'If it moves, the banks will charge you for it'

After years of providing profits at customers' expense, credit cards, clearing system and interest rates need radical reform
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Bankers have long joked that their customers are more likely to get divorced than to switch bank accounts. As of yesterday, it looks as if the joke will be on them.

Findings by the government-commissioned report into banks and their overcharging of customers by as much as £5bn a year for using their services will not come as any surprise to patrons themselves.

Banks are notorious for hitting customers with obscure charges - such as £10 for an overdraft letter that takes you deeper into the red - and being oblivious to any criticism; despite being frequent fodder for consumer watchdog investigations, they have appeared incapable of reform.

According to Don Cruickshank, the former telecommunications watchdog commissioned by the Chancellor 16 months ago to produce the report published yesterday, the worst problems are in three areas: credit cards, savings accounts and personal loans.

Mr Cruickshank complains that banks give pitifully low rates on deposit accounts, then charge a fortune to lend the money out to personal customers. Not surprisingly, building societies have a much larger share of the market in savings accounts and mortgages - they are prepared to sacrifice profits to remain competitive.

However, where Mr Cruickshank is most scathing of all is about the amount that banks charge consumers just for taking their money, moving it around and giving it back. "Everything that moves, there is a charge for," he says.

Mr Cruickshank identifies "profound problems and inefficiencies" with credit and debit cards, standing orders and cheques and estimates that banks rake in £750m in interchange fees every year.

The report focuses on the slow clearing cycles for cheques - which mean banks, not the customers, keep the interest on the billions of pounds sitting in their systems for days while they "clear". He says that it is ridiculous in the age of e-commerce and internet banking that it takes four days for an electronic payment to go through - and that is working days. Banks' computers apparently rest at weekends.

Mr Cruickshank criticises credit-card services as being particularly expensive. He condemns the tendency of credit-card statements to mislead customers and says statements should clearly say that, if the account is in the red, interest will be charged on the total value of the statement, not just the outstanding balance. The statements should also make customers aware that interest payments increase the longer that payment is delayed.

The Government, he says, should act to force banks to come clean and explain what is going on in language that ordinary people understand. He has already locked horns with the banks over cash-machine charges - his view is that these are about six times what the transactions actually cost to process.

Mr Cruickshank believes that in many cases the answer lies in customers' own hands. His advice is that they should arm themselves. "Check you're on the best deal from your own bank. Lift the phone, or use the internet to check a few deals from other banks. Spend time thinking about where you deposit or borrow money. There are a huge number of products out there with widely differing prices."

He also tells customers to be more prepared to complain - there is a new banking ombudsman with sharper teeth. Finally, he says: "Switch banks if you want. It is not as difficult as it is made out. It will get easier."

However, he believes banks have a lot to answer for. He says banks should do more to tell consumers about how to avoid charges and to get better value for money. He says they should work harder to encourage their existing customers stick with them by offering better terms, rather than going all out as at present to win new accounts.

"Banks are the only industry that has loyalty the wrong way round," he said.