MPs tell Britain's Big Four banks to stop 'profiting from procrastination'

An influential group of MPs called yesterday for regulators to take a fresh look at the UK's Big Four banks amid concerns that Barclays, HSBC, Lloyds TSB and Royal Bank of Scotland Group face insufficient competition.

The hard-hitting report from the Treasury Select Committee said the Director General of Fair Trading, John Vickers, must reassess competition in small business banking and report back to Parliament by March 2003.

The Government has already demanded that the Big Four banks pay interest on small and medium-sized business accounts as a way of loosening their grip on the industry. The committee also said procedures for switching accounts need to be simplified so small businesses can move to a different bank more easily and quickly, and challenged banks to guarantee accounts would be switched within five weeks or pay compensation.

The report suggested the banks were deliberately going slow on introducing reforms to the industry and said they should no longer be allowed to "profit from procrastination".

The report also outlined a host of arrears where it said banks were failing customers, ranging from lack of progress in cutting clearing times for cheques to failing to provide effective basic accounts for poorer customers.

It singled out for particular criticism incomprehensible charges on credit cards, which stifle competition and obscure the high costs of borrowing. The amount of interest charged on their credit cards can be as much as four to five times the current Bank of England base rate of 4 per cent. The complexity of the charges was also criticised. The report said "that for individuals to understand interest rate calculations requires an unreasonable amount of time and effort". Calculating interest charges even managed to fox a mathematician from Cambridge University who was called in by the cross-party committee to decipher the "calculus" behind the rates.

Most banks advertise the annual interest rate on a credit card, with customers believing the lower the rate, the cheaper the card. But even for cards quoting the same annual interest rate, actual charges can vary by as much as 40 per cent.

A host of complex interest rates and charges are at work underneath the annual rate and factors such as the length of interest-free periods and over what period interest rates apply need to be taken into account. This makes comparisons between cards difficult.

William Mason, the executive director of the British Bankers' Association, agreed with the committee's findings on the complexity of annual rates. "The industry is well aware of the problem. There isn't a single workable solution that covers all circumstances. With revolving credit there are many variables such as fluctuating balance and different introductory offers," he said.

MPs want to see credit and charge card companies publish all the variables that make up the actual cost of credit to allow customers to see the real cost of running up bills. The committee called for greater transparency in the way charges are set and better presentation of charges to customers.

A spokeswoman for Lloyds TSB said it has worked to improve transparency in the way its charges are set out and that its customers are willing to pay for the high level of service they receive. The Big Four ­ which hold about 70 per cent of current accounts ­ are coming under increasing pressure to change their ways, after the Competition Commission found them guilty of operating a "complex monopoly" of overcharging.