4.95 As discussed, of those that entered unarranged overdraft, few stated that they knew they would use an unarranged overdraft; in most cases it was not a deliberate decision. This may, in part, be due to the complexity of estimating the likelihood of entering unarranged overdraft.
4.96 In light of this we asked consumers156whether they want their bank to process debit card transactions that take their current accounts into unarranged overdraft, and whether they would opt out of an unarranged overdraft if they could. Fifty seven per cent of consumers with an arranged overdraft said that, if they were making a payment using a debit card that would, without them realising, take their current account into unarranged overdraft, they would not want their bank to process that transaction. The figure rose to 71 per cent for those without an agreed overdraft limit, making 62 per cent of all consumers when the two groups are combined.
4.97 As a follow up question, we asked respondents to imagine the possibility of agreeing up front with their bank that no debit card transactions that would lead to them going into unarranged overdraft would be processed. Fifty seven per cent157of those with an arranged overdraft said they would take this option and that, instead of paying any charges, they would rather have to make alternative payment arrangements. The same option was chosen by 55 per cent158of those without an arranged overdraft.
4.98 This highlights the lack of control consumers seem to have over this aspect of their current account. Even those who do not want to use an unarranged overdraft, and are willing to have debit items rejected if necessary, are unable to opt out. It is not clear why no bank has offered an opt-out facility, and we do not consider a basic bank account to be a sufficient substitute for a mainstream current account. It may be the case that there is not a strong financial incentive for banks to offer an opt-out.
155 However, the likelihood of use of different methods to access accounts varies by consumer type.
156 In the February 2008 GfK survey, sample size 822 of which 505 had an arranged overdraft limit and 317 either didn’t or weren’t sure (these were grouped together).
157 This percentage is calculated from a base excluding 63 of the 505 respondents who did not know whether they would take the option or not.
158 This percentage is calculated from a base excluding 69 of the 317 respondents who did not know whether they would take the option or not.
Box 4.14: Summary of issues relating to insufficient funds charges Consumer knowledge and understanding
• 21 per cent of consumers said they had not heard of the charges before they incurred one
• 67 per cent did not know how much their bank’s charges were
• In Northern Ireland, according to the Competition Commission report, many consumers thought they had not been charged when they had
• Some banks’ documents reported that consumers focus on other aspects of a PCA and used it as evidence to show a proposed rise in insufficient funds charges would not affect PCA sales (see chapter five)
Complexity of assessing the likelihood of using an unarranged overdraft
• Consumers are not always presented with sufficient information to calculate whether they are likely to enter unarranged overdraft
Complexity of the application of insufficient funds charges
• The way in which insufficient funds charges are applied is complex and most consumers do not have sufficient information on which to assess how much charges could be
• The Competition Commission found that charges were ‘unduly complex’ in Northern Ireland
• The OFT survey of information found that information on the application of charges was difficult to find
Consumer overconfidence
• Psychological analysis of ‘in depth’ interviews showed that consumers are overconfident and underestimate the likelihood of incurring a charge
• 57 per cent of consumers that incurred charges in 2006 also incurred at least one in 2005
• Only five per cent of people we surveyed said that lower charges were an important factor when they opened their main account, and there was no significant difference between those who had experienced insufficient funds charges in the last 12 months and those who had not.
Inability to opt out of unarranged overdraft
• In our omnibus survey more than half of the respondents said that they would opt out of an unarranged overdraft if they could and well over half said they would not want a debit card transaction processed that would take their current account into unarranged overdraft.159
159 Excluding those who said they didn’t know.
Consumers’ awareness of warnings
4.99 There appeared to be some concern about the timing and lack of warning concerning the impending charges in our ‘in depth’ interviews, for example:
‘If you get a letter it’s already too late which is a bit stupid because, although they say in the letter that you can put your current account back in credit today, it doesn’t give you any chance because the letter won’t arrive the same day.’
4.100 There is also evidence from the interviews that consumers do not understand the way multiple charges can accumulate or ‘snowball’ from, perhaps, one payment:
‘I thought I’d be charged maybe £15 or £20 in total, but they walloped me with something like £70 in total.’
4.101 More recently we understand that some banks have taken steps to alert consumers when they are about to, or are, using an unarranged overdraft including by text message or on an ATM display.
4.102 Consumers also have a responsibility to try to stay informed. Our survey found that while many consumers said that they read their statements, few read other material sent by banks.
Forty five per cent of consumers ‘rarely’ or ‘never’ read material sent by the banks and a third (33 per cent) only ‘sometimes’ read the material. Since the information referred to includes interest rate changes and product information we might expect consumers to pay more attention to it than they seem to.
4.103 Awareness of the cost of using an account is important as it can vary substantially depending on how the consumer uses it and between different banks. Annexe C illustrates how the cost, or even return, on accounts can vary by broad consumer category. Consumers with larger credit balances will pay significantly less than those with large debit balances and lots of insufficient funds charges but they may forgo interest by holding large credit balances.
Customer satisfaction
4.104 We explored customer satisfaction in our consumer survey. Cost is only one aspect in value for money. Another important factor is the service a customer gets for their money. Chapter three explores the significance of customer service to the market more widely.
4.105 Specific questions in our consumer survey on customer satisfaction with current accounts show that satisfaction is broadly positive. On a scale of one to ten, where one is poor and 10 very good, customer service and value for money were both rated favourably with each having a mean answer of over seven.
4.106 While this is clearly an important result in its own right, the ‘in depth’ conversations highlighted that satisfaction can reflect an absence of problems rather than a very positive experience. In some cases unless there is a problem consumers tend to be content with the bank, as represented by this quote, ‘They make all the payments on time, they seem to be efficient and things seem to run smoothly,’ rather than the bank doing anything more than expected. In addition, in the consumer survey satisfaction was lower for those who had incurred an insufficient funds charge.
4.107 The Competition Commission’s Northern Ireland report found that satisfaction levels were much lower in their ‘in depth’ interviews than in the quantitative survey. The Commission stated that ‘we consider that the [high] satisfaction ratings in the MORI survey reflect an absence of active and informed customers’.160The OFT’s Market Study report into Payment Protection Insurance (PPI) and the Department of Trade and Industry’s 2001 switching survey161came to a similar conclusion about the satisfaction levels of uninformed consumers.
The extent to which a consumer can be satisfied with the value for money of a product if they do not know what it effectively costs them, as we have found can be the case, can be questioned.162