Banks will be forced to send alerts to customers going into unarranged overdraft and inform them of a grace period, after a report found lenders make £1.2bn a year from charges.
The change was one of many recommended in a report released this morning, August 9th, by the Competition and Markets Authority (CMA).
The report introduces specific measures to benefit unarranged overdraft users, who make up around 25 percent of all personal current account customers, and small businesses.
These changes could save customers up to £180 per year on average if they typically go overdrawn for one or two weeks every month.
The CMA have requested the Financial Conduct Authority (FCA) to research overdraft alerts and grace periods to maximise their effectiveness.
Further measures proposed to make it easier for customers to switch accounts include increasing the scope of services the Current Account Switch Service (CASS) has to offer.
As part of the report banks are required to implement open banking by early 2018. This will enable customers to take more control of their funds and compare products on the basis of their own data and accounts through a single digital app.
The proposed style of app would use a customer’s transaction information to find the current account they would best suit, or find the best deals for business accounts and loans.
Alasdair Smith, chair of the retail banking investigation, said: “The reforms we have announced today will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks.
“We are breaking down the barriers which have made it too easy for established banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.”
Another recommendation was made to improve the information available on loan prices and eligibility for small businesses.
The largest banks will be required to develop online tools which allow small businesses to input information resulting in tailored indications of eligibility and pricing for lending products.
With more information available for businesses, the CMA believes it will be easier for them to shop around and help to ensure they are less dependent on big banks.
The CMA will now work with the Treasury, FCA and other parties to implement the report’s measures.