Banks agree to make switching accounts easier

Following pressure from the Office of Fair Trading (OFT) high street banks in the UK have confirmed that changes will be made to make current account bank charges more transparent and allow switching to another bank to become an easier process.

The new measures should be in place by 2011 but the exact date of implementation is yet to be announced.

What are the changes?

The agreement between the OFT and banks and building societies covering nearly 95 per cent of the market will see the introduction of an annual summary of account costs for each customer to help people focus on whether they are getting good value.

Monthly statements will also make changes, with any charges positioned in a more prominent position for the consumer to analyse. Banks will also provide an average credit and debit balance for accounts in the hope that people will be able to weigh up the potential benefits of changing their provider.

In addition to this, the banks will produce illustrative elements that aim to show consumers the costs of unarranged overdraft charges in the hope that they will avoid getting themselves in that position.

Why have they come about?

In 2008 the OFT published a report into the country's current account market and concluded that the £8 billion market simply was not working well enough for UK consumers. Findings discovered that many consumers were unaware of their account's interest rate or what they had paid in charges. The trading watchdog was particularly concerned about three key areas - the transparency of bank charges, consumer difficulties in changing banks and the as yet unresolved issue of unauthorised bank charges. However, there is yet to be an outcome from the Supreme Court on whether unarranged overdraft charges are in breach of unfair terms and contracts regulations.

In September 2009, the European Commission backed up the OFT findings. It said that information given by some banks to their customers was "incomprehensible" and that fees were "opaque". Another finding was that just nine per cent of EU consumers switched bank accounts in 2007 and 2008. In comparison to this 25 per cent of people switched their car insurance provider during the same period.

The OFT has said that it will make further announcements regarding the issue of unarranged overdraft charges once the Court has come to a decision. John Fingleton, OFT chief executive, said: "We welcome the industry's commitment to these important steps to improve the working of the current account market. "As consumers become more aware of the costs of their current account and more confident in switching as a means to get better value, so banks will need to offer more competitive and innovative products and services to attract as well as retain customers."

Consumer affairs minister Kevin Brennan also welcomed the changes. He said that the new guarantees were a step in the right direction and that they would represent a real boost for consumers. "People deserve an upfront and clear service from their bank and these measures are an important part in delivering that," he added.

The British Bankers' Association (BBA) was eager to defend itself and said that banks were committed to making information clearer and for switching to be easier. The BBA said: "The industry tries to make moving from one bank to another easier for customers by arranging for regular payments to come from the new account and banks compensate customers if the switching process goes wrong where the bank is at fault. "However, consumer research suggests the reason people stay with their bank is not because they find moving bank difficult but that they are happy with the service they are getting."

Should you switch?

The changes should make the process of finding the right bank and comparing the various current account options available an easier process. Consumers should always be on the lookout for a better deal and with the new plans people should hopefully find the process of changing less inconvenient.As part of the changes a new website will be launched that will offer consumers advice and hopefully raise awareness of how the changes could be of benefit to them.

Peter Vicary-Smith, chief executive of consumer group Which?, gave his approval to the plans, stating that it was a positive move and that he hopes customers will be confident enough to switch accounts and ditch banks that offer poor value and bad customer service. "It's great that the OFT has secured an agreement from the banks to give people clearer information on account charges, average balances and annual statements," he said.