Julian Knight: Be careful when you wish for free banking to end

'Free banking" is one of the most hackneyed phrases in the language.

The truth is that for very nearly all of us banking is far from free. If they don't get you with overdraft charges, they get you with the delays to payments and loss of interest.

Andrew Bailey, the Bank of England's executive director, called it last week when he said free banking as we know it should end. He said there could be no general banking reform unless we faced up to the fact there was no such thing as free banking and that even paying lip service to it created opaqueness and mis-selling.

Mr Bailey even linked the fallacy of free banking with the mis-selling of payment protection insurance. I don't buy that as PPI was about greed rather than banks trying to gain recompense for the expense of running current accounts. If it had been the latter then every institution would have been involved and that wasn't the case.

Mr Bailey has some clout, as he will be second in command of the new prudential regulation authority, which will oversee the banks from next year. As a result, his words will clearly be seen and are no doubt intended to be seen, as a green light to the industry to start charging for current accounts. The only thing that stopped them doing this years ago was the fear of what the competition would do and surely if the industry now acts in unison that would be market fixing.

Mr Bailey, by giving such an overt signal, is in danger of encouraging cartel activity in the current account market place. His intentions are no doubt good and he is in large part right, but do we really trust the banking industry to play fair over this?

Mike O'Connor, the chief executive of Consumer Focus, reckons customers could end up with the worst of both worlds; fees on their accounts and unfair charges, opaque and complex products, mis-selling and poor customer service. I'm afraid I can see that happening too.

get tough on payday loans

Payday lenders have said they will freeze interest payments on bad debts after 60 days. The idea is to stop relatively small debts mushrooming when a borrower falls into difficulty. They also say they will do proper "affordability" checks on new customers, which I'd have thought was sound business practice in the first place.

The rules will come in by 25 July and cover about 90 per cent of the industry. But they only scratch the surface. The slick marketing of these loans and the lack of information sharing between providers means that far too many people are taking on these expensive debts and for too long a time. We need more: strict controls on advertising and industry-wide rules on chasing debts that are even a day overdue. Payday loans are a dangerous product and must be handled with care.