UK: OFT Study Into Personal Current Accounts In The UK

The Office of Fair Trading (OFT) launched on 26 April 2007 a market study into personal current accounts. This forms part of the in-depth study into retail bank pricing announced by the OFT in March 2007 (see our earlier law now).

The OFT believes the study will enable it to "consider wider questions about competition and price transparency in the provision of personal current accounts and obtain the necessary context for assessing the fairness of unauthorised overdraft charges".

The OFT does not consider it appropriate at present to make a market investigation reference to the Competition Commission (CC) but it does not rule out making such a reference later if necessary.

The OFT’s decision to carry out a market study is motivated by a number of factors including:

• the significance of personal current accounts to consumers and economic growth – 90% of households had a personal current account in 2005/6. These accounts can act as a ‘gateway’ to the sale of other financial products;

• complaints about the level and incidence of current account charges – the market study will enable the OFT to consider unauthorised overdraft charges and returned item fees in a broader context including the range of debit and credit interest rates and other charges levied as well as the competitive dynamics of the market for providing personal current accounts;

• the OFT being best placed to undertake the study – while it recognises the FSA is the lead regulator for UK banking, the OFT believes it has powers which enable it to assess wider competition issues in a way that is not open to the FSA.

The OFT is concerned that the low level of price transparency in personal current accounts makes it difficult for consumers to make informed comparisons between the offerings of different current account providers. It also believes there is evidence that customers do not actively search for alternative current account providers or switch provider. The CC identified lack of switching as a major concern in its investigation into personal current accounts in Northern Ireland.

The main issues the OFT will examine (apart from unauthorised overdraft charges) are:

• whether "free banking" delivers sufficiently high levels of transparency and value for customers; and

• the implications for competition and consumers if there were a shift away from the widespread provision of this type of current accounts.

As regards potential outcomes of the study, the OFT has indicated that information remedies aimed at enabling consumers to take more informed decisions may be appropriate. It will also bear in mind the CC’s remedies in its Northern Irish personal current account market investigation.

The OFT will carry out its market study in consultation with consumer advice bodies, the FSA, the Financial Ombudsman Service and Government, in addition to the industry and industry representatives.

Those active in personal current accounts may be specifically requested to provide information to the OFT, but even if they are not, it is possible to make submissions to the OFT in relation to this study. These submissions offer an opportunity to put the banks’ side of the story across to the OFT and influence the debate on current accounts. Submissions are requested by 30 June 2007.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 27/04/2007.