COMPETITION
COMMISSION News Release (28/07) issued by The Government News
Network on 15 May 2007
Final CC decisions
on actions required by the banks
Personal banking customers in Northern Ireland will benefit from
new measures to increase competition. This follows today's
final report from the Competition Commission (CC) on the market
for personal current account (PCA) services in Northern Ireland.
The CC found that competition was limited by banks' unduly
complex charging structures and practices, their failure
adequately to explain them and customers' reluctance to
switch to another bank.
Banks in Northern Ireland must now make major improvements to
their PCAs. These include providing better and clearer information
to customers to help them understand banks' PCA services,
charges and interest rates; giving customers at least 14
days' notice before deducting charges and interest from their
accounts; and introducing improvements to the switching process to
ensure customers who switch banks do not incur costs in doing so.
The new measures will come into force in Northern Ireland next
year to coincide with likely changes throughout the UK from the
current review of the Banking Code by the Banking Code Standards
Board (BCSB) and from implementation of the Consumer Credit Act 2006.
In reaching its decisions, the CC has consulted extensively with
the banks, the British Bankers' Association, the Financial
Services Authority, HM Treasury, consumer groups and the BCSB, as
well as the Office of Fair Trading (OFT), which recently announced
a UK-wide market study into personal bank current account pricing.
Christopher Clarke, Chairman of the Inquiry Group and a CC Deputy
Chairman said:
Our measures will ensure a better deal for personal current
account customers in Northern Ireland. By enabling them to
understand the costs of operating their PCAs, they will be much
better placed to take decisions on the use of their existing
account. Customers will also be in a much better position to
choose which PCA and which bank best suits their own personal
circumstances. An increase in switching bank accounts, or an
increase in the possibility of doing so, will incentivize banks to
provide better terms and clearer conditions. Such an increase in
competition can only benefit customers.
During the course of our investigation, which we started in 2005,
we have seen a number of very encouraging changes by the banks to
their PCA offerings. There are now, for instance, a significant
and increasing number of 'fee-free' accounts. Even so,
we believe there is still plenty of room for improvement. Almost
20 per cent of customers remain on 'traditional'
accounts and continue to pay a complex array of fees and charges
when in authorized overdraft. There are also significant
complexities in understanding factors such as the levels and
incidence of unauthorized overdraft charges on both fee-free and
traditional accounts. Customers deserve better treatment which our
remedies are designed to provide.
Overall, our measures are aimed at bringing changes to the
competitiveness of the market in Northern Ireland which will
endure and provide the basis for continuing product development
and innovation.
Our remedies require the banks to be much more customer focused
and receptive to their needs. But action by the banks alone will
not be enough to increase competitiveness. Customers have a
critical role to play to help themselves. For them to gain full
advantage from these measures, they need to be pro-active in
seeking the best PCA to match their own personal circumstances.
Furthermore, we would hope that the various consumer bodies will
recognize their own important role in reinforcing this message and
assisting customers to make the right decisions.
This investigation has been focused solely on the Northern
Ireland market which is what we were required to do. However, in
reaching our decisions, we have worked closely with those working
on other complementary initiatives in personal banking and
coordinated our approach with them. These include the review of
the Banking Code, the implementation of the Consumer Credit Act
2006 and most recently, the OFT's market study into personal
bank current account pricing-all of which cover the whole of the
UK. Whilst our measures apply only to Northern Ireland, we would
expect both the independent review of the Banking Code and the OFT
to consider carefully the implications of our conclusions and
decisions for their own work.
The final package of remedies includes requirements for banks
serving PCA customers in Northern Ireland to:
* Describe their PCA services in plain English using terms that
are easy to understand.
* Provide clear explanations on the levels of charges and
interest rates and how and when they are applied. They must be
available both before a customer chooses a PCA and when opening a
PCA, as well as on statements and when customers are pre-notified
of charges and interest payments.
* Provide more information on bank statements including details
of charges and interest rates.
* Provide every customer with an annual summary of the charges
they have incurred and of interest paid and received.
* Give customers at least 14 days' notice from the date of
their statement before charges and debit interest incurred are
deducted from their account.
* Remind customers annually of their right to close their account
or switch to another bank.
* Introduce improvements to the switching process, including
offering a charge-free and interest-free overdraft facility to new
customers for at least three months. Alternatively, banks must
guarantee to refund any costs incurred from failures in the
switching process regardless of whether the charges and interest
were incurred as a result of an error by the new bank.
Measures relating to better and clearer information must be in
place by April 2008, with the remainder being implemented by
October 2008 at the latest. This is to ensure that they coincide
with likely changes resulting from the current review of the
Banking Code and the implementation of the Consumer Credit Act
2006. The BCSB will take responsibility for monitoring compliance
with the remedies, in close liaison with the OFT.
The report confirms the findings set out in the CC's
provisional findings report published in October last year. The
features which the CC found prevent, restrict or distort
competition are that banks have unduly complex charging structures
and practices; that they do not fully or sufficiently explain
their charging structures and practices; and that customers
generally do not actively search for alternative PCAs or switch
banks. These features make it likely that customers incur higher
charges and receive lower levels of credit interest than they
might expect in a more competitive market.
The final report is available on the CC website at http://www.competition-commission.org.uk.
Notes for editors
1. Under the Enterprise Act 2002, the OFT can make a market
investigation reference to the CC if it has reasonable grounds for
suspecting that competition is not working effectively in that market.
2. The inquiry was referred by the OFT on 26 May 2005 following a
'super complaint' from Which? in conjunction with the
General Consumer Council for Northern Ireland, and an initial OFT
study into the sector. The CC is required to publish its final
report by 25 May 2007.
3. The members of the CC Inquiry Group are: Christopher Clarke
(Group Chairman and a Deputy Chairman of the CC), Professor John
Baillie, Laura Carstensen and Ian Jones. Jeremy Seddon, who was a
member of the Group, sadly died in November 2006.
4. Market investigation references are intended to focus upon the
function of a market as a whole rather than the conduct of a
single firm in a market.
5. Further information on the CC and its procedures, including
its policy on the provision of information and the disclosure of
evidence, can be obtained from its website at: http://www.competition-commission.org.uk.