Banks will be forced to publish their maximum charges for unauthorised overdrafts as part of measures intended to save customers £1bn over five years, by encouraging switching and breaking the stranglehold of the big four on the high street.

But even as the Competition and Markets Authority pledged the measures would halve the £1.2bn customers pay in unauthorised overdraft fees each year, consumer bodies, challenger banks and independent analysts said they would do little to crack the 77% market share Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays have on current accounts.

The competition watchdog has spent £5m on its investigation, first announced in July 2014 at a time when the Labour party was promising to create new banks. The banking industry generates £14bn of revenue a year from current accounts and small businesses, and the watchdog calculated overdraft users could save up to £153 on average by switching accounts.

Alasdair Smith, chair of the CMA’s retail banking inquiry, is relying on the use of new technology to crack a competition conundrum that has sparked 10 investigations in the last 20 years. The CMA is ordering the major players to upgrade their IT capabilities by creating an online system that would enable price comparison websites to offer better information on rival products. This has to be done by the end of March 2017.

The other measures include:

Requiring that banks set out a monthly maximum charge for unauthorised overdrafts – but the watchdog held back from imposing an industry-wide cap on charges, as some had hoped.

Customers to be warned by text when they go overdrawn.



The Financial Conduct Authority reviewing ideas for banks to publish their service records, with data collected twice a year. Willingness to recommend the account to a friend could be included.

FCA working on prompts banks could send to customers to move their accounts, such as when branches close.

The beefing up of the current account switching service set up three years ago.

Innovation charity Nesta offering a £5m challenge prize – funded by the banks – for financial technology companies to create ways for small businesses to move accounts, although this will not be completed until mid-2018.

Banks providing standard rates for small business loans and overdrafts up to £25,000.

Smith said the proposed saving to customers over five years of £1bn was based on an increase in the number of customers switching their current accounts each year from 3% to 4%.

The move on overdraft charges was welcomed by Gillian Guy, chief executive of Citizens Advice, who said the charity helped with 55,000 overdraft problems a year, where in some cases consumers are charged more than they would be for a payday loan.

But Alex Neill, director of policy and campaigns at consumer body Which?, said: “After 18 months this inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago. Steps to stimulate switching are welcome but the chance to deliver better banking for all consumers has been missed.”

Smith defended the CMA’s decision to back away from avoiding radical measures such as breaking up banks or demanding account portability, whereby customers keep their account number, because it could have cost up to £10bn.

Criticised after its preliminary report in October for not taking bold enough measures, the CMA also incurred the wrath of challenger banks by refusing to ban “free-if-in-credit” banking accounts, which rival banks say hide the true costs of banking.

Paul Pester, chief executive of TSB, spun out of Lloyds, said the CMA had missed a golden opportunity by refusing to require banks to issue customers with monthly bills to tackle the hidden costs of free banking.

John Lyons, retail and commercial banking leader and partner at PwC, said: “A market which was seen by many as a closed shop despite new entrants looking to make inroads is unlikely to be transformed by the range of proposed remedies published today.”



Banks analyst Sandy Chen at Cenkos said Lloyds had most to lose because of its high share of current accounts at around 25% and its reliance on them for generating income.

Customers rarely move their accounts: nearly 60% of personal customers have stayed with the same bank for more than 10 years. More than 90% of small businesses get their business loans from the bank where they have their current account. “There is therefore not going to be a single ‘magic bullet’ that puts everything right,” the CMA’s 400 page report said.

Smith said: “I don’t accept ... that this is a missed opportunity ... I’d rather do it properly than do it quickly. For too long, banks have been able to sit back and not work hard enough for their personal and small business customers.

“We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.”

The CMA estimates that the industry will incur costs of £75m– £110m to implement the changes. A consultation runs until 7 June before the final report on 12 August.

Harriett Baldwin, the Treasury minister, said the report was “an important piece of work and we stand ready to take action once the final report is published in the summer”.