Big banks accused of £500m rip-off

SEVEN in ten customers are being ripped off by the big banks in a £500m-a-year scam, it has been claimed. The accusation came from the Consumers' Association, which urged customers to have the courage to switch banks.

The watchdog hopes to fuel a 'consumer power' revolution that will force banks to offer better value - or lose millions of customers. The move poses problems for the big four in the wake of successful public campaigns against mortgage rip-offs, overcharging on gas and electricity and genetically-modified food.

Barclays, Royal Bank of Scotland, which includes NatWest, HSBC and Lloyds TSB have been posting record profits, helped by high charges and poor value interest rates.

Bad deals on current and deposit accounts, together with high charges on mortgages, credit cards, loans and overdrafts have proved a goldmine. The banks have been able to cash in on customers' reluctance to shop around and move their accounts, making them a captive market. This reluctance has been fuelled by concerns that monthly payments, such as direct debits on mortgages and bills, will be disrupted, so damaging their credit record.

The banks have also made life difficult by building bureaucratic hurdles to make moving to a rival more difficult. Now the association's magazine Which? has set up a website spelling out exactly how to switch banks and saying which offer the best deals. The website - which can be found at www.switchwithwhich.co.uk - allows consumers to compare current accounts, and provides details of potential savings and customer service levels.

An association spokesman said: 'The big four banks consistently fail to offer good value financial products. They pay a paltry 0.1% interest on current account credit balances, compared with more than 3% elsewhere. And although the best overdraft rates are less than 9%, the big four charge up to twice this. If the 70% of consumers currently with the big four banks switched allegiance, total savings could reach up to £500m.'

The association has been forced to step in to fill a void left by the Government's failure to crack down on unfair practices. A Treasury backed study 18 months ago suggested the scale of the scam could run into billions of pounds a year.

But while the Chancellor has announced regulations to offer a better deal to small businesses, nothing has been done for families.

LibDem trade spokesman Dr Vincent Cable said: 'The Government has done virtually nothing. They've been walked over by a well-organised sector of corporate Britain.'

In November the banks introduced systems to improve the speed and accuracy of transferring direct debits, previously the main problem for those wanting to switch. But Which? editor Helen Parker said: 'Because most people don't switch, the big banks have no reason to change. A staggering 23m people have never even considered switching to another bank.'

Research by Internet bank Intelligent Finance found younger, more affluent customers were leading the move away from traditional banks.

A spokesman for the British Bankers' Association said: 'The financial services market is hugely competitive and there are a lot of players offering a wide range of accounts, all with different features aimed to meet a variety of needs.'

Barclays said it had 'revitalised' its current accounts with, for example, lower overdraft rates. HSBC said customers should look beyond their current accounts to the value offered by its savings and mortgage deals. 'Consumers are more interested in saving serious money on their mortgage than small change on their current account.'

Lloyds TSB said: 'We believe our current accounts offer excellent value. We would encourage switching and hope people switch to us.' A similar line was taken by Royal Bank of Scotland.