No such thing as free banking, says FSA's Andrew Bailey

Regulator's senior executive also claims "suicidal competition" to blame for mis-selling of PPI.

A senior executive at regulator the Financial Services Authority (FSA) has said that there is “no such thing as free banking” and the industry needs to become far more transparent.

Andrew Bailey, the FSA’s Director of UK Banks & Building Societies, was speaking at the Future of Retail Banking Conference.

Discussing the idea of 'free' banking, he alluded to charges such as those levied on unauthorised overdrafts, saying: “What it really stands for is that charges are levied inconsistently across products supplied by banks, with the consequence that some appear to be free.”

He called for banks to introduce “transparent terms” for customers to “give the public what it wants, at a fair price”.

Last week, the Government announced that it had asked banks to end unauthorised overdraft charges for people who go into the red by a small amount. And banks have agreed to send text and email alerts to customers nearing their account limit in a bid to prevent them going overdrawn and getting charged.

But the fact that the measures are voluntary, and not official legislation, was criticised by consumer groups.

Rate competition led to PPI scandal

On mortgages, Bailey said that “arguably suicidal competition” between lenders before the financial crisis had contributed to the mis-selling of payment protection insurance (PPI). Low mortgage rates were subsidised by the sale of products such as PPI during the credit boom of the noughties.

He also said that he doesn’t believe “that it is sustainable to have the average age of a first-time buyer getting near to 40”. Last week, Bank of England economist David Miles claimed the average age of a first-time buyer could hit 44.

In his speech, Bailey said “there is an urgent need to improve the form and terms of lending, to households and small businesses”. But he argued that “squeezed lending margins” were making it tough for banks in the current economic climate.

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