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21/08/2012
Which? Report Says Free Banking 'A Myth'
Consumer group Which? has warned that the idea of “free” banking is misleading.
It says there are large variations in the cost of so called “free” current accounts, with customers paying between £120 and £900 a year for in charges, particularly on overdrafts.
They say that even customers with authorised overdrafts can run up large charges with some banks, including RBS Natwest and HSBC, charging an annual percentage rate (APR) of 19.9%.
Which? asked more than 2,000 consumers how they felt, it says that more than 60% of those surveyed said they had paid a bank charge that they thought was "unfair, hidden or disproportionate".
The marketing concept of "free banking" was first introduced by the then Midland bank (now part of HSBC) back in the 1980s.
It was rapidly adopted by all its rivals, so most current account customers do not normally pay a monthly fee or a charge for every payment in or out of their accounts - so long as they are in the black.
However it has been pointed out for many years by the Competition Commission, the Office of Fair Trading (OFT), the Financial Services Authority (FSA), and the Independent Commission on Banking, that the term "free" is misleading.
That is because customers still pay a price for the service they receive, either by way of very high overdraft fees, or by foregoing any interest that they might otherwise be offered on the money in their current accounts.
The findings come as banks suggest the way to avoid future industry scandals is to charge for current accounts, and a senior executive at the Financial Services Authority said regulatory intervention might be needed to instruct banks to charge for current accounts.
Which? chief executive Peter Vicary-Smith said: "The suggestion that banks should increase charges to avoid more scandals defies logic and is a slap in the face for consumers who are being hit hard by one of the worst financial crises in recent times.
"It's a disgrace that the very people who bailed out the banks are being asked to pay more for the most basic accounts, while the industry continues to be rocked by scandals like PPI mis-selling, Libor rate-rigging and IT failures.
"Banks must be far more transparent about their fees and charges so people can clearly see what they already pay."
(H)
It says there are large variations in the cost of so called “free” current accounts, with customers paying between £120 and £900 a year for in charges, particularly on overdrafts.
They say that even customers with authorised overdrafts can run up large charges with some banks, including RBS Natwest and HSBC, charging an annual percentage rate (APR) of 19.9%.
Which? asked more than 2,000 consumers how they felt, it says that more than 60% of those surveyed said they had paid a bank charge that they thought was "unfair, hidden or disproportionate".
The marketing concept of "free banking" was first introduced by the then Midland bank (now part of HSBC) back in the 1980s.
It was rapidly adopted by all its rivals, so most current account customers do not normally pay a monthly fee or a charge for every payment in or out of their accounts - so long as they are in the black.
However it has been pointed out for many years by the Competition Commission, the Office of Fair Trading (OFT), the Financial Services Authority (FSA), and the Independent Commission on Banking, that the term "free" is misleading.
That is because customers still pay a price for the service they receive, either by way of very high overdraft fees, or by foregoing any interest that they might otherwise be offered on the money in their current accounts.
The findings come as banks suggest the way to avoid future industry scandals is to charge for current accounts, and a senior executive at the Financial Services Authority said regulatory intervention might be needed to instruct banks to charge for current accounts.
Which? chief executive Peter Vicary-Smith said: "The suggestion that banks should increase charges to avoid more scandals defies logic and is a slap in the face for consumers who are being hit hard by one of the worst financial crises in recent times.
"It's a disgrace that the very people who bailed out the banks are being asked to pay more for the most basic accounts, while the industry continues to be rocked by scandals like PPI mis-selling, Libor rate-rigging and IT failures.
"Banks must be far more transparent about their fees and charges so people can clearly see what they already pay."
(H)
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