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Financial Services Authority warns that free banking is bad for customers

Mon, 06 Dec 2010

The head of the City watchdog has warned that free current accounts are actually bad for customers.

Britain's banks are inundated by 7,000 complaints a day and Lord Turner, the chairman of the Financial Services Authority (FSA), has suggested that the 25-year-old practice of free banking is partly to blame.

Banks use classic 'loss-leader' tactics by leaving nearly all of the 54m current accounts in the UK free to use when in credit . However once ensnared, those customers are then cross-sold other products like loans, cards, mortgages, insurance and pensions .

Lord Turner has warned that loss-leading current accounts just pile the pressure on bank staff to meet stringent sales targets, meaning that everything from credit cards to pensions are sold to unassuming Britons who often do not need or want them. He said: "The current account is essentially a loss-leader which banks provide in order to get hold of a relationship on which to sell other products."
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