The Co-operative Bank has fallen foul of new watchdog rules governing overdraft charges because it could not update its IT systems in time.
Following a report on the retail banking industry last year, the Competition and Markets Authority (CMA) ordered banks to tell customers the maximum charge they face each month for unauthorised use of their overdraft.
This came into effect on 2 August – but in March, the Co-op Bank wrote to the watchdog explaining why it could not comply by that date.
In response the CMA has given the Bank a detailed list of instructions to hit a new deadline of 5 January next year.
In its letter, the Bank said it found the change more significant than other banks and set out a “unique combination of issues” which meant it could not hit the 2 August deadline.
It said it wanted the changes to come at the end of a quarterly charging period, to avoid confusion, and added that the new rules mean a change to terms and conditions on customer accounts. By law, providers must give customers 60 days’ notice of such changes.
And it said its computers only generate quarterly data, with no overdraft charging model or system configuration to allow a swift transition to the new regime.
With its overdraft charging based on historic technology, the Bank said it needed time to design, build and test a new system – a lengthy and costly process involving multiple third party providers.
In response, the CMA has ordered the Bank to design and build a new system to comply with the new rules and put a series of deadlines in place.
System testing must be completed by 29 September, end-to-end testing by 14 December, and the system operational on 5 January 2018.
The Bank is also ordered to tell all its customers of the change in terms and conditions by 7 November, and keep the CMA updated on progress.
The CMA said it expected around 1,300 customers to be negatively affected by the delay and said these must be compensated by 19 March 2018.
The news is the latest in a series of IT-related problems for the Bank, which has had to separate its systems from those of the Co-operative Group, outsourcing them to IBM.
In 2015, it was ordered by the Financial Conduct Authority to build resilience into its IT system after failing to demonstrate “end to end disaster recovery capability”.
Earlier this month, the Bank reported an interim loss of £135m, in its first results since agreeing a £700m debt-for-equity swap with its hedge fund investors, which reduces the Group’s stake to 1%.