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August 23, 2007

Competition Commission lifts business bank rate limits

Link: Competition Commission lifts business bank rate limits
Filed under: Money News, Business News, General News

by Jan Harris

Competition Commission lifts business bank rate limits
The Competition Commission has announced plans to lift the price controls it imposed on business bank rates in 2003.

The controls were put in place to make it easier for small and medium-sized businesses (SMBs) to move accounts and to make prices more transparent.

Under the rules, the UK’s four largest banks, Barclays, HSBC, Lloyds TSB and Royal Bank of Scotland, have to offer SMBs an account with a rate of at least 2.5% below the base rate.

Between them, the four banks control 85% of small business accounts.

The Competition Commission now plans to relax the rules to allow the banks to lower the level of interest on deposit accounts below the level set in 2003.

The Commission has decided that the rules are no longer necessary because other banks, such as HBOS, Abbey, and Alliance & Leicester, have now improved their market position and ability to compete.

Also, SMEs now have higher expectations of bank services and are more likely to switch banks to secure the services they need.

The Commission believes that these factors will be able to constrain the actions of the UK’s four largest banks.

The banks are still required to publicise any changes in their charges and are not allowed to make the supply of SME banking services conditional on taking other services, such as loans or personal current accounts.

The Competition Commission’s decision is still provisional, and a period of consultation will run until 28 September.

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