Banks will have a maximum monthly charge they can impose on customers for using unarranged overdrafts, and be forced to give greater warnings to people who are about to go into the red to give them time to avoid charges, under new proposals put forward today.
The Competition and Markets Authority, which has been carrying out a major review over the past 19 months, has said the current status quo was failing customers because "competitive pressures are weak, so banks do not need to work hard enough on price or quality of service". Most consumers stay with the same bank for more than a decade because switching is too difficult, the body said.
In a major set of proposals, the CMA said banks should make more of the digital world "to empower customers to compare and switch accounts".
The CMA is proposing to require banks to move swiftly to introduce an Open API (application programming interface) banking standard, which will allow both individual and small business customers to safely and securely share their unique transaction history with other banks and trusted third parties.
"This will enable bank customers to click on an app, for instance, and get comparisons tailored to their individual circumstances, directing them to the bank account which offers them the best deal," the CMA said.
The package of changes being put forward by the competition watchdog could bring benefits to bank customers "to the tune of £1bn over five years", it estimated.
Alasdair Smith, chair of the retail banking investigation, said:
For too long, banks have been able to sit back and not work hard enough for their personal and small business customers. We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.
New entrants into a market are an important source of competition and innovation, and we are well aware of the current barriers to challenger banks in UK retail banking. What’s really holding them back is their ability to highlight to customers how new offerings compare with their current deal. Our package of banking reforms will help new competitors get a stronger foothold in a market which is of vital importance to the whole economy.
The proposals being put forward by the CMA
Current account switching measures
- CASS governance
- Extended redirection
- Access to transactions history
- Customer awareness and confidence
PCA overdraft measures
- Overdraft alerts
- Grace periods
- Monthly maximum charge (MMC)
- Account opening and switching process
Additional SME banking measures
- Loan rate transparency
- Loan eligibility indicator
- SME comparison tool
- Standard BCA opening procedures
- Sharing SME information
- ‘Soft’ searches
- Role of professional advisers
The CMA said:
Because our proposals are an integrated package of measures that are designed to be mutually reinforcing, we are keen they are promptly and efficiently implemented after we publish our final report in August.