The Guardian - 'Free' banking could end as overdraft charges challenged

Current accounts costing £200 a year could become the norm after the Office of Fair Trading launched an inquiry into whether bank and building society penalty charges were subsidising "free" banking.

The OFT said customers might benefit from up-front fees if the move brought greater transparency to current accounts. It said a lack of transparency about fees and interest rates led to a lack of competition and prevented customers from judging if it was worth switching to a rival bank.

Some banks have imposed charges on current accounts, most notably First Direct. It charges £120 a year unless customers transfer £1,500 a month into their account or use another product. Most banks have also introduced so-called package accounts, costing upwards of £200, which include "free" travel insurance and car breakdown cover.
The OFT review will examine whether competition would be improved "if there were a shift away from the widespread provision" of free current accounts.

Consumer groups welcomed the investigation, but questioned whether the banks could justify ending free banking when the big five banks alone made profits in excess of £35bn last year. They said delaying a decision on whether to cap bank charges had also left millions of customers to battle in court to reclaim charges.

Banks have come under pressure to cut charges on unauthorised overdrafts. Campaigners allege that millions of customers have been unfairly charged by banks using rules in the small print.

Citizens Advice said in one case a man in Surrey who went 20p overdrawn after a direct debit payment faced charges of £300 and the threat of court action. Other customers have been hit with charges of £800 or more. The charity said: "Bank charges have a disproportionate effect on people on low incomes; one charge may be enough to push them into the red and keep them there."

The OFT aims to publish the findings of its study by the end of the year but did not rule out a referral to the Competition Commission should it need to impose tough sanctions on the banks.

Some observers said they doubted the review would lead to a crackdown. They pointed out that the OFT had already spent a year looking at bank charges only to declare that it needed more time and a wider remit.

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