The Times - Bank Accountability

The Office of Fair Trading should pursue greater transparency in banking

Just as there is no such thing as a free lunch, there is no such thing as free banking. Bank customers pay, in one way or another, for every cheque they write, for every cash withdrawal, for every banker they talk to and every branch they visit. Charges are levied in partially visible or invisible ways, through vanishingly small interest rates on credit balances, for example, or by overcharging banking transgressors.

In comparison with the experience overseas, however, British banking looks freeish. Personal banking is free, or almost free, to those thrifty individuals blessed with the time and inclination to manage their finances sensibly. If you cross the sea to Ireland, cross the Atlantic to the US, or cross the world to Australia, you are likely to find yourself paying-as-you-go for even the most basic banking transactions. In the process you may also be clobbered by a tax.

The cost and quality of personal banking services in the UK could be a lot worse. Yes, it is underpinned by an awkward conspiracy of convenience where customers who obey the rules enjoy the spoils of a war waged by banks on those who do not. But reform, it might be argued, will create at least as many problems as it solves. It is, perhaps, a good thing that customers are penalised for mismanaging their money. Debt, used in sober moderation, can enhance living standards. But demon debt is a hard taskmaster, ably equipped to turn, bite and bring down the careless and incautious.

The availability of “free” banking, meanwhile, is a boon to those right-minded people concerned with the financial welfare of the underprivileged. Bank accounts are an enemy of the black economy and the black economy could be bolstered if barriers – financial or bureaucratic – disfigure bank accounts. You cannot do without a bank account to receive state benefits.

Yet the Office of Fair Trading should be lauded for putting personal bank accounts under its microscope. The OFT should also be helped to bring about change for the better. Banking in this country, in general, may be more friendly than it is overseas. But that does not justify complacent inactivity. If personal banking can be improved, it should be improved. Yes, “free” banking may enhance the worthy cause of financial in-clusiveness in some respects. But the imposition of difficult-to-understand charges for minor transgressions heaps an oversized burden on the less well-off. If you survive on £100 a week in benefits, disproportionate damage is done by a £35 letter sent after an accidental overdraft breach.

It is important, surely, to enshrine the principle that banks can levy charges for services but cannot impose outrageous fines for bad behaviour. The pursuit of profit is not evil, but fleecing customers will inevitably bring more political pressure to bear on the banking industry. If consumers are equipped with comprehensive and high-quality information they will be better able to make sound decisions. They will also act as superior regulators of their own actions and the actions of banks.

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