On 16 July 2008, the Office of Fair Trading (OFT) announced the results of its market study into personal current accounts in the UK, namely that these accounts are not serving consumers well.

The OFT's findings on consumers' understanding of their current accounts include:

  • consumers are unclear about where banks derive revenue from operating their current accounts;

  • "a significant number" of customers do not know how much they actually pay in charges;

  • over three-quarters do not know the credit interest rate of their current account;

  • even those who know the credit interest rate of their current account are unable to calculate the interest they are forgoing.

As a result of the complexity and lack of transparency of personal current accounts, the OFT concludes that customers find it very difficult to make comparisons and thus have little incentive to switch. Only 6% of customers surveyed by the OFT had switched in the last 12 months. The OFT notes that this is one of the lowest switching rates in Europe.

Regarding financials, the OFT's findings include:

  • personal current accounts generate more revenue for banks than savings and credit cards combined;

  • 81% of banks' revenue from personal current accounts comes from insufficient funds charges (£2.6bn) and net credit interest (£4.1bn);

  • insufficient funds charges have increased by an average of 17% in real terms between 2003 and 2007;

  • banks' charges for the same hypothetical scenario (which included exceeding an agreed overdraft limit) varied from £0 to £260.

The next steps in this investigation are that the OFT will try to get the industry voluntarily to improve its personal current account offering. However, if it has no success with the voluntary approach, the OFT will get tough and could instigate more regulatory intervention or make a market reference to the Competition Commission, potentially resulting in new legislation.

This implication is clear. UK providers of personal current accounts need to look at the products they currently offer, assess how they rate against the OFT's findings and consider if/how they need to be changed to address the issues raised by the OFT's market study. As the OFT put it, "the status quo is not satisfactory".

The OFT's market study was carried out alongside the formal Unfair Terms in Consumer Contracts Regulations 1999 investigation into terms providing for unarranged overdraft charges, which includes the OFT's ongoing High Court test case against certain banks (see our earlier law-now on this).

For the OFT's executive summary of its personal current accounts market study, please click here.

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

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 16/07/2008.