Examination of Witnesses (Questions 480
TUESDAY 30 JANUARY 2001
JOHNSON MP AND
480. What is the timescale within which you
will make some response to DeAnne Julius? You say in April she
will report. Are you going to get on with it, assuming you are
still in power?
(Miss Johnson) We will be getting on with it as quickly
as we can, but obviously we will have to see what is in the report
at the end of April. It would be foolish of me to give you a definitive
timetable at this moment, because only when we see the scope of
what is being suggested and any answers that may be suggested
will we able to predict what the exact timescale will be. But
again, we are keen to see this progress rapidly.
481. Minister, would you consider withdrawal
from a cash machine an everyday transaction with a bank account?
(Miss Johnson) Yes, I think so.
482. Could you therefore answer me why in the
consultation paper on Standards for Retail Financial Products
the CAT standard for basic bank accounts does not include free
withdrawals from cash machines?
(Miss Johnson) What we are putting out today is for
discussion and consultation. We will welcome people's suggestions
on ways in which they think other things might be needed in this,
if that is appropriate.
483. But Minister, on page 55 of your consultation
document you say about basic bank accounts on charges that there
should be "no one-off or regular charges for everyday transactions."
You told me that you considered a cash withdrawal from an ATM,
a cash machine, an everyday transaction. I agree with you. Why
then are you proposing in your consultation paper to allow banks
with a CAT standard for a BBA to charge for those withdrawals?
That is your proposal. You published the document.
(Miss Johnson) Yes, and it is for discussion and it
is for people's input, so it is not a finished piece of work.
That is why we have put it out for consultation. What we have
at the moment is a situation where you will only pay for using
an ATM in certain limited circumstances, as I was explaining earlier
on. The effect of the debate around Cruickshank, the public pressure
on ATMs and the measures that we have taken has been that ATM
withdrawal is free for the vast majority of consumers at the vast
majority of ATMs.
484. But you are not proposing that with respect
to CAT standards for basic bank accounts, are you? Am I right?
(Miss Johnson) Yes, but that is an item for further
discussion. We would welcome your views on it.
485. Let me give my views, most strongly, on
behalf of my constituents. My constituents, as indeed do you,
consider withdrawal from a cash machine, an ATM, to be an everyday
transaction. But you are not proposing that a CAT BBA should include
free cash withdrawals. I would suggest to you that most people
would consider that that ought to be free.
(Miss Johnson) They will be free from charges.
486. That is not what it says on page 54. It
only says that withdrawals will have to be free over the counter.
There is some discussion of buffer zones, because there is a minimum
withdrawal from a cash machine of sometimes £10, but it is
not clear in the CAT standard for BBAs which you published yesterday,
or maybe you gave to the press at the weekend, that cash machine
withdrawals should be free.
(Miss Johnson) We published it this morning, as I
am sure you are aware. It says "no one-off or regular charges
for everyday transactions".
487. Are you telling me now, because it does
not appear to be the case when you define that on page 54, that
that includes ATM withdrawals from cash machines? If that is your
line, I am delighted.
(Miss Johnson) It is a question, is it not, of the
inter-relationship between that and the statement "Account
holders must be able to use the following", cash machines,
and a number of other outlets. My understanding of what we are
proposing at the moment is that we should have no regular charges
for everyday transactions.
488. You are looking at page 55.
(Miss Johnson) I have page 53.
489. Turn to page 54. Paragraph 9I have
read it two or three times, but I think it is phrased interestinglydoes
not make it clear at all that all withdrawals from a cash machine
from accounts that have the CAT standard would be free.
(Miss Johnson) What it says is, as you have read yourself,
that account holders should be able to withdraw all their money
free of charge either by free withdrawals over the counter or
through access to a buffer zone, and it goes on to talk about
the minimum withdrawal from a cash machine of £10. It says,
"accounts which do not provide free withdrawals over the
counter should offer individuals a buffer zone, to enable them
to withdraw their last penny via a cash machine." That is
what the buffer zone idea is.
490. But it does not say that it would be free.
The free withdrawals relates to withdrawals taken over the counter.
(Miss Johnson) We are talking about the fact that
they will be free from charges.
491. Maybe you can drop us a note on this.
(Miss Johnson) I certainly can. I will be very happy
to do so.
492. Can I take you on to money transmission
systems. You may be aware that the British Retail Consortium in
relation to your proposals that OFT should have a regulatory position
over this have said that they are not convinced that the modus
operandi of the OFT is appropriate for non-competitive environments
such as money transmission. They are worried about the powers.
Can you address these concerns? Will the OFT have sufficient powers
and be able to devote sufficient time to ensuring there is competition
in money transmission services?
(Miss Johnson) Yes is the answer to your question,
and I am very confident that it will do. I think it is important
just to remember what the issues in terms of competition problems
in the payment systems were that were identified and, just to
run through them quickly, they were things like poor, outdated
governance structures; lack of effective competition between the
schemes; anti-competitive restrictions on access; anti-competitive,
inefficient wholesale prices; lack of innovation; slow and inflexible
service; poor transparency; and an ineffective framework for government
intervention. What we are doing with the new regime is giving
the OFT new powers which will enable them to conduct competition
investigations into the provision of payment services, they will
be able to investigate complaints about competition in payment
services, they will be able to collect information about the way
those payment systems are working, and they will be able to enforce
rules. They will establish an initial set of rules which is aimed
at ensuring price transparency, efficient wholesale pricing, and
fair, reasonable and non-discriminatory access to payment systems.
We are resourcing the OFT specifically for the payment systems
issue, because I think that is also something that needed to be
addressed, and they will have specific duties in relation to the
exercise of their new powers.
493. You said the OFT would have certain powers
to collect information. Can you confirm that they will have full
powers to collect full information on the cost structures of the
payment systems operated by the banks?
(Miss Johnson) They will be able to gain information
that is necessary for them to be able to do their own job and
to make sure that control of the payment systems cannot be abused.
They are also going to have strong enforcement systems. That is
another aspect of it. They will be able to tell providers what
they have got to do to bring a breach of the rules to an end.
They will be able to specify the conditions, including the price,
upon which a new entrant might be granted access to a payment
system. They will also be able to impose financial penalties to
encourage compliance with the new rules.
494. Minister, that sounds like a long way of
saying no to my question.
(Miss Johnson) Far from it.
495. I asked you a very clear question about
cost information, and one of the key concerns that many people
have, looking at the payment system, is that a lot of the costs
are hidden, and the experience of the regulators in other industries
is that unless they have specific powers to go after the information
on those costs, they cannot promote competition and prevent monopoly.
My question to you is: can you reassure this Committee that on
the specific issue of costs, the OFT will have sufficient powers
to go after that information?
(Miss Johnson) Yes, and I was trying to expand on
the ways in which they will have the ability to go after that
information and to enforce their decisions when they have gone
after that information. The answer is a very categorical yes.
496. Can you just explain to the Committee then
why you went for the OFT solution rather than PayCom as proposed
(Miss Johnson) We have a system at the moment where
we have a number of regulatory bodies already alongside the Bank
of England who are dealing with payments issues. There is the
FSA itself and the Financial Ombudsman as well. We felt it was
probably better to give the powers to an existing body. Of course,
the OFT has significant expertise in this sort of area because
they have dealt with competition more widely, and competition
issues, indeed, in the financial services sector explicitly as
well in the past. So there are issues and experience there in
common with their present role. It fits in with their remit to
deal with competition in all sectors of the economy. All in all,
we thought there was a very good fit, and I have to say that Don
Cruickshank agreed with us on that. He said that the Government's
proposals for payment systems were the final piece in the jigsaw
to deliver competition in banking markets, that the introduction
of new rules and new powers for the OFT would herald a new era
of effective competition in payment systems and that he fully
supported the Government's proposals. So he is very much behind
497. Minister, I am having great difficulties
in studying your document which you put out this morning. I think
it is extremely commendable of my colleague that in the time available
to him he has not only been able to read it and study it, but
has also consulted his constituents. It is an absolute miracle
of modern communications. What I would like to ask you is this.
Is it the Government's intention that consumers of banking products
should readily be able to make sensible comparisons of the charges
to them at their particular provider and to compare that provider's
charges with other providers' charges?
(Miss Johnson) Yes, you are exactly right, and obviously
you have a good grip on this, even if you have not managed to
consult 100 per cent of your constituents this morning on this
subject. It is the case that we want to make it easier for people.
They have to be able to understand what is in front of them anyway,
and at the moment that is difficult. For example, on the credit
cards people often do not understand that if they do not pay the
balance off at the end of the month, interest is charged from
the time they bought the item rather than from the end of the
month when they have not met the full repayment on the balance.
Issues like that we want flagged up clearly so consumers can see
what is going on at the present time with their existing provision.
Then they need to be able to compare it, and the advantage with
the CAT standards and other clear and transparent information
is that people can make a more ready comparison of one provider
with another, and therefore make decisions about whether they
are getting a good deal as consumers or not, and that will drive
the competitive competition in the market.
498. It is your intention that the OFTat
the moment it is the OFT that will be charged with these responsibilitieswill
be able to compare not merely the charges between different providers,
but will be able to look at the underlying cost structures within
those providers to see how they compare with the charges.
(Miss Johnson) We are aiming for the OFT to have access
to things so that it can make a very clear diagnostic analysis
of what is going on in the payment system. Obviously, if it is
to analyse the payment system in this way and to come up with
effective answers and identify effectively any problems that are
working in it, it needs to be able to get to the root of the information
in order to achieve that task.
499. Mr Sweeney of the British Bankers Association,
who the Committee had the advantage of speaking to a week ago,
said that, of course, costs and charges may not be in any way
connected, and the particular banking service provider might well
decide as a matter of deliberate policy to disconnect costs and
charges in order to achieve bigger market share for a particular
kind of product. Of course, one accepts that, but notwithstanding
that, it is the clear intention of government that OFT will be
in the position of being able to compare the underlying cost structures
of banks with their charges to deliver those services to consumers.
(Miss Johnson) Yes, it is.
7 See p 117. Back