CMA hoping to cut banks' overdraft charge revenue by as much as half

Mark Sands
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The CMA is looking to cut the amount of money that banks make from overdraft fees (Source: Getty)

The CMA is hoping to halve the amount of money that banks make from overdraft charges following the publication of its provisional decision on remedies.

The papers, published yesterday, show that the CMA is hoping to make it easier for account switching to take place through technology, while also requiring banks to set a maximum charge for overdrafts.

The watchdog will also ask banks to alert customers before they go into an overdraft, giving them time to avoid charges.

CMA figures show £1.2bn of banks revenues came from charges for unauthorised overdrafts in 2014.

Speaking at the launch of the report, retail banking investigation chair Alasdair Smith said the CMA hopes to see that figure cut to £600m.

“Halving it would be a good outcome,” Smith said.

The CMA estimates that its overall package of measures will save customers a total of £1bn over five years, calculated from the average savings generated if account switching increases by as little as one per cent to a four per cent of all bank customers.

Read More: These are the CMA's key proposals for the UK's retail banking sector

Nonetheless, challenger banks have responded to the CMA proposals by calling the offering “a missed opportunity”.

Metro Bank chief executive Craig Donaldson said: “Together, the big four banks provide 70 per cent of personal current accounts and an astonishing eight out of 10 business loans.

“Significantly more needs to be done to break their dominance, however contrary to the CMA’s belief, what is holding new entrants back is not the inability “to highlight to customers how new offerings compare with their current deal”, but not being able to compete on a level playing field.

“Forcing growth organisations to hold disproportionate capital reserves and subjecting them to excessive taxes, is anticompetitive and will stifle growth. The CMA is letting the incumbent banks off the hook by failing to provide a meaningful remedy to address the huge disadvantages suffered by challenger banks."

And TSB chief executive Paul Pester said: “Today’s report falls a long way short of introducing the radical reforms the banking industry needs. The CMA has missed a golden opportunity and is on its way to short-changing millions of Brits by failing to go far enough in its measures to break the stranglehold of the ‘Big Five’.

“On the whole this report raises more questions than answers. The reform consumers so desperately need is at risk of being kicked into the long-grass.”

In particular, TSB asked the CMA to consider monthly statements, to allow customers to better understand what they were paying for their accounts when in credit, through foregone interest.

Read More: Public hungry for challenger banks, research finds

Responding to the criticism, Smith said that while the CMA was concerned about the competitive impact of capital requirements, that remained the remit of the Bank of England and the Basel Committee.

“We've said that there are competition issues there which the Bank of England needs to look hard at. That's a proposition with which the Bank of England entirely agrees. But we simply don't have the power to do anything about it,” Smith said.

He added that proposals such as TSB's monthly statement also remain in contention for the CMA's final report in August.

“We're going to look at them alongside other information on remedies to work out exactly what information is going to make the most impact on customers,” Smith said.

“The challenger banks shouldn't be too impatient, we're still looking at all of that.”

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