What banking reform means for you

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The banking report from Sir John Vickers and the ICB didn't stop at demanding banks be broken up to protect consumers from failure. Elsewhere in the tome was a plan to radically change the way banks charge for their products.

So what will this mean for you?

Changes to charging
The report had plenty to say about breaking up the banks, which has dominated the headlines. However, it was also scathing about the way that banks make charges. It said the charges on current accounts were far too confusing, particularly when to came to overdrafts. With some charging a flat fee for every day you are overdrawn and others charging interest, it makes it nigh-on impossible to understand what running the account would cost, and therefore difficult to choose the right account for your needs at the outset.

It called for completely transparent charging, to help consumers understand what they are getting

So what does this mean for you?
Things may get clearer, but an end to opaque charges like those on overdrafts will cut off a huge income stream and is likely to mean the introduction of fees on all accounts to make up for it. For those who run their accounts on a fine line between chaos and insolvency this will be great news, as the complex and confusing charges will be slimmed down and made clearer. For those organised souls who can stay in the black, this is terrible news, because it is highly likely to mean the end of free banking.

If banks lose the opportunity to make cash through sly charging, there is little alternative than to charge for using banking services. This has already become increasingly established through the back door, with more and more people applying for fee-based accounts, which come with a host of 'benefits' such as travel insurance or identity theft cover. Banks may simply choose to extend this out to the full range of current accounts on offer. Others already charge for their accounts unless a minimum amount is paid in each month, which could form the basis of new charges.

Added to all of this is the fact that, as we reported yesterday, banks won't be able to make money from the investment arm of the bank (because that will be broken away) which will mean charges of one sort or another will be brought in to make up for the lost revenue.

The trouble is that we can't have it all ways. Banks are big commercial giants, and if we cut off two of their biggest sources of income, we have to expect them to bleed us dry in some other way.

Glimmer of hope
There remains just one glimmer of hope in the report. The ICB called for new competitors to take on the big banking giants and make life fairer and more transparent, without making it more expensive at the same time. If someone comes forward before this is all implemented in 2019, we could have a player who changes the face of the industry and forces everyone else to up their game. Metro Bank was a small start, but there could be more, and they have eight years to get themselves established before the reforms kick in.

If a new consumer champion emerges, then new switching rules (making it easier and quicker to change banks) will enable us to vote with our feet and get a better and fairer deal.

So what do you think? Is this a pipe dream? And if we are still left footing the bill after all this upheaval, is it worth making these changes at all?

Let us know in the comments.

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