15th August 2017

CMA issues directions to the Co-operative Bank regarding current account charges

The Retail Banking Market Investigation Order 2017 (the Order) followed the Competition and Markets Authority’s (CMA’s) market investigation into retail banking. It requires, from 2nd August, 2017, that providers of personal current accounts must specify a ‘monthly maximum charge’ (MMC) that any customer could be charged for using (or attempting to use) their unarranged overdraft.

The Co-operative Bank applies a quarterly maximum charge. This is similar to an MMC but is calculated differently and does not comply with Part 7 of the Order. The direction, issued by the CMA ensure that the Co-operative Bank complies with Part 7 of the Order by 5th January, 2018, and compensates any of its customers who have been negatively impacted by its failure to do so earlier.

On the 26th May, 2017, following discussions with the CMA, the Co-operative Bank wrote to the CMA setting out why it would not be compliant with Part 7 of the Order by 2nd August, 2017. A ‘unique combination of issues’ were identified and set out in the letter:

(a) The change is more significant for The Co-operative Bank than for other banks. The Co-operative Bank currently applies a quarterly maximum charge and, therefore, does not have an overdraft charging model or system configuration that would allow it to achieve a swift roll out of a move to the MMC model. Moreover, to avoid any unnecessary confusion and complexity, any changes to the charging model should be coordinated with the end of a quarterly charging period.

(b) The Co-operative Bank has to follow time-consuming practical steps that other banks may not face. Because of the significant nature of the change to The Co-operative Bank's overdraft charging model, at least one notice of variation to customer current account terms and conditions is inevitable. In line with current account terms and conditions and regulation, providers are obliged to provide 60 days’ notice to customers of any detrimental change to their account. Those banks that already have monthly overdraft charging models may not have to complete this exercise.

(c) IT/Delivery challenges. The Co-operative Bank's banking system that runs the overdraft charging model is based on historic technology. As a consequence, any change takes significant time to design, build and test to ensure there are no downstream impacts or unintended consequences to customers. This is a lengthy and costly process involving multiple 3rd party providers.