and stop paying executives salaries, bonuses, etc which make most people’s incomes look like a sick joke? There seems to be endless talk and very little action ! Maybe, just maybe, new entries into the banking field will help to improve matters, but what we really need is government action.