Tuesday 13 December 2016

Millions To Miss Out Fee-Free UK Bank Accounts

bank account

Lloyds Banking Group and Royal Bank of Scotland have opted not to shift millions of people using basic bank accounts into a new fee-free version required by the Treasury to help vulnerable consumers.

The two state-backed banks are among a group of nine UK lenders that signed up to a government agreement in 2014 to meet a standard for “basic bank accounts” that were free of charges from the start of this year.

Although RBS and Lloyds have offered fee-free accounts since January to new customers, they did not join other banks in automatically switching existing customers.

Basic bank accounts, which have existed for a decade, give customers who are not otherwise eligible for a bank account access to services such as a debit card and ATMs. There are just under 8m basic bank accounts in the UK.

The Treasury’s standard requires basic bank accounts to be fee-free, removing charges for things such as failed payments to try to prevent customers from running up unintended overdrafts.

Some 3.8m people still have accounts that do not meet the standard. Of these, more than 3.5m are held with Lloyds. It has written to existing basic bank account customers and has given them the option to switch if they are eligible.

Figures published on Monday by the Treasury show that more than 4m basic accounts have been made fee-free. Nearly half a million new basic bank accounts have been opened since the agreement came into force in January.

The Treasury standard was devised after it emerged that some banks had in the past been reducing the cost of providing basic bank accounts through measures such as limiting access to ATMs or charging significant fees when direct debits failed.

The Treasury’s review said: “Those charges were in some cases very high and, at some banks, without any cap. Some basic bank account customers developed significant overdrafts that left many customers unable to use their accounts and effectively unbanked.”

Lloyds and Nationwide have opened the highest number of basic bank accounts in the first half of 2016. Lloyds now accounts for almost half of the total basic bank account market.

Other initiatives aimed at widening access to bank services and reducing consumer debt in the UK have been launched in the past couple of years.

The Competition and Markets Authority recently published a review of the current account market, which recommended that banks cap their maximum overdraft fees.

At the end of last month, the Financial Conduct Authority launched a review on the high-cost credit market, including payday loans. The watchdog said it would look in more detail at overdrafts, to protect consumers and encourage competition into the market.

RBS said it was in the process of moving existing customers to its new basic account, switching about 400,000 people in the first half of the year.

The bank said: “As part of our commitment to help customers and to simplify our product range we continue to transfer legacy accounts which would also benefit from our fee free basic bank account.”



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