166 lines
4.7 KiB
Plaintext
Executable File
166 lines
4.7 KiB
Plaintext
Executable File
finance
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personalfinance
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consumertips
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banking
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8421688
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-----
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# Treasury Select Committee: 'Free banking is not free
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## According to the Treasury Select Committe Report the term free-in-credit
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banking is a misnomer, given that consumers with positive balances pay through
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interest foregone.
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![Free banking graphic][1]
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[![Paul Farrow][2]][3]
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By [Paul Farrow][4] 6:30AM BST 02 Apr 2011
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[Comments][5]
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The report also says that it clear that so-called free banking has important
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distributional consequences. A minority of consumers, often those on lower
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incomes, pay explicit charges associated with overdrafts. This results in high
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prices and poor outcomes for a sub-set of consumers. Meanwhile, other
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consumers, often on higher-incomes, do not pay explicitly for their current
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account provision, in spite of the fact that their account provision clearly
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does incur a cost.
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The Report notes that whilst it is undesirable from the perspective of
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'fairness,' cross-subsidy is not always wrong. For example, it exists in the
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airline industry where customers who book early are cross-subsidised by those
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who book later. However, pricing is far more transparent and customers can
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easily switch airline provider. These conditions are not present in the
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current account market where cross-subsidy is opaque and switching costs are
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high, it says.
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Committee Chairman Andrew Tyrie said:"For competition to be effective,
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customers need to know what they are buying, how much they are paying and to
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be able to transfer their custom from one provider to another without risk.
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In its 2008 market study on personal current accounts in the UK the OFT
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estimatedthat the banks earned £8.3 billion in revenues from personal current
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accounts in 2006 and that average bank revenue from a current account was £152
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per customer per annum.
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Sarah Brooks, Head of Financial Services at Consumer Focus, said: "The
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Treasury Committee has recognised what consumers have long known. The banking
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sector is not sufficiently competitive and is failing many of its customers.
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Today's report echoes our own research1 which shows this lack of competition
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is contributing to low switching rates on current accounts and the selling of
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overly-complex products, which mean consumers are losing out.
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## Related Articles
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* [How to switch your bank account][6]
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19 Jan 2011
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* [Breaking up with your bank doesn't have to end in tears][7]
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05 Apr 2011
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"Banks have got to start working in the interests of the customers who provide
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their life-blood. Consumers need the upcoming review by the Independent
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Commission on Banking (ICB) to put forward strong recommendations which will
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help to remedy the very obvious and wide-spread failures in this market."
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Which? chief executive Peter Vicary-Smith, said: "This report makes sadly
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familiar reading. We've known for a long time now that retail banking in the
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UK is uncompetitive, that consumers don't know how much they pay for their
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current accounts and that switching rates are low. The market is crying out
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for an injection of competition.
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"Increasing transparency may help to improve switching and competition but it
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won't ensure that overdraft charges or other fees are fair. We agree with TSC
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on the importance of a public interest test when the Government sells its
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stakes in Northern Rock and Lloyds Banking Group. Any sale must inject
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competition into the market - simply going with the highest bid will just
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leave consumers short-changed in the long-run."
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[**![][8] **][9]**[Banking and Finance][10] vacancies at [Telegraph Jobs][11]
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**
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[**![][12] **][10]
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[X][13] Share & bookmark
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Delicious Facebook Google Messenger Reddit Twitter
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][14]
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* Share: [Share][13] [ ][15] [ ][16]
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[Tweet][17]
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http://www.telegraph.co.uk/finance/personalfinance/consumertips/banking/842168
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8/Treasury-Select-Committee-Free-banking-is-not-free.html
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Telegraph
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## [Banking][18]
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* ### [Finance »][19]
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* ### [Personal Finance »][20]
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* ### [Paul Farrow »][3]
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* ### [Savings »][21]
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[![pensions-calculator][22]][23]
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### [Pensions Calculator][23]
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[![currency exchange][24]][25]
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### [International Money Transfer Service][25]
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Related Partners
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* [10 ways to keep your ID safe][26]
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[X][13] Share & bookmark
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Delicious Facebook Google Messenger Reddit Twitter
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][14]
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Share:
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* [ ][13]
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* [ ][15]
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* [ ][16]
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* [Tweet][17]
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* Advertisement
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![][27]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][28] [blog
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comments powered by Disqus][29]
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Advertisement
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[Telegraph Offers »][30]
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* [Finance][31]
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* [Investing][32]
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* [Retirement][33]
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