Basic Bank Accounts will be reformed by end of 2015 with fees abolished and greater clarity for consumers guaranteed

Individuals whoíve suffered the ignominy of racking up a poor credit rating have been given a boost as basic bank accounts have been reformed to comply with new EU rulings, with a number of charges being scrapped.

Over a million people currently hold a basic bank account due to their chequered credit history, and despite these accounts not coming with overdrafts or in-credit interest, account holders have still had to show great vigilance when monitoring direct debits and card payments due to the costly penalty fees that are activated in the case of mishap.

If an account does not hold sufficient funds and a direct debit payment is due, or a card payment is made, then account holders will be subjected to an initial penalty fee of £25 which can increase if not paid by a certain date.

Due to their lack of an overdraft facility, banks tend not to heavily advertise these accounts, as overdraft fees are the means by which banks are to cross-subsidise other ëdealsí they have on offer. Yet, due to basic bank accounts retaining the same administrative costs without the potential for profit from overdrafts and in-credit interest, they are far less attractive for lenders unless borrowers default on direct debit payments and are forced into paying penalty fees.

Even in the case of a hopeful applicant failing a lenderís credit check, traditionally he/she will be outright rejected rather than being informed of the basic bank account theyíre eligible for.

However, the EU Payment Accounts Directive specifies that everyone must have unobstructed access to a basic bank account by 2016, and these banks must come with no fees attached bring to an end both an age of banks obscurity over the availability of these accounts and lenderís levying of penalty fees to struggling account holders defaulting on direct debits.

Treasury economic secretary Andrea Leadsom said: ëIt will end people being effectively locked out of their basic bank accounts due to high fees and charges when their payments failed.

ëEnding this unfair situation is a real step forward for the banking industry’s most vulnerable customers and improving access to banking is a key part of our long-term economic plan.í

Britainís biggest lenders, including Barclays, HSBC, Lloyds Banking Group, Santanders and RBS have all consented to the clear provision of basic bank accounts in accordance with EU rulings by the end of 2015.

Whilst these accounts will continue to come without overdraft features or in-credit interest, in doing so retaining their attractiveness to credit-poor borrowers, account-holders will enjoy an evener playing field with conventional current account holders.

At present, a number of basic bank account-holders do not possess a conventional debit card and thus, are missing out on the great value to be found whilst shopping online. The hit to this groupís convenience and quality of living is indubitable when the greater technological focus the UK is undergoing in all sectors is considered, whilst the aggravation suffered by many in the vagueness of provision from banks across the board is a reality suffered by too many people locked out of the banking sector.

Mike O’Connor, chief executive of StepChange debt charity, said: “The experience of our clients is that access to basic bank accounts is extremely sporadic across the sector, and things like high charges and limited access to cash machines can cause real problems on a day-day basis.

“This move will give hope to the millions of people who currently feel locked out of the banking system, and help them to regain control of their finances.

“However, signs of financial difficulty should not be ignored. We would urge banks and those across the credit sector to do more to recognise when people are falling behind on their essential bills and credit commitments, and signpost them to free independent debt advice as early as possible.”

It is hoped that the reforms made to the basic bank account will aid those in financial turmoil who intrinsically struggle to manage their money, as they will come attached with features directed at budgeting and saving funds for essentials such as bills and food, whilst also yielding a greater degree of clarity as to what consumers are in store for.

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