Bank customers are saving almost £1 billion a year in overdraft charges thanks to reforms introduced after a public revolt against them, but high street providers must do more if they are to escape a competition investigation into their industry, a report warned today.
In a review of the £9bn-a-year market in personal current accounts, the Office of Fair Trading (OFT) estimated that the public was annually saving up to £928 million a year from the lowering of unauthorised overdraft fees between 2007 and 2011.
The Independent led the campaign against the charges, of up to £37 a time, for running up an unauthorised debt of just £1, arguing they were disproportionate. The banks paid out hundreds of millions of pounds in civil settlements to individuals before winning a test case against the OFT at the Supreme Court in 2009.
By then they had already agreed to reform their charges, phasing out the high one-off charges for a more complex but cheaper range of fees.
In its first study of current accounts since 2008, the OFT complained there were still serious flaws with them including the complexity of the reformed overdraft fees and, more notably, the difficulty of switching banks.
Since it last studied the market, it added that some smaller providers had been pushed out of business by the financial crisis, leaving the biggest players - Lloyds, RBS, Barclays and HSBC - with 75 per cent of the market.
The Government regulator concluded: “Overall, a combination of a lack of competition, low levels of innovation and customer apathy in the face of unclear costs and a lack of diversity in the choices of current accounts available mean that this market is not working well for consumers or the wider economy.”
It expressed hope that the forthcoming sale of Lloyds and RBS branches, better comparison of financial products, and a new automated account switching service would give customers a better deal.
As a result it has provisionally decided not to refer current account providers to the Competition Commission for a market investigation, but said it planned “to revisit the question by 2015” – giving the banks two years to improve.
A market investigation by the Competition Commission would have sweeping powers to seize documents and could result in the break up of companies and services.
Clive Maxwell, the OFT’s chief executive, said: “Despite some improvements, this market is still not serving consumers as well as it should. Customers still find it difficult to assess which account offers the best deal and lack confidence that they can switch accounts easily. This prevents them from driving effective competition between providers.”
Mr Maxwell said: “The retail banking sector needs to become more competitive and customer-focused to ensure that further action by the competition authorities is not required.”
The high street banks said they were committed to improving services.
Anthony Browne, chief executive of the British Bankers' Association, which represents the major UK banks, said: "We welcome the OFT's decision not to refer this issue to the Competition Commission and will continue to work with them to make further improvements for customers and the wider economy."
Guy Anker, news editor of Moneysavingexpert.com, which too campaigned against penalty fees for overdraft charges, hailed a victory for consumers, saying that banks had been forced to lower “sometimes hideous fees for the long term.”
He said: "Banks may have won the court case to stop mass reclaiming, but the benefits of the campaign are there for all to see.”