Ben Chu: Break up the banking oligopoly or expect more customer abuse

Outlook CPP. When the latest high street banking scandal broke a couple of years ago I looked at those three letters and a bell rang in my head. After some thought I remembered where I'd seen them before: on my list of direct debits.

Every year around £30 would leave my bank account and get paid to Card Protection Plan Limited. What was I paying for? I recalled that it was a debit/credit card fraud insurance scheme I'd signed up to many years ago. Having had an unpleasant experience at the hands of some fraudsters in a "Lebanese loop" cash-machine scam about a decade ago, the protection seemed worth taking out. Plus my bank – NatWest – was strongly pushing it. I trusted my bank back then.

Indeed, I'd assumed NatWest was actually overseeing the scheme. As I recall, when I received my new cash card in the post there was a sticker affixed to the card itself instructing me to ring CPP to "activate" the card. The number was on the sticker too. I followed the instructions and set up the direct debit.

But it turns out that I should have been more worried about being ripped off by my own bank than Lebanese loopers. Since I was already covered under the law for losses from card fraud I was paying for something I didn't need. NatWest knew that, but it still guided me towards CPP.

The insurance was a bad deal for me, but a good deal for CPP. And a good deal for my bank, too. It has emerged that NatWest was pocketing a commission from each customer it herded into the embrace of CPP. Millions, including me, were ripped off in this squalid way.

Now the feathered fowl are returning to roost. NatWest and a host of other banks are facing a £1.3bn compensation bill for mis-selling. We've had the personal-protection insurance racket, the interest-rate swap scandal, the Libor-rigging outrage. And now this tawdry business.

We really shouldn't be surprised, though. This is the kind of behaviour we can expect from a complacent oligopoly. If other companies behaved in such a way they would quickly lose customers. The market would apply discipline. But banks are different. Account-switching rates are very low. And I can see why.

I finally got round to switching my own account earlier this year. It involved a shed-load of paperwork. And it took more than a month in total. I had to store money in two accounts for several weeks to avoid the risk of a transferred direct debit accidentally pushing me into an overdraft. So despite banks' atrocious service and predatory attitude, most people won't bother to switch. And I can't say I blame them. Especially when all the big five high street lenders have been equally unethical in recent years.

One dimension of the solution has been pushed by the Conservative MP Andrea Leadsom. It is instant account portability. This would make switching accounts as simple as switching your phone provider. Another dimension is splitting up the retail banks to generate some serious competition. This means a wholesale restructuring of the sector – something more comprehensive than the carving off of 950 or so branches from Lloyds and the Royal Bank of Scotland, which is in train.

The banks are sorry about CPP. They're always sorry when they get caught. But that doesn't stop them from lobbying against reforms which would shake up the system. They have relentlessly opposed account portability, for instance.

Don't expect an oligopoly to abolish itself. Until we force some genuine competition in high street banking we should expect more abuse of customers and more crocodile tears.