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Ending free banking won't stop the mis-selling
Banks claim that charging customers for current accounts will help avoid future mis-selling scandals. Really?
by Victoria Bischoff on Aug 21, 2012 at 12:45Follow @VBischoff
The way to avoid future banking scandals is to charge customers for current accounts, say the banks.
Yep, according to our high-street lenders, the only way they’ll be able to restrain themselves from mis-selling financial products like the now infamous PPI policies is by disposing of the free banking model and introducing a monthly fee for current accounts.
Audacious as this argument is, the banks aren’t the first to suggest the ‘free banking’ model is flawed.
Is 'free banking' a myth?
Consumer groups have long argued that free banking is a myth, as banks simply offset the cost of providing free current accounts with other areas of banking. As a result we end up paying regardless, be it through extortionate overdraft charges, poor mortgage deals or paltry savings rates.
Just today Which? claimed that some customers are paying up to £900 a year in bank charges, while others suffer through lost interest and hefty fees for withdrawing cash abroad.
Earlier this year, meanwhile, Andrew Bailey of the Bank of England warned that free banking is not only a myth but ‘a dangerous myth’, as by not charging for their core service banks are under increased pressure to cross-sell products where the margins are high and, unfortunately, the customer often gets a poor deal.
What's more, according to FSA chairman Adair Turner, the practice of offering free accounts is also acting as a serious barrier to new entrants in the personal banking sector and, as a result, damaging competition.
Fees: a slap in the public's face?
Although Which? is calling for greater transparency about the true cost of banking, it added that charging for the most basic accounts while the industry continues to be rocked by scandals such as PPI mis-selling, Libor-rate rigging and IT failures would be a slap in the face for people who bailed out the banks.
Furthermore, even if the banks do introduce a fee for banking, this doesn’t necessarily mean they will reduce their overdraft charges or suddenly start offering us a better deal on our savings.
In fact, one person in five already pays a monthly fee for their bank account. These customers have what's known as a packaged current account – an account that charges a monthly fee of anything between £6.50 and £40 for added extras such as travel insurance and breakdown cover.
Although, it doesn't bode well that the regulator has been forced to crack down on this market after it emerged many people are being sold expensive current accounts they don't need.
Our banks are greedy. We saw it before the credit crunch and we’ve seen it time and time again since.
More about this:
More from us
- Why ‘free’ banking is a dangerous myth
- FSA's Turner backs end to ‘free’ banking
- PPI mis-selling: how to get your money back
- FSA cracks down on packaged current account sales
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