Financial Services Bill

I agree, in the sense that the term "free banking" is something of a misnomer, which is why I have referred to "so-called free banking". There are currently 17 basic bank accounts available from the major banking providers. They are popular with low-income households, because there is no cost for everyday transactions, and they are all accessible at post office counters. I am proud of the fact that this Labour Government have made a great deal of progress in assisting low-income households and the financially excluded. The work that we have done on basic bank accounts is a major step forward. I am concerned that forcing banks and building societies to offer so-called free services more generally could create a lot of unintended consequences and potentially have anti-competitive effects. If we restrict the ability to impose charges, incumbent firms will tend to generate revenue through lower interest rates or extra-cost voluntary options that were previously free. They might also restrict associated services and other mechanisms, which would cause consumer detriment. There may be elements of cross-subsidy in the current banking system, but most customers basically pay for the service in one way or another—I agree with the hon. Member for Chichester (Mr. Tyrie) on this point—such as through interest forgone or charges for ancillary services. Some pay currently through withdrawal penalties, overdraft charges, charges for bouncing a payment and so on. New clause 9 would only ban charges for holding an account. It would create opportunities for circumvention, because it would create uncertainty about the scope for ancillary services and charges associated with the account. Again, many banks and building societies charge for such services as additional statements, stopping payments, using cards and cash machines overseas or issuing a banker's draft. Such charges may come under challenge if new clause 9 were adopted, thereby potentially creating a lot of unintended consequences. What I want to say, I suppose, is, "Let's be realistic." If some charges are ruled out, new ways of raising revenue will be found. It is conceivable that a charge could be imposed for making a withdrawal or, as happens in business banking, making a cash deposit, or for other types of transactions. Banks and building societies are there to make a profit; they should not be expected to offer a loss-making service. However, it is in the public interest that we should pursue them to ensure that they do their bit to help low-income and vulnerable households, which has indeed been the broad thrust of Government policy. I recognise that there are transparency issues with charging for personal accounts—we have had a helpful debate on that—which is why the OFT has been investigating the state of the market for personal current accounts. It published interim reports in July 2008 and October 2009, and it is working with the banks to address the complexity and lack of transparency that it has identified. Those points relate principally to unclear charge structures and disproportionate charges in some circumstances. The Government believe that that is the right way to tackle problems in the market, although it is also right that hon. Members should highlight the issue of transparency. Let me turn to new clause 15, which would amend the Unfair Terms in Consumer Contracts Regulations 1999 and would allow for the assessment of the fairness of certain charges in financial services contracts. However, the fairness assessment would be limited, being confined to circumstances in which fees are potentially payable but would not necessarily arise; in other words, it would be limited to contingent charges. I fully understand the reasoning behind how my hon. Friend the Member for Edmonton (Mr. Love) has structured new clause 15. It would address charges for bouncing a cheque, for example, where a bank customer may or may not exceed an overdraft limit. New clause 15 would extend contingent charges across the entire financial services sector—we had a debate about that in Committee—and would go well beyond bank lending to include savings and investments, insurance, debit and credit cards, pensions, payment services and other types of consumer financial services. I understand the point made by the hon. Member for South-East Cornwall (Mr. Breed)—that we should not sanction unfair charges, no matter where they occur—but would simply say that the broad structure of new clause 15 has not been fully thought through, in terms of the overall costs and benefits. I understand that one of the key points behind new clause 15, which stands in the name of my hon. Friend the Member for Edmonton, is to address bank overdraft charges, which were subject to the recent test case by the OFT. He knows that the Supreme Court ruled in that case that the OFT cannot assess whether bank charges for unauthorised overdrafts and unpaid items are unfair under the Unfair Terms in Consumer Contracts Regulations 1999, on the grounds of the adequacy of price as against the service provided.