CMA Cracks Down on ‘Bundling’ Rules Breach at Top UK Banks

The United Kingdom’s Competition and Markets Authority (CMA) this week announced that it has directed NatWest to issue refunds after it was found to have breached banking rules that forbid “bundling.”

By forcing business customers to open a current account to secure a loan, businesses incur unnecessary fees and that amount to “a direct breach of our rules, which have been in place for 20 years,” the CMA said in a statement.

As a result of the authority’s decision, NatWest is set to pay out £600,000 (about $598,000) in refunds to hundreds of businesses.

The latest move comes as part of the CMA’s crackdown on ‘bundling,’ a practice the authority has already intervened to stop at other financial institutions including HSBC, Danske Bank, Clydesdale Bank and Lloyds.

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A Recurring Issue for UK Banks

In the case of NatWest, the CMA said that the issue lasted for over 3 years, during which time the bank signed certain customers up to a business account when they had specifically requested to have a fee-free account.

Danske Bank, Clydesdale Bank and Lloyds were reprimanded for bundling in relation to the COVID Bounce Back loan scheme in which small- and medium-sized businesses (SMB) were able to borrow between £2,000 and £50,000 at a low interest rate, guaranteed by the government.

The scheme, which ran between 2020 and 2021, was intended to help SMBs weather the impact of the pandemic. But like NatWest, the banks were found to have encouraged business customers to open a fee-incurring business current account when a free account may have been better suited to their needs.

While Danske Bank had already remedied the breach and paid compensation by the time the CMA got involved, Clydesdale and Lloyds both offered fee-free periods to businesses that opened a new current account under the scheme.

Despite this caveat, the CMA found the practice was still in breach of the law as small business customers may keep their account open for longer than the fee-free period, resulting in charges for an account they didn’t need or want.

To remedy the situation, both banks wrote to all affected customers to inform them of their rights to switch to a fee-free account or move to another provider without affecting the status of their loans. The CMA noted that Clydesdale Bank had already carried out these actions by the time the breach was registered with the authority.

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In the largest bundling case to date, last year over 200 SMB customers at HSBC were wrongly told they had to take out a business current account to be able to access a loan over a nine-year period between 2002 and 2021.

The CMA also stepped in then, directing HSBC to implement measures to prevent the breach from happening again, including a mandate to improve staff training.

HSBC later wrote to affected customers to waive the non-compliance clauses from the relevant loan agreements and has also offered refunds of all the current account fees and charges, while making it clear they don’t need to keep an HSBC account to have a loan with the lender.

Commenting on the case, Adam Land, senior director at the CMA pointed to the ultimately straightforward nature of the issues at hand. “The rules are clear,” he said, “banks should not ask customers to open or retain business accounts in order to have a loan with them.”

For many SMBs, business current accounts are superfluous to their needs and an unnecessary expense yet credit facilities such as the COVID Bounce Back loans can make the difference between a business succeeding or going bust.

So, by cracking down on a practice that allows banks to profit at the expense of the small businesses, the CMA is taking an active stance to protect these small firms that form the lifeblood of the British economy.

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