The Office of Fair Trading ("OFT") is considering features of the £158 billion cash ISA market following a super-complaint by Consumer Focus, a designated consumer body. Consumer Focus believes that the cash ISA market is not working well for consumers and that 15 million cash ISA holders could be losing out on interest worth up to £3billion a year as a result.
In particular, Consumer Focus has accused ISA providers of using headline-grabbing rates to lure savers and then slashing the rate after the first year, leaving people with uncompetitive returns over the long term. It said consumers also face unfair obstacles if they want to transfer their account to another provider due to poor and bureaucratic processes (some ISA providers are also said to impose arbitrary rules prohibiting transfers into some of the most attractive accounts).
Further, there is considered to be a lack of clarity about interest rates for older cash ISA accounts, making it difficult for consumers to compare accounts and get the best deal. The group said savers had difficulty finding out how much interest they were receiving, as people often did not know the name of their account particularly if they had had it for many years and it had been renamed or superseded.
According to Consumer Focus, the average ISA is currently paying returns of 0.41%, but the rates available range from 0.05% to 4.6% for a five-year fixed-rate ISA. Despite the large differences between the returns on offer, only 12% of ISA holders switched provider during the past tax year. It is claimed that ISA providers are using consumer inertia and confusion to drop ISA rates faster than on other accounts.
The OFT is now considering whether any feature of the market is significantly harming the interests of consumers and is inviting interested parties to provide any evidence which may be useful to the OFT's assessment.
Under the terms of the Enterprise Act 2002, super-complaints can be made by designated bodies to the OFT - with the OFT obliged to respond within 90 days explaining what action it proposes to take.
Consumer Focus (created through the merger of three consumer organisations - energywatch, Postwatch and the National Consumer Council) is one of the seven bodies currently designated to make super-complaints. This is the first super-complaint to be made to the OFT this year.
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