MSE News: 'Free' banking system isn't working, says FSA

Alpine_Star

opinions4u wrote: »

So, for absolute clarity, what is this £152 income per current account you're referring to?

(to help, most of it is interest charged on loans).

Loan income (as in personal loans) isn't included in the £152 as the figure only deals with current account income but interest on arranged and unarranged overdrafts combined accounts for just 6%.

See chart 2.3 on page 18 for the breakdown of current account income http://www.oft.gov.uk/shared_oft/reports/financial_products/OFT1005.pdf

See also chart 2.2 on the same page for overall retail banking income.

tifo

Alpine_Star wrote: »

also found that ''banks earned £8.3 billion in revenues from PCAs in 2006. This is equivalent to £152 per active bank account and represents more revenue for the banks than savings and credit cards combined.''

Yes, and most of that £8.3 billion was from overdraft charges. This is what the OFT were showing.

If in credit accounts didn't pay any fees then they didn't pay that £152.

Alpine_Star

tifo wrote: »

Yes, and most of that £8.3 billion was from overdraft charges. This is what the OFT were showing.

Do you suffer from dyslexia?

Of the £8.3b only £2.6b was from unauthorised overdraft charges.

tifo

Alpine_Star wrote: »

I don't know TBH as banks don't publish a break down of their profits to that extent but as explained in the Market Study net interest income is really an automatic process whereas unauthorised overdraft charges will have a large administration cost by comparison. So I would imagine that for every pound in revenue, net interest income would be more profitable than UO charges.

Returning a payment request is usually automatic so there's no admin cost, apart from the postage, paper and toner. It's not a 'large admin cost' that they charge.

The 'service' is the computer checking the balance and returning the payment. These days many banks don't send any letters for this.

opinions4u

Alpine_Star wrote: »

Loan income (as in personal loans) isn't included in the £152 as the figure only deals with current account income but interest on arranged and unarranged overdrafts combined accounts for just 6%.

See chart 2.3 on page 18 for the breakdown of current account income http://www.oft.gov.uk/shared_oft/reports/financial_products/OFT1005.pdf

See also chart 2.2 on the same page for overall retail banking income.

Ok, same thing / different angle. You're referring to the gap between 0% and cost of funding. I was referring to the gap between 0% and loan income.

Most of the income (in 2006) comes from not paying interest on credit balances. Clearly the dynamics of the market have changed significantly since then and the value of this "income" today is depleted.

Regardless, there's nothing stopping PCA customers moving some or all of their balances to a savings account.

There's nothing stopping PCA customers moving to an interest paying current account, or one that pays a fiver a month, or whatever.

It's transparent. There's a competitive market. And there's apathy in certain customer segments.

I still think the FSA are trying to find a problem where one doesn't exist. They're starting out on a dangerous road here. The end game could well be that everybody gets charged for having a current account and those who manage their account poorly still get screwed for big charges.

Who are the winners then? It ain't gonna be the customers.

Alpine_Star

tifo wrote: »

Returning a payment request is usually automatic so there's no admin cost, apart from the postage, paper and toner. It's not a 'large admin cost' that they charge.

I didn't say it was ''large'' in itself but large ''by comparison''.

Remember?

tifo

Alpine_Star wrote: »

Do you suffer from dyslexia?

No I don't, but you just don't get it.

The banks may have won the test case but this was not based on how they used to charge. This is why they changed their terms for the case.

I, along with many others, was told the charge is for returning the payment. Never was I told it's a 'service' charge for the account. I was definitely never told when I opened the account that the 'account' charges are only applied when a payment is returned. I was told the banking services are free.

Alpine_Star

opinions4u wrote: »

Regardless, there's nothing stopping PCA customers moving some or all of their balances to a savings account.

Indeed I take your point but the reality is that people don't have much insentive to keep moving relatively small amounts of money around to gain a relatively small amount - particularly when sailing close to the wind as a small mistake could mean incurring a large fee.

I totally agree with your final point though. PCA's cost everyone at least something.

olly300

tifo wrote: »

No I don't, but you just don't get it.

The banks may have won the test case but this was not based on how they used to charge. This is why they changed their terms for the case.

I, along with many others, was told the charge is for returning the payment. Never was I told it's a 'service' charge for the account. I was definitely never told when I opened the account that the 'account' charges are only applied when a payment is returned. I was told the banking services are free.

You obviously have a problem where you dispose of leaflets with important information.

Every time I open a bank account, and I fall into the camp of having more than one personal one, you are given a leaflet with a list of charges.

Everytime a bank changes it's terms and conditions including their charges they send you a leaflet in the post.

Oh and bank's computer systems aren't free you know even the one for returning your payments. There is also nothing stopping you choosing a bank with an authorised overdraft that doesn't charge you until you use it.

Alpine_Star

tifo wrote: »

No I don't, but you just don't get it.

The banks may have won the test case but this was not based on how they used to charge. This is why they changed their terms for the case.

I, along with many others, was told the charge is for returning the payment. Never was I told it's a 'service' charge for the account. I was definitely never told when I opened the account that the 'account' charges are only applied when a payment is returned. I was told the banking services are free.

It certainly was based on ''how they used to charge''. The terms & conditions considered in the first instance case went back to 2001. It's a myth that the court only considered the T&Cs that were current at the point of the test case.

You may have been charged when the bank returned a payment but the Supreme Court found that the charge was in exchange for your overall banking services vis a vis the bank's ''free if in credit'' argument.

I don't actually agree with the Supreme Court's finding - I thought that the Court of Appeal got it right - but that's how it now stands in law.