26/10    16 March 2010

Real progress is being made towards personal current accounts that work well for consumers, with significant developments expected in the market over the next two years, the OFT said today.

The developments, including new banking industry commitments on unarranged overdrafts announced today, follow a 2008 OFT study that identified major problems in the market - costs that were not transparent, real and perceived difficulties over switching accounts, and the way in which unarranged overdrafts functioned.

Improvements in the market already seen since the OFT's study and test case began in 2007 include:

• unpaid item charges, levied when a bank refuses to make a payment, falling from an average of around £34 in 2007 to around £17 in 2010
  
• per transaction paid item charges, levied when an unarranged overdraft is granted, falling from an average of around £30 in 2007 to around £22 in 2010
  
• the majority of PCA providers now using Faster Payments for standing orders and one off payments
  
• commitments already secured from the banks to improve transparency for customers about their accounts as well as making it even easier to switch accounts (see press release here).

The OFT wants this process of market change to continue. Discussions the OFT has held with major PCA providers during the past three months lead it to expect significant developments over the next two years, including:

• greater ability for customers to 'opt out' of being granted unarranged overdraft facilities and the charges associated with them
  
• more tools available for customers to control their balances and avoid going overdrawn
  
• better treatment of customers who do go overdrawn and get into financial difficulty.

These improvements will be supported by wider banking industry commitments, announced today, which the OFT welcomes:

• the development of minimum standards to apply when offering customers the ability to opt out of unarranged overdraft facilities
  
• the development by banks of best practice for customers in financial difficulty who incur unarranged overdraft charges
  
• an industry working group to develop ways of giving consumers greater control and access to real-time information on their account.

New entrants in the market, including some big brand names, are also expected to stimulate further competition.

Over the next two years, the OFT will monitor developments in the market, in particular the options available for customers who do not want access to unarranged overdraft facilities, choice around charging structures, the level of unarranged overdraft charges, and the treatment of customers who find themselves in financial difficulty. It will consider further intervention, including recommending legislation, if competition and change fail to deliver the various improvements expected. The OFT will report back in 2012 on the impact of these initiatives.

During 2010 the OFT will also examine barriers to entry in the PCA market.

John Fingleton, OFT Chief Executive, said:

'The OFT's spotlight on personal current accounts has triggered substantial changes, which are still under way. We believe that the commitments agreed by the industry today, along with changes by individual banks already made or expected in the next two years, should lead to a market that works better for consumers. We will continue to closely monitor the banks and will reconsider the need for action, including legislation, if they fail to deliver these changes.

'Our end-goal is a current account market where banks make meaningful, real-time information available to customers, giving them more ability to control their balances and compare different banks' offerings. Account holders then need to use this information to actively manage their accounts and to switch banks when they feel they are not getting the best deal.'

NOTES

1. The OFT started its market study investigation into the PCA market in 2007, and alongside this entered into a test case with the banks on the fairness of unarranged overdraft terms. The market study identified three major problem areas - transparency of current account costs, real and perceived difficulties over switching, and the way in which unarranged overdraft charges function. A follow-up OFT report in October 2009 outlined changes the banking industry committed to that would make PCA costs more transparent and the switching process easier. 
   
   
2. Today's PCA market study, October 2009 follow-up report and July 2008 PCA market study can be found on the market studies area of this website.
   
   
3. The UTCCRs investigation began in April 2007. The test case was launched in the High Court in July 2007. Following High Court and Court of Appeal victories for the OFT, the banks appealed to the House of Lords (now the Supreme Court). In November 2009 the Supreme Court ruled that unarranged overdraft charging terms cannot be assessed in full for fairness. See press release here. 
   
   
4. OFT market studies are carried out under section 5 of the Enterprise Act 2002 (EA02) which allows a market-wide consideration of both competition and consumer issues. 
   
   
5. The OFT will be undertaking a short piece of work during 2010 looking at barriers to entry to consider whether there are any obstacles to entrants providing a competitive stimulus. This will focus on the PCA market but consider other aspects of retail banking and banking for SMEs as appropriate. The OFT intends to publish a short consultation paper on the issues to be covered by this short review in the next couple of months. 
   
   
6. In the context of this press release 'banks' refers to major PCA (personal current account) providers in the UK covering nearly 95 per cent of the market, including building societies.