The Office of Fair Trading, the UK government department
charged with enforcing consumer protection and competition law, has
called on the country’s banks to change their policies regarding
unauthorised overdrafts within the next two years, including the
right for customers to opt out. Douglas Blakey
reports.

UK banks should offer customers current accounts which allow
them to “opt out” of overdraft facilities, as well as greater
choice regarding fees structures, according to a report on 16 March
entitled Personal current accounts in the UK-Unarranged
overdrafts from consumer watchdog the Office of Fair Trading
(OFT).

The OFT has been in discussion with leading
retail banks for the past three years concerning the UK’s £8bn
($12.1bn) current account market, the cornerstone of the country’s
retail banking system and an essential service for 90% of adult
consumers.

While a small number of UK banks allow
customers to opt out of the ability to go overdrawn, the majority
of banks do not offer such a service – an option the OFT wants to
extend to all accounts.

To the annoyance of consumer rights
campaigners, the OFT will not have the power to take any
enforcement action if banks fail to introduce the measures.

Having considered recommending enforcement
legislation, the report said: “A market-based approach with banks
competing to find the best way of addressing the needs of their
customers is likely to be preferable to a regulatory ‘one size fits
all’ approach.”

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The report found that, while over 12.6m
accounts incurred at least one charge in 2006 and over 6.6m paid at
least £100, there were 1.4m account customers that paid at least
£500.

Consumers with less than £1,000 in household
savings were significantly more likely to have been charged for
going into their unarranged overdraft in the last 12 months (48 per
cent compared to 18% of those with at least £1,000 in household
saving).

These consumers were also more likely to have
been charged for an item being refused in the last 12 months (31
per cent of those with less than £1,000 of household saving
compared to 8 per cent of those with at least £1,000 household
saving).

But according to the OFT report, progress has
been made in the past two years towards personal current accounts
that work well for consumers, such as:

• Unpaid item charges:
imposed when a bank refuses to make a payment, falling from an
average of around £34 in 2007 to around £17 in 2010;

• Per transaction paid item
charges: levied when an unarranged overdraft is granted,
falling from an average of around £30 in 2007 to around £22 in
2010;

• Faster Payments: the
majority of current account providers now offer Faster Payments for
standing orders and one off payments; and

• Transparency:
commitments have been secured from banks to improve transparency
for customers about their accounts as well as making it even easier
to switch accounts.

In a statement, Eric Leenders, executive
director of retail at the British Bankers Association, said:
“Banking is highly competitive and this competition for customers
has resulted in some dramatic initiatives from banks, some of which
have been highlighted by the OFT.

“We are happy to continue to work with the
Office of Fair Trading and others to ensure that it is simple for
consumers to shop around and switch accounts to get the deal that
is best for them.”

Future steps

The OFT has been in discussion with the
country’s major current account providers – Barclays, HSBC, Lloyds,
NAB UK (Clydesdale/Yorkshire), Royal Bank of Scotland/NatWest,
Santander and Nationwide Building Society – regarding further
developments to be implemented over the next two to increase the
ability of customers to control their use of unarranged
overdrafts.

In particular, the OFT believes there will be
greater access to tools that will help customers keep track of
their balances, such as text alerts and other improved mobile and
internet banking services.

To improve transparency, so that customers can
more easily understand the costs of their accounts and compare them
with others, the banks have agreed that they will:

• Introduce an annual summary of the
cost of their current account for each customer;

• Make charges prominent on monthly
statements, so that customers are more aware of the charges that
they pay;

• Provide average credit and debit
balances, which will help customers to estimate the potential
benefits of switching bank; and

• Produce illustrative scenarios
showing charges giving customers an idea of the costs for different
patterns of use.