Andrew Bailey, Director of banking services at the Financial Services Authority (FSA), said that “free-if-in-credit” current accounts have distorted the market. He said that ‘free banking’ means that “charges are levied inconsistently across products supplied by banks, with the consequence that some appear to be free.”
Speaking at a conference on the future of retail banking, Mr Bailey said that free services had led to the mis-selling of other products like Payment Protection Insurance (PPI) and the subsequent erosion of the public’s trust in banking services.
Banks have been involved in a number of mis-selling scandals, including PPI policies – which are designed to repay people’s borrowings if their income fell unexpectedly.
The highly profitable policies were sold for years before the FSA began imposing fines for PPI mis-selling in 2006. Up to 6.4 million people are believed to have been mis-sold the policies, with some customers being mis-led that PPI was a condition of the loan agreement they were taking out, while others were sold policies that did not meet their needs.
Mr Bailey told the conference that prior to the credit crunch, the profits on PPI sales were used to subsidise loss-leading mortgages at a time when the property market was booming. He said: ‘In certain activities there was arguably suicidal competition in the run-up to the crisis, of a sort that we do not want to see repeated. The most obvious case of this was mortgages, where margins on lending were squeezed heavily in the decade running up to the crisis, and we also saw another, I would say undesirable, development of the retail banking scene, namely the recourse to earning returns from opaque fees.”
Earlier this week the Department for Business, Innovation and Skills announced a voluntary agreement for banks to make overdraft charges fairer.
Sally Bowyer, Managing Director of Brunel Franklin said: “Everyone accepts that banks provide a valuable service and are entitled to make fair and reasonable charges for services. But people shouldn’t be sold PPI without being furnished with the full facts. PPI mis-selling cases serve as timely reminder of how careful we all need to be when taking out new loans and other credit card agreements.”
Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51.