The UK's Competition and Markets Authority has made some wide-ranging proposals to tackle the issues hindering competition in personal current accounts, aiming to protect overdraft users.

The CMA, a merger between the old Office of Fair Trading and Competition Commission, believes that it is hard for bank customers (rich and poor alike) to work out if they are getting good value, maintaing that bank charges are complicated and opaque. Nearly 60% of 'personal' customers have stayed with the same bank for more than years. It therefore thinks that competitive pressures are weak and that banks are not having to work hard enough as regards pricing or the quality of service.

The CMA considered whether the largest banks should be broken up but it came to the view that this would not address the fundamental competition problems. It thought that the creation of a larger number of small banks, which customers still could not easily choose between because they found it hard to detect fees and charges, would not significantly improve the market or give them a better deal.

A monthly maximum charge

The CMA proposes to require banks to set a monthly maximum charge for unarranged overdrafts on personal current accounts. Customers may not even be aware of when they go into unarranged overdraft or realise the costs they are incurring, so the CMA also wants banks to alert people of this and give them time to avoid the charges.

'Free if in credit'

The CMA also thought about banishing ‘free if in credit’ (FIIC) current accounts. It concluded that even though such accounts are not really ‘free’, they work well enough for many customers and the banning of particular products would simply take away choice and make the cost of accounts rise rather than fall. This attitude towards not proscribing products is a peculiarly British one that is not prevalent on the continent of Europe.

FIIC accounts are certainly not free for overdraft users, who represent nearly half of 'personal' customers. The CMA’s proposals include new measures targeted at overdrafts, with a particular focus on users of unarranged overdrafts. In 2014, £1.2 billion of banks’ revenues came from unarranged overdraft charges. It also says that FIIC "may not be such a good deal for wealthier customers holding higher credit balances who forego larger potential interest and who might do better with an account that pays interest but charges a monthly fee."

Telling your customers about your competition

To transform the market the CMA believes that banks instead ought to be made to provide their customers with the right information so that they can easily find out which provider and type of account offers best value for them. The CMA also proposes to push the development of new online comparison tools and improve the current account switch service (CASS) to make switching banks more straightforward and give customers more awareness of, and confidence in, the process.

The CMA also wants to require banks to move swiftly towards the introducion of an Open API (application programming interface) banking standard, the better to allow 'personal' customers to share their unique transaction histories with other banks and trusted third parties in a secure manner. The quango says that "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 proposes that banks should be made to prompt their customers regularly to check that they are "getting good value." These prompts should direct customers to digital price comparison services. It thinks that its proposals could benefit bank customers to the tune of £1 billion over five years. It believes that new entrants into a market are an important source of competition and innovation, ading that "we are well aware of the current barriers to challenger banks in UK retail banking."

Implementation

The quango has published a 405-page treatise on its proposals and is inviting comments from interested parties, with a closing date of 7 June. On the subject of eventual implementation, it says: "We envisage using our legal powers to impose some of the measures by Order, while other measures might be implemented by our accepting legally binding undertakings from parties."