The Office of Fair Trading has, this week, published a market study on unarranged overdrafts in relation to personal current accounts (PCAs) in the UK. The OFT believes that real progress is being made in relation to both unarranged overdrafts and the wider PCA market. This is despite the ruling by the Supreme Court in November 2009 that unarranged overdraft charges cannot be challenged for fairness under the Unfair Terms in Consumer Contracts Regulations.
In 2008 the OFT conducted a market study into the £8 billion PCA market which identified material issues with unauthorised overdraft charges. The OFT has therefore welcomed new industry wide commitments aimed at introducing more clarity and predictability in relation to unarranged overdrafts and which give consumers more control. These include:
- the development of minimum standards for consumers to opt out of unarranged overdraft facilities;
- a new industry working group to explore ways to give consumers greater control and access to real-time information such that consumers can compare products and charges more easily; and
- a new working group of industry and consumer representatives that will develop best practice for PCA providers in dealing with customers in financial difficulty who incur unarranged overdraft charges.
New market entrants, such as Virgin Money and Tesco Bank, are also expected to stimulate further competition over products, services and charging structures.
On the basis of discussions the OFT has had with major PCA providers, the OFT expects additional developments over the next two years. In particular, customers are expected to be given a real choice as to whether they want an unarranged overdraft facility at all and be in a position to keep better track of their balances (e.g. as a result of receiving text alerts).
The OFT also points out that the average penalty charge for customers with an unauthorised overdraft has fallen from £30 in 2007, when the OFT began its inquiry, to £22 today.
Consumer groups have branded the OFT's actions in tackling unarranged overdraft charges as weak and say it leaves consumers in a potentially vulnerable position. John Fingleton, OFT Chief Executive, defended the OFT's position stating that the OFT "will continue to closely monitor the banks and will reconsider the need for action, including legislation, if they fail to deliver these changes."
The OFT also plans to review barriers to entry in the PCA market in 2010 and will report back in 2012 on the impact of the initiatives introduced so far.
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