Sir David Walker’s suggestion that the way to avoid future banking scandals is for banks to charge for current accounts is a sad indictment of the current state of the industry.
It’s a complete myth to say that banking is free now. It costs consumers more than £9 billion a year in fees and lost interest on their current accounts.
The debate on “free banking” highlights the problems within the industry. The Barclays boss seems to be trying to shift the blame on to consumers by saying that recent scandals are a “consequence” of free banking. It defies logic to suggest that the only way to persuade bankers to behave responsibly and stop misselling is to give them more money.
One scandal after another, from payment protection insurance to Libor rate-rigging to IT system failures, accompanied by excessive bonus payments, has resulted in the public being more disillusioned than ever with the banking sector. It adds insult to injury for consumers to be told that they should pay more, especially when almost two-thirds of people we surveyed said they had paid a bank charge that they thought was either hidden, unfair, or disproportionate.
Consumers have been hit hard by the financial crisis. Our recent report revealed falling incomes and declining standards of living are having a detrimental affect on overall life satisfaction. Debt levels are at their highest since the 1980s and British households now owe £1.5 trillion. The last thing consumers need is extra costs for their bank account from their already stretched household budget.
That’s why the parliamentary banking inquiry must put the best interests of consumers back at the centre of reforms. Nothing should be off the table if the Government is to rebuild consumer confidence, proper accountability and ethical standards in this essential service.
We’re calling for the inquiry to produce tough new proposals to force banks to work better for consumers by tackling the lack of competition in banking. While consumers have been pumped for billions of pounds to bail out the banks there has been a substantial reduction in competition in the market. More must be done to strengthen competition on the high street to improve the quality of customer service and financial products available for consumers, and force banks to genuinely compete for customers.
There must be real choice for consumers, with portable account numbers to make switching bank accounts as easy as changing mobile phone provider. Pay and incentives for staff must prioritise customer service, not sales. That means clearer information so people can see exactly what they’re being charged and can easily make comparisons between accounts so they can move to the bank that offers them the best deal.
Consumers should not keep footing the bill when the banks have let us down so badly. Last week marked five years on from the day the global financial crisis officially started and we have found that three-quarters of people still don’t think UK banks have learnt their lesson, that’s up from 61 per cent last year. Recent events show that the banking sector has, disappointingly, failed to change from the corrosive culture that caused so much damage to the national economy and peoples’ budgets.
The time for action is now. There must be significant changes to the structure and culture of the banking industry. Only then can we start the long road to restoring public confidence and properly protect consumers from a repeat of the financial crisis.
At a time when consumer trust in the banks is so low, the banks’ leaders should be engaging with this reform agenda and improving services, not making their customers pay even more.
• Peter Vicary-Smith is chief executive of Which?
COMMENTATORS have been critical of Sir David Walker’s assertion that free banking heaps pressure on staff to make money in other ways – sparking scandals like the mis-selling of PPI loan insurance.
Labour Treasury spokesman Chris Leslie MP responded by saying: “This is a major blunder for the new chairman, who should be focused on rebuilding trust, not talking about how to charge their most loyal customers.
“The idea that millions of people could be charged for having a charge card and cheque account is quite objectionable.”
Tory MP Douglas Carswell said: “At last the senior bankers have admitted they’ve been ripping us off. If we ever wanted proof that the big corporate banks have got out of control, this is it.”
And Pat McFadden, a Labour member of the Treasury Select Committee, said: “Banks don’t have the authority to introduce charging. Or, more bluntly, I don’t believe the public will wear it.”