'Stronger action needed' to tackle overdraft charges

The competition watchdog's plans to tackle problems in the £16 billion current account and business banking sectors have been welcomed - but many bodies, including some banks, said it should have gone further.

Stronger action is needed to tackle overdraft charges that can cost more than payday loans, consumer campaigners said.

Alex Neill, director of policy and campaigns at consumer group Which?, said the Competition and Markets Authority (CMA)'s inquiry has "achieved little more" than to propose basic information measures that the big banks should have introduced years ago.

She said more must be done to "tackle the unfair, punitive charges faced by unauthorised overdraft users, some of whom are hit with fees far in excess of payday loans".

Gillian Guy, chief executive of Citizens Advice, said: "High overdraft charges can quickly push people into cycles of dangerous debt.

"We help people with 55,000 overdraft debt problems a year - in some cases, consumers are paying more in overdraft charges than they would for a payday loan."

Mike O'Connor, chief executive of StepChange Debt Charity, said three quarters of its clients have used overdrafts just to try and keep up with their essential costs.

He continued: "We remain unconvinced that these measures will go far enough.

"If there is to be a cap on unauthorised overdraft charges, it needs to be set with reference to an independent benchmark to effect any real change and not by the banks themselves. If it is not, there will be no pressure on the level chosen, no impact on charges and nothing to encourage or enable overdraft users to switch banks.

"The remedies don't do enough for the millions of overdraft users who are in entrenched financial difficulty. Alerting someone to the fact they are in an unauthorised overdraft will have no effect if they are unable to pay in enough money to escape it."

According to figures in the CMA's previous findings, Britain's biggest four banks - Lloyds Banking Group, HSBC, RBS and Barclays - accounted for around 70% of active personal current accounts and 80% of active business current accounts in 2014.

A spokesman for Santander said: "There is huge potential for many customers to get much more than they currently get from the Big Four banks, and whilst today's findings are certainly a step in the right direction, as a scale challenger we would like to have seen more progress to removing the barriers to expansion for growing banks."

Paul Pester, chief executive officer of TSB, said the CMA had missed a "golden opportunity" to break the big banks' "stranglehold".

TSB has campaigned for the CMA to propose the introduction of a monthly bill, compelling banks to disclose to each of their customers how much they have paid for their banking each month.

Mr Pester said: "Without a monthly bill, consumers remain in the dark and banking remains the only major industry refusing to be transparent about the cost of banking."

Kevin Mountford, a banking expert at website MoneySuperMarket, said that for too long, overdrafts have been a "cash cow" for the banks.

He said the CMA's proposed measures are "a step in the right direction", but need to be supported with greater transparency by the banks, giving consumers opportunities to compare like-for-like products.

He said: "Up until now it's been extremely difficult for customers in an overdraft to switch their current account, and this move means customers have the freedom to shop around and search for a better deal. Hundreds of pounds could be saved by switching."

Hannah Maundrell, editor in chief of money.co.uk, said: "Whilst this is a great start, the current account market is a sluggish beast. It fiercely resists change by relying on the loyalty of customers who are married to their bank accounts. The measures set out today need to be fluid and constantly reviewed to make sure they get the most dedicated customers moving."

Richard Neudegg, head of regulation at uSwitch.com, said: "Whether the remedies proposed by the CMA are enough to fuel customer engagement remains to be seen. It is an important step in easing the grip which the biggest banks have on the current account market and give the challenger banks an opportunity to compete with the big high street names."