Competition probe into banks was ‘lazy

Competition regulators are “lazy” and “passing the buck” as their probe into the banking market failed to find crucial information on the cost of bank accounts, reports The Telegraph.

The Competition and Markets Authority is studying the market to see why so few customers switch banks, and last month ordered banks to prompt customers to switch to a rival whenever a special offer runs out, the bank’s systems crash for a long period of time, or the customer racks up unauthorised overdraft charges.

But bosses from the CMA were unable to tell the Treasury Select Committee how much it costs for banks to run customers’ current accounts or how much customers pay for them.

“What you are coming up with and the answers you have given seem to be lazy,” said MP Mark Garnier.

“You haven’t gone in to look at this in any proper way and you haven’t challenged banks to come up with a justification for their costs and to come back and answer the question, why do you simply not tell people how much you are being charged?”

In particular MPs were concerned that banks made money from customers with little money who dip into their overdrafts regularly, and use those fees to subsidise accounts for better-off customers who do not need their overdraft.

The man who led the investigation, Alasdair Smith, argued that it was very complicated to work out the sums for different banks and different types of customer, and that he instead focused on ways to make it easier for customers to find and move to a better value account.

Another MP, George Kerevan, accused Mr Smith of “passing the buck” for failing to investigate the anti-competitive effects of the big banks owning the payments system and charging small banks to access the basic financial infrastructure.

Mr Smith argued that the new Payments System Regulator should be the only watchdog to study that part of the industry.

The CMA executives did promise to work harder to address the concerns of some of the smaller banks, which say they are unfairly blocked from the market by new regulations.

One of those is the 8 per cent corporation tax surcharge imposed in the summer Budget, which hits banks with profits of more than £25m. A group of challenger banks has lobbied the Treasury unsuccessfully for exemption from the tax, arguing that it stifles their ability to lend and grow, and so harms competition.

Mr Smith said the CMA is “institutionally sympathetic” to those arguments.

“We will take our time and consider the evidence before making a decision on it… we will comment on whether the bank surcharge is a barrier to entry in our final report,” he said. That report is due by May 2015.

The CMA will also investigate the impact of the higher capital requirements, which force small banks to hold a bigger capital buffer against any given loan compared to the big banks, which makes lending harder and more costly.

“We need to look at the extent to which these differences between established and new banks acts as a barrier to entry. If it is, we’ll have some strong things to say about it,” said Mr Smith.

Committee chairman Andrew Tyrie MP welcomed the promises to do more.

“The CMA have downplayed the problems created by free-in-credit banking. Free-in-credit banking is highly misleading, and probably plays a crucial part in inhibiting effective competition,” Mr Tyrie said.

“Customers should be told how much they are really being charged. People deserve at least this much from their banks. The CMA has fallen short of suggesting ways of doing this – something which people take for granted with the purchase of almost any other product or service.”