Responding to the CMA’s summary final report into banking markets, Sue Lewis, Chair of the Financial Services Consumer Panel, said:
“We will need to study the detail of the final report. It is clear that the CMA has shifted its thinking since it published its interim findings in May, but not followed this through into remedies that will tackle the root causes of weak competition in this market. It acknowledges that complex and opaque pricing is a barrier to competition, but does nothing about it. It agrees that the test for effective competition is consumers switching to better value products and services, but does not explain how consumers can do this when they can’t compare different offers 1. It acknowledges that many consumers want a better deal from their existing bank without the hassle of switching 2. But it does nothing about this, either. Instead, the package of remedies relies on untested technology, and on consumers doing the hard work of finding, comparing and acting on complex information. The CMA has failed to do the right thing by consumers, but at least it has given the FCA some good evidence to take on the banks. The CMA has found that banks with the highest prices and lowest quality of service have the highest market share. These same banks are now set to dominate the design of rules on open banking. It is essential that challenger banks and consumer representatives can influence this process, or the big banks will just design systems to suit their own ends. Open banking will not help the digitally excluded. There is a risk of scams and fraud, particularly for the least savvy consumers. More data will enable providers to ‘cherry pick’ customers, leading to better deals for some, but exclusion or high prices for others. Open banking will not magically empower what the CMA calls ‘weak’ consumers to act. The previous Government launched ‘midata’ with much fanfare five years ago. It has had no discernible impact on competition. Consumers can’t afford to wait another five years before someone figures out open banking doesn’t deliver in the way the CMA hopes it will.
The CMA places too much emphasis on customer recommendations. So-called ‘net promoter scores’ are a poor indicator of quality. Satisfied loyal customers may not be aware they are being treated unfairly. For example, the bank with the highest NPS of any UK financial services provider has amongst the worst savings rates according to the FCA. It is up to the FCA now to design measures that will genuinely help consumers and encourage banks to do better. These measures should highlight good and poor practices, as well as quality of individual products and services.
The CMA has also failed to tackle excessive overdraft charges effectively. The Monthly Maximum Charge set by the individual banks will do little to reduce the impact of unfair ‘unarranged’ overdraft charges, which are largely borne by more vulnerable customers. We believe the FCA should look at an ‘opt-in’ rule similar to the US Overdraft Protection Law. Under this law, consumers have to request an overdraft facility, and agree the terms up front. The FCA should also consider a cap on unarranged overdraft charges, set at the net additional administrative costs.”
1 FSCP Position Paper on Cross-subsidisation in the Personal Current Account Market https://www.fs-cp.org.uk/sites/default/files/discussion_paper_cross_subsidies_in_the_pca_market_20140911_1.pdf
2 FSCP Research on banking culture
Maria João Paixão (Consumer Panel): 020 7066 7716
NOTES TO EDITORS:
1 The Consumer Panel is a statutory body under the Financial Services Act 2012. It was initially established by the Financial Services Authority in December 1998. The Panel advises the FCA on the interests and concerns of consumers.
2 The Panel advises the FCA on the interests and concerns of consumers. The Panel is independent. Its views are its own and do not represent those of the FCA.
3 The Panel’s membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues.
4 The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available on its website: www.fs-cp.org.uk or via its LinkedIn and Twitter accounts.
Sue Lewis (Chair)