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UK Banks to improve transparency in service charges

Posted on 20. Oct, 2009 in Saving money

Banks in the UK have agreed to ensure that their charges on current accounts are more transparent and easier to understand. The objective is to make consumers better informed to make choices on what the type of accounts to operate and with what bank.

This development is a response to a damning report on the ambiguity in most banking charges. As part of the changes, banks are required to provide an end of year summary of account charges to their customers. The Banks are expected to have fully implemented these new measures by 2011.

In the interim, the banks will make it simpler for consumers to move their direct debit payments from an old account to a new one. This will make possible for consumers to become fully aware of the cost of running their accounts and thus become confident about the value they are getting.

Many customers usually are discouraged from changing their current accounts because of the potential hassle of moving their direct debit payments to the new account. However, under the new policy, it will become easier for this to happen.

These changes will force Banks to offer more competitive and innovative products and services to attract as well as retain customers.

Background

In July 2008, a report by OFT revealed that many account holders were uninformed about the interest rate on their accounts and fees they pay on services. The report estimated that banks made about £8.2bn from consumer current accounts.

A recent report by the European Commission last September confirmed the OFT report of 2008 and said that information given by some banks to custom were either confusing or vague. It also revealed only 9% of EU consumers changed accounts in 2007 and 2008, compared with 25% of car insurance customers. However, other consumer research have indicated that consumers have stuck with their banks because they are pleased with the services they received

These would enable consumers to compare the cost and benefits of the different types of accounts so as to choose better deals.

Change

Early this month the banks agreed to a new system which will allow UK customers to able to compare the interest gained and their current account maintenance charges.

Hopefully beginning 2011 – customers may expect to receive an annual summary which explains how much interest they gained and the fees for services such as overdrafts. Charges will also be clearly printed on monthly statements.

The issue of unlawful overdraft charges was also raised in the OFT report. The fairness or otherwise of such fee charges is yet to be decided upon in a court.

‘Promise’

Though it is heartwarming to note the BBA’s pledge to carry through the reforms, it is important that this commitment is viewed as a basic human right of consumers and not a favour. It is the right of consumers to know what they are gaining and what is being charged for the services. Any attempt to conceal such basic information is equal to lying and stealing and a breach of the social contract and trust. That will not be in the  interest of banks and the society at large.