Banks make an estimated £8.3billion in revenue from charges on current accounts, new research from the Office of Fair Trading (OFT) has revealed.
According to the OFT report released yesterday, personal current accounts generate more revenue for the leading high street banks than savings accounts
and credit card
The news comes amidst the ongoing case between the OFT
and nine of the UK's leading banks, which could decide whether unauthorised overdraft charges can be deemed unfair or not.
The report worked out that the £8.3billion equates in real terms to £152 per active account and the underlying message in the report is that banks are not serving consumers fairly and adequately. Insufficient fund charges have increased by an average of 17 per cent between 2003 and 2007, pushing low income households into a loop of consistently incurring bank charges
Overall the OFT found that there is, "significant potential for slight errors in financial management to result in hundreds of pounds of charges" as "those consumers who incurred a charge were more likely to incur at least six charges than just one."
The sheer number of accounts hit by bank charges highlights how common place the charges have become. According to the research, in 2006 four million accounts incurred charges of more than £200, 1.4 million of which collected charges of more than £500.
Further objections from the OFT included a lack of transparency that leaves customers with a poor understanding of charges and rates, in fact the study found that more than one fifth of consumers were unaware of the existence of charges until they had been hit by one.
OFT chief executive, John Fingleton, said: "There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future."
However, the British Bankers' Association (BBA) has hit back at the study with a comment, claiming: "The retail banking market is open and competitive. Banks actively seek new customers" it added, "switching is easy and accounts are fee-free if you stay in credit." Before adding that: "Banks are keen to ensure customers can continue to use their current accounts for day to day transactions without paying fees," hinting at an already existing threat that the removal of bank charges could lead to a standard bank account fee being charged in the UK.
One of many supporters of the OFT's findings is the Financial Services Consumer Panel, whose chairman David Lipsey, said: "The OFT report is a devastating indictment of the way the banks charge customers. The present system bears hard on the less well off and the financially strapped while providing free banking for the better off. Transparent pricing is the very least that is needed."
© Fair Investment