Bank of England Executive Director Andrew Bailey said free banking for checking accounts in the U.K. is a “dangerous myth” that may encourage banks to mis-sell other products and makes weighing its cost difficult.
“Nothing in life is free,” Bailey said in a speech in London today. “The reform of retail banking in this country cannot move ahead unless we tackle the issue of free in-credit banking, and have a much better sense of what we are paying for and how we are paying.”
U.K. consumers have access to checking accounts at banks for free, unless they are overdrawn or break rules, which attract fees. Britain’s four largest banks have set aside at least 6.4 billion pounds ($10 billion) to compensate customers who were improperly sold loan insurance, including Lloyds Banking Group Plc, which accounted for more than half of the total.
“It’s a complete myth that banking is free now,” said Richard Lloyd, executive director at consumer group Which? in an e-mailed statement. British consumers pay more than 9 billion pounds a year in fees and lost interest on their checking accounts, he estimates.
“The idea that if banks charged more, they would stop trying to mis-sell other financial products is completely unfounded,” said Lloyd.
Bailey “forgets that stock market-quoted and shareholder value-driven banks maximize fee income and they will do that regardless of free banking,” said Ismail Erturk, Senior Lecturer in Banking at Manchester Business School.