Andrew Bailey, the man who is to be the chief regulator of the financial industry services, has branded free banking as a ‘dangerous myth’.
As customers are not charged when they first open an account, they believe that the service is free — but the charges come from a number of other areas of which customers may not even be aware.
But it also affects the banks too, who may be unclear about the products they sell and to whom they would be best suited. Recently major banks such as HSBC and Lloyds have been hit with £9 billion payouts in compensation for mis-sold loan protection. Overall it makes for a very foggy picture for all those involved.
“I worry also that this unclear picture may have encouraged the mis-selling of products that is now causing so much trouble,” Mr Bailey said.
Charges can come in the form of extremely low interest rates on bank accounts (as opposed to if people used savings accounts or other accounts), charges on going over the overdraft limit, or on certain transactions.
Consumer groups are particularly condemning of the overdraft limit, as it often hits those who are least informed about it and suffer most from the charges.
“There would be real value in establishing a more open and honest relationship between banks and their customers on what they get, how much it costs and whether others are offering better value for money,” said Mike O’Connor, chief executive of watchdog Consumer Focus.
Andrew Bailey, on his moving to the new position as chief regulator, hopes to combat this and open up more transparency.