MPs Raise Concerns Over End Of Free Banking

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This morning, the head of the financial watchdog of the United Kingdom informed the MPs that he is “very alert” to the possibility that the proposed rules to tackle the charges for unplanned overdrafts could increase the cost of planned consumer borrowing.

MPs tabled concerns that the changes to overdraft rules could have a negative effect on the availability of free banking as banks would try to replace any reduction in overdraft revenues.

Tthe chief executive of the Financial Conduct Authority (FCA), Andrew Bailey, said to the members of the Treasury Select Committee: “Nothing is free in life.”

The chair of the financial regulator, Charles Randell, stated: “The bad news for [customers] is they are not getting free banking now.”

He continued: “They are paying for their banking services through quite low returns on deposits and quite high and … random charges for their overdrafts.”

Randell added that the emergence of fintech could mean that banks also miss out on transaction and payment fees, potentially resulting in a decline of free current accounts as banks look for alternative sources of revenue to make up for the loss.

The FCA is currently running a public consultation over a proposal to prohibit banks from charging higher fees to customers for unarranged overdrafts than for planned overdrafts.

Last month, the regulator also said that it wants to remove the fixed daily or monthly charges on overdrafts in favour of a single interest rate.

Bailey also informed MPs that he is expecting that a first draft of the report of the TSB into its IT meltdown to be available next month.

The botched attempt of the bank to transfer customers to a new IT system last April 2018 caused chaos for weeks as many customers lost access to online banking before Paul Pester, its chief executive, was placed on gardening leave last September.

When asked whether the FCA would make sure that more severe consequences for banks that encounter similar failures in the future, Bailey said that the FCA will act if the banks do not tie the pay of their bosses to operational reliability.

Bailey acknowledged that the investigators of TSB had received an “overwhelming amount of information” as they received approximately 180,000 people complaints and that this would take some time to work through.

However, he added that the bank must “get on with it.”