CMA's plans for current account shake up

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They've resisted calls to order the break up of the bigger banks, however, saying that with the information available at present, customers would simply end up looking at even more accounts that are difficult to compare.

The proposal that's grabbed the most attention is that charges for unauthorised overdrafts be subject to a monthly cap; they say that in 2014 banks made £1.2 billion from such charges.

If all the changes outlined in the CMA's 400-page provisional report [pdf] are brought in, they say we could collectively save £1 billion over the course of five years - with each of us benefiting by an average of £116 a year.

A few big players

Given that so many of us have accounts with one of just a few big high street names, it's been suggested several times that improving competition and choice could simply be a matter of breaking up those bigger banks into smaller, leaner, ones.

The CMA point to the fact that splitting the bigger banks into smaller companies - as has been seen with the re-emergence of TSB from Lloyds - can take a lot of time and be rather expensive.

Indeed, RBS have been finding the creation of Williams and Glyn - which will replace branches of the Scottish bank in England and Wales, and take over Scottish branches of Natwest - much more complex than they first planned.

The creation and separation of the new bank was one of the conditions set by the European Commission when RBS received their bailout - but they've recently admitted that costs are rising and they might not make the end-of-2017 deadline they've been given.

Furthermore, the CMA believe that if more of the big names were split up, we'd simply end up with a lot more of the same - that is, more institutions offering products that are almost impossible to compare meaningfully.

Sharing information

Instead, the CMA say, technology has the ability to make comparing accounts and finding the best one for us much simpler.

They're pushing for the biggest retail banks to introduce a single open standard data sharing platform, which would allow us to securely download or share our actual transaction data with other banks, or with a comparison site.

If we gave that information to another bank, it would be able to point us towards whichever of its accounts was best suited to us; if we shared it with a comparison site, they could bring up a whole list of the best accounts for our personal needs.

This would help remove the need for us to try to make sense of the terms and conditions surrounding interest, whether paying fees is worth it - and for those of us who need an overdraft, how likely we'd be to get one, and how much each bank would charge us for it.

For the 44% of us who have overdrafts, being able to more easily compare their cost like this could save us an average of £153 a year.

The CMA are very keen for the data sharing idea above to become a reality, but they're also suggesting that an extra step in the switching or application process may be useful.

They're proposing that people using the current account switching service (explained in detail here) should be given a firm decision regarding whether they'll get an overdraft or not after they've completed the application - but before they finalise the switch.

Available funds

Also of concern is the matter of how banks tell those of us with arranged overdrafts how much money we actually have available.

The CMA are concerned about the potential for confusion that can arise in regard to whether or not the figure we're given includes that arranged overdraft.

As well as potentially giving rise to a false sense of security, it also adds to the perception that overdrafts are completely free as long as we remain within our agreed limit.

But many accounts with the most generous overdraft facilities don't pay interest when the balance is in credit - and "free" overdrafts tend only to be for a set amount, after which we start paying interest even if we're within our personal overdraft limit.

We may be allowed to borrow £500, say, but we may only get £100 of that without any kind of fee or charge attached to it.

Say then, that we're told that our available funds are £600 - including that £500 overdraft.

The CMA believe that could affect our level of engagement with how we use our overdraft facility - and we might not pay as much attention as perhaps we should to how much the paid-for part of it is costing us.

Unauthorised borrowing

Meanwhile, everyone should be automatically enrolled to receive some kind of alert if it looks as though they're going to go into unauthorised overdraft, and on increasing the grace period in which customers can act to prevent being charged if they do.

The CMA have commented, as have the FCA before them, on the introduction of such a system by HSBC, which the bank say saved customers £85 million in overdraft fees in its first year of operation.

The CMA also want to see all banks bring in a monthly maximum charge (MMC) for unauthorised overdrafts, which would cover both daily or one-off fees as well as the interest incurred within that period.

They did consider setting the limit for the MMC, but have decided it's better if the banks can set their own, as that would give them more incentive to compete with each other.

At present, there seems to be little such incentive: of the banks that already set MMCs for unauthorised borrowing, the amounts range from £35 a month to £100.

In addition, the CMA say, a regulator setting the cap could lead banks to become "significantly more restrictive in allowing unarranged overdrafts", which they believe would lead to customers who need to go over their overdrafts losing a necessary line of credit.

Feedback required

These proposals are just that, however - proposals - and the CMA are now inviting responses to their plans.

Their final report is due to be published by August 12th; depending on the feedback they get, we could see these plans come into effect, or be watered down or shelved all together.