UK: OFT review of personal current account market suggests significant changes are still necessary

The Office of Fair Trading (OFT) has published its review into the personal current account (PCA) market.  A report evaluating the impact of the OFT's market study and UTCCR test case into personal current accounts is also available.    

Importantly, the OFT concludes that it has only had mixed success in its work on the PCA market to date, and that significant changes are necessary to combat ongoing competition concerns and a lack of focus on consumer needs.    

The report notes that major banks have increased their share of the market since 2008, new entrants to the market remain rare, and consumers rarely switch to alternative providers.  Although the report acknowledges that there have been improvements in unauthorised overdraft charges, the report also stresses that overdraft charging structures remain overly complex.

The OFT considers that a number of significant changes due, or expected, to occur over the coming year may provide a more radical stimulus to competition in this market.

In addition, several new recommendations, building on the OFT's previous initiatives, are proposed with the aim of making PCA costs more transparent, the switching process more reliable and improving the way in which unarranged overdrafts are provided:

• Opt-out of unarranged overdraft facilities should be available on a wider range of PCAs
• PCA providers should further simplify their overdraft charging structures
• Annual summaries should be easily accessible (in electronic and paper formats) throughout the year
• A text alert service should proactively be offered to all their customers
• The FCA (or the new Competition and Markets Authority) should undertake a review of the effectiveness of the new switching service
• The Payments Council should undertake research into the costs of bank account number portability
• The Money Advice Service should enhance its PCA price comparison website
• The OFT will trial the provision of information to customers on interest foregone.

Clive Maxwell, the OFTs chief executive, said that "banks and building societies need to act now to improve the quality of service and value for money they provide their customers".

The OFT considers that the changes proposed could have a positive impact on competition in the market.  Accordingly, it had reached a provisional decision that it will not make a Market Investigation Reference to the Competition Commission.

However, the OFT will revisit the question by 2015, in line with a recommendation by the Independent Commission on Banking.

Clive Maxwell noted that "The retail banking sector needs to become more competitive and customer-focused to ensure that further action by the competition authorities is not required."