Banks are to be forced to reveal hidden charges on current accounts as part of moves intended to make the sector more competitive, according to reports.
The Competition and Markets Authority will publish its initial recommendations on how to shake up UK retail banking on Thursday following an inquiry that began late last year.
Politicians and regulators want to create more competition and reduce the 85% market share held by Britain’s big five banks – Lloyds, Royal Bank of Scotland, Barclays, HSBC and Santander.
The report is expected to stop short of forcing banks to abolish “free” current accounts and impose monthly charges, which are common in other parts of the world. In reality millions of consumers pay for their bank accounts through overdraft fees and other charges.
The CMA could order banks to spell out hidden fees to account holders and even tell them how much interest they could have earned. Many current accounts pay no interest.
Jayne-Anne Gadhia, chief executive of Virgin Money, said “free banking” distorted the market, but doubted there was any political appetite to abolish it.
Paul Pester, chief executive of TSB, which was demerged from Lloyds Banking Group in 2013, said the CMA had a once-in-a-lifetime opportunity to change the banking system. He said a few simple steps to change the market “would go a tremendous way to turning banking on its head”.
TSB research suggests UK banks make between £7bn and £8bn a year from supposedly free current accounts. Pester said the myth of free banking confused customers, and the true costs were covered in a “cloak of secrecy”.
TSB said customers should be sent a standardised monthly bill that sets out the costs and benefits of their account use, including any foregone interest.
Research conducted for the CMA found 37% of people had been with their bank for more than 20 years, and a further 20% had had an account for between 10 and 20 years.
Many individuals and small businesses with an overdraft cannot change banks unless they pay it off in full.
A seven-day current account switching service came into effect two years ago to speed up the process. The CMA is understood to have examined how effective the move has been and whether customers should be able to switch banks while keeping the same account number.
- This article was amended on 18 October to correct the spelling of Jayne-Anne Gadhia
