Price controls to end on SME bank charges
The Competition Commission has announced that price controls placed on the UK’s four largest banks for servicing small and medium-sized business accounts are to be lifted, provisionally at least.
The controls mean that the banks – Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland – have to offer all SME customers either interest on credit balances at a specified rate (2.5 per cent below the Bank of England base rate or higher), or free core money transmission services (such as direct debit payments and cash transfers).
The purpose of the controls, which were imposed in 2003, was to make the SME banking market more competitive.
In its announcement, the Competition Commission (CC) said that the price controls were temporary and that other banks have been competing more effectively for SME customers.
Christopher Clarke, the CC’s deputy chairman, said: “We believe that these price controls are no longer appropriate. They were intended to be temporary and have now been in place for over four years. During this period, other significant banks, such as HBOS, Abbey, and Alliance & Leicester, have competed more strongly for SME customers and improved their market position.
“SMEs have raised their expectations of what banks should provide and are more likely to consider switching if they do not get what they want. They are therefore better placed to constrain the actions of the four banks which were subject to the price controls, Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland Group.”
However, Mr Clarke went on to add that the CC recognises that the four banks subject to the controls still have 85 per cent of the SME market.
For that reason, they will remain bound to publicise any changes in their charges.
All banks that provide SMEs with a service will have a continuing obligation to ensure that prices are transparent, that business customers find it easy to switch accounts and that banking services are not dependent on agreeing to other products such as loans or personal current accounts.
The CC said that it would scrutinise all SME banks following the lifting of the price controls, alerting businesses to any “worsening of their offers”, and would work with the banks to ensure that SMEs become more aware of the banks’ obligations to make it quick and easy for them to switch accounts.
The Office of Fair Trading (OFT) welcomed the CC’s announcement, saying it would boost competition to provide essential banking services to small business customers.
John Fingleton, the OFT’s chief executive, said: “This is an important step in the development of further competition in the business banking sector. It will allow banks greater freedom to innovate and compete for customers, and will be most beneficial for those prepared to consider switching their banking service provider. The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If we find that competition is not working well for SMEs, we will consider further action.”
However, small businesses have criticised the proposal.
The Federation of Small Businesses (FSB) expressed its disappointment at the lifting of the restrictions.
It pointed out that a recent survey of 4,000 small businesses revealed that seven out of ten firms were unaware of the controls and that over 50 per cent have not been provided with lower interest rates or free banking.
A spokesman for the FSB said: “We’re really upset the Competition Commission seems to have completely ignored this. We’ll be responding again and we’ll emphasise to them that small businesses are not getting what they are supposed to be getting. We don’t understand why they are ignoring the facts.”
The CC said that the consultation on lifting the price controls will close on 28 September.
Date:23 August 2007
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