Friday, 18 July 2014

Free banking in question

Study  from the UK's competition authority, the CMA, questions the value of free banking.

The worry is that while free accounts look attractive to the user, they result in banks hiding charges elsewhere -- for overdrafts, for instance - and not bothering to compete with each other with better value or service.

The study says :

It is also possible that there might be a degree of cross-subsidy in the PCA (Personal Current Account) market, which may be distortive of competition. Indeed, the 'free if in credit' model often involves cross-subsidy by other revenue streams for PCAs such as overdraft charges. In addition, we were also told that PCAs as a whole were loss-making. If this were the case, this could suggest the existence of a cross-subsidy from other retail banking products. 

2.67 This seems to suggest that there might be a degree of cross-subsidy between activities within retail PCA providers which, if true, could itself be distortive of competition. It might also represent a barrier to entry and expansion.

2.68 It is also likely that the pricing model used by PCA providers generates significant cross-subsidies between different categories of customers. PCA providers incur fixed costs to provide PCAs, but under the 'free if in credit' model PCA providers do not charge a monthly fee for using PCAs. Instead, they derive the majority of their revenues from NCI and overdraft charges. This pricing model is unlikely to be perfectly cost-reflective, and it might result in cross-subsidies between different categories of customers. For example, customers who use their overdrafts regularly and customers who keep large balances on non-interest-bearing accounts may subsidise other categories of customers which could, in itself, be distortive of competition.

Monday, 14 July 2014

Refunds from payday lender

The UK's second biggest payday lender is to refund over £700,000 of interest and default charges to 6,247 customers who couldn't afford to borrow as much as they were given.

The firm involved is Dollar, an American group which has 24 per cent of the payday market in the UK and includes The Money Shop, Payday UK, Payday Express, and Ladder Loans.

The mistake was due to a "systems error" which resulted in loans being approved for amounts above normal lending criteria between between January 2013 and April 2014.

The financial watchdog, the FCA, says Dollar has agreed to provide cash refunds totalling £79,000, with the remainder of customers having their outstanding balance reduced.

Later this week the FCA is expected to outline a cap on the cost of credit from payday lenders.

Tuesday, 8 July 2014

Savers losing out

The financial watchdog, the FCA, says that millions of savers are losing out by letting their money sit for years in accounts with low interest rates.

It is calling for ideas on how to encourage switching between accounts and to make it easier to compare interest on offer.

Banks and building societies take advantage of people's unwillingness to shop around by offering higher rates to new customers.

The average interest rate on easy access accounts opened in the last two years was around 0.8%, but that the equivalent rate for accounts that were opened more than five years ago was less than 0.3%.

The FCA highlights the fact that providers come out with new versions of savings accounts with higher rates and leave loyal customers languishing on the old rates. 

Many have attracted customers with bonus rates which only last a year.

But the watchdog also blames savers for not bothering to look for better deals.

It says they tend to keep their savings with the bank which provides their current account.

The average savings rate from leading current account providers is around 0.5%, but the equivalent rate offered by other providers is 1.2%.

Thursday, 3 July 2014

£1.9bn tax error

HM Revenue and Customs has come under fire from the National Audit Office, and from an influential committee of MPs, for exaggerating its performance in squeezing more revenue out of tax avoiders.

In a report on the tax office's 2013-14 accounts the head of the National Audit Office, Amyas Morse, said he was concerned "that an error of as much as £1.9 billion in HMRC's baseline calculation led it to report the trend in its performance in a way that inadvertently exaggerated the improvement since 2010-11".

The error did not affect the amount of tax collected but made it appear that tax compliance targets had been exceeded by a significant margin.

Margaret Hodge, the Labour MP who chairs the House of Commons Public Accounts Committee has called HMRC officials in to give evidence later this month.

She said, "It is truly depressing that HMRC's failure to take appropriate action has led to its unwittingly misleading Ministers, Parliament and the taxpayer".

There are a lot of red faces at the Revenue, where I understand officials are "penitent" at the shambles over targets.

HMRC has said: "We regret an historic error made in 2011 when we wrongly calculated the baseline against which our performance was measured. 

"We have corrected this error and even against the corrected baseline we have still exceeded our targets. We will work closely with the NAO to prevent this happening again."

28 = worst age

28 years old has been the worst age to be during the financial crisis, according to official figures, which show that those in their twenties have felt the tightest squeeze on pay.

Experts have looked at the hourly wages in 2009, at the height of the financial crisis, and compared them with last year, adjusting for the impact of rising prices.

Those in their twenties were being paid 12 per cent less last year -- that's effectively the buying power of what they were getting.

But the biggest impact of low pay and rising prices has been on 28 year olds: in 2009 28 year-olds were earning nearly 18 per cent more than the inflation-adjusted figure for 2013.

The Office for National Statistics says those in their 30s suffered a 9 per cent squeeze and those in their fifties were 5 per cent down.