Treasury select committee chair accuses Competition and Markets Authority of ‘dropping the catch’
The competition watchdog has been accused of complacency and missing an opportunity to overhaul high street banking, including capping overdraft charges, despite a two-year long investigation. The accusations were levelled at Alasdair Smith, who led the investigation by the Competition and Markets Authority (CMA), by MPs on the Treasury select committee who were questioning him following the publication of the report in August. In a gruelling evidence session, MPs questioned why Smith – flanked by two members of his team – had not put a cap on overdraft charges and taken more radical measures to break the stranglehold on the current-account market held by the “big four” of Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays. Andrew Tyrie, the Conservative MP who chairs the committee, said the CMA had “dropped the catch” despite support from politicians, academics, consumer groups and the media for a tougher stance towards the banking sector. “The banking crash has changed the terms of trade in favour of the regulators with respect to reform,” said Tyrie.
The Labour MP Rachel Reeves said that the cost of an unauthorised overdraft was greater than a payday loan, where the charges have been capped. Reeves, who is arguing overdraft fees should be restricted, said vulnerable consumers were being let down. “It’s dereliction of duty,” said Reeves. The CMA report stopped short of recommending overdraft caps and said that banks should set out a monthly maximum charge for unauthorised overdrafts, from which the industry generates £1.2bn in fees annually. It recommended that the Financial Conduct Authority should examine this area. Smith argues that a new technology allowing consumers to compare the personal data, known as Midata, will shake up banking.
Tyrie said no other CMA report had ever received such “unequivocal condemnation” but Smith said he was confident the recommendations would transform banking in three or four years. “Only history will prove which one of us is right,” said Smith. “I am confident that the work of our group will result in a major change for the better and that when people look back at the CMA report of 2016 they will see it as a landmark that really changed the direction that this market has gone in,” said Smith, who also insisted that banks were not making excess profits. Smith said after the hearing that the CMA was introducing 17 “hard hitting” changes. “We will also help customers avoid unauthorised overdraft charges by requiring banks to text customers when they are at risk of incurring charges and give them a grace period in which to take action,” said Smith.
The CMA investigation was first announced in July 2014 at a time when the Labour party was promising to create new banks. At the end of the three-hour evidence session, Tyrie said: “The committee was deeply disappointed by what it had heard.”