The Competition and Markets Authority (CMA) has been accused of letting down the financially vulnerable in its recent report on banking.
Labour MP Rachel Reeves said the CMA was guilty of a “dereliction of duty”, after it decided not to cap unauthorised overdraft charges. Instead the CMA’s August report suggested that banks should each set their own maximum monthly charges. Professor Alasdair Smith, the report’s author, denied the accusation. He was appearing before MPs on the Treasury Select Committee. Rachel Reeves said that, on average, vulnerable consumers were paying £225 a year in overdraft charges, which they could not afford. “It’s a dereliction of duty, Professor Smith. I think it’s a very disappointing report. You are letting down the most financially vulnerable,” she said. At the moment, the big High Street banks charge up to £100 a month for an unarranged overdraft, plus other fees on top. The MPs heard that the cost of borrowing £100 from a payday lender could even be cheaper.
However Professor Smith said the focus of the CMA’s banking enquiry had been on making competition between the banks work better. “I don’t think it’s a dereliction of duty,” he said. But he said he shared Ms Reeve’s concern. “I agree with you that our measures will not directly address all of the problems of the most vulnerable overdraft users,” he told the MPs. “And it is not realistic for us to do this.” However, the CMA’s senior director, Adam Land, said vulnerable customers would be helped by its plans for so-called open banking, which will enable consumers to share their banking data with third party providers. “Open banking helps overdraft customers in three ways: The first challenge it overcomes is customers feeling that they can’t switch because they are in debt; secondly it provides money-management tools so customers can avoid getting into a poor position; and third it will help customers compare the costs of overdrafts.”
The CMA has also been criticised by the debt charity StepChange, which has argued for a regulated maximum overdraft charge across the whole industry. After the hearing, the chair of the committee, Andrew Tyrie MP, also expressed concern: “The weaknesses identified today were already evident from the interim report of last year. The committee was deeply disappointed by what it heard.”