Britain's competition watchdog is likely to call for bank charges to be made clearer when it publishes the findings of an investigation into the industry next week, according to banking sources.
The Competition & Markets Authority has been investigating the market for personal current accounts and small business banking services since November last year and is due to publish its provisional recommendations on Thursday.
Lawmakers and regulators are keen to break the dominance of Britain's big five banks - Lloyds, Royal Bank of Scotland, Barclays, HSBC and the British arm of Spain's Santander - which control 85 per cent of the personal current account market and provide more than nine out of 10 loans to small businesses.
However, the watchdog is expected to resist calls for big banks such as Lloyds and RBS to be broken up and will instead focus on pricing and measures to encourage switching between lenders and make it easier for new banks to compete.
Executives at so-called "challenger" banks have this week called for changes in the way banks charge for services.
TSB chief executive Paul Pester said banks should be required to tell customers how much they've paid for their banking services each month.
He said TSB's internal research had suggested British banks make between £7 billion and £8b each year from personal current accounts even though accounts are presented to customers as "free" and without monthly fees.
The banks make money because interest rates on personal current accounts are often lower than the levels offered with savings accounts or the benchmark rate set by the Bank of England. Customers are also charged for going overdrawn without permission and for making certain transactions.
Virgin Money chief executive Jayne-Anne Ghadia said so-called "free banking" distorts the marketplace but questioned whether there would be the political appetite to take it away.
Industry experts agree that such a move might prove unpalatable for politicians.
"MPs might have to explain to their lower middle income constituents why they now have to find around £50 to £120 per annum to pay for a current account that for most part has been fee-free for decades," said Peter Hahn, senior lecturer in finance at Cass Business School.
Banking sources say the CMA could recommend a cap on the fees that banks can charge but such a move would not be popular with new banks.
The watchdog has examined the possibility of enabling customers to switch banks while keeping the same account number and whether rules allowing customers to switch banks within seven working days have been effective, the sources said.
The CMA has also reviewed competition in small business banking. Many small firms find it hard to move banks because they cannot take overdraft facilities with them to a new lender. The findings could look at ways to make that easier.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here