PPI review – the end of free banking?

The High Court rejection of the BBA PPI case will potentially leave banks with a £10bn bill. Could this mark the end for free banking?

The High Court rejection of the BBA PPI case will potentially leave banks with a £10bn bill – a cost that is likely to trickle down to the consumer.

Could the decision even signal the beginning of the end for free banking?

Kevin Mountford of moneysupermarket.com says: “PPI policies have been an important revenue stream for the banks in the past.

“While it’s great to see the industry held accountable for its mistakes, the fear is that British consumers will end up picking up the bill, and we may see the end of “free banking” as providers seek to recover their losses through other channels.”

In a debate last December organised by the Commission on Banking (CoB) Barclays ex-Chief Executive John Varley stated: “It is possible that free-if-in-credit banking is a structure that has outlived its time.”

He described the concept as “idiosyncratic by the standards of the world” and said it was worth examining.

The latest research suggests banks are already increasing their charges to help offset the compensation they expect to pay customers.

The rates on 18 credit cards have increased since the beginning of the year, compared to just four during the same period a year ago, according to research by personal finance website Moneyfacts.

It found credit card providers have increased rates by between 0.6 per cent and 2 per cent, bringing the average rate charged on credit cards to 19.1 per cent, the highest level in 13 years.

Michelle Slade, a spokesman for Moneyfacts, said: “The card providers have moved to a positive order of repayments, so they can’t leave the most expensive debt on the cards for longer now. They have also been hit by the PPI ruling. Both have lost them revenue. It appears they are trying to offset this loss by raising rates elsewhere, just like they did when they were made to reduce the penalty fees on credit cards.”

Could the suggested divestment of investment businesses also reduce income flow and be another nail in the possible coffin of free banking to all? If we are all charged for a currently free service from which we benefit, what impact will this have on the way the banks handle and manage the assumed increase in complaints?

Indeed, if we are all affected, will there be a case to be made?

As always we welcome your views and opinions.

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