Memorandum submitted by Lloyds TSB Group
1.1 Lloyds TSB employs over 81,000 people
worldwide and is one of the leading UK-based financial services
groups, whose businesses provide a comprehensive range of banking
and financial services in the UK and overseas. Our UK Retail Banking,
Mortgages, and Insurance and Investments divisions provide a full
range of banking and financial services to 16 million customers.
With more than 2,300 branches of Lloyds TSB Bank, Lloyds TSB Scotland
and Cheltenham & Gloucester (C&G), the Group provides
comprehensive geographic coverage in England, Scotland and Wales.
1.2 The Lloyds TSB Group is pleased to provide
a written submission to the House of Commons Treasury Committee
as part of its inquiry into Banking. This submission builds on
the memorandum submitted to the committee in September 2000, as
part of its inquiry in the previous Parliament, which culminated
in the report, Banking and the Consumer. In this memorandum, we
have sought to outline steps taken by the Lloyds TSB Group and
the industry in response to the committee's recommendations as
set out in its fifth Report 2000-01.
2.1 In March 2001, the Treasury Committee
published its report, Banking and the Consumer, that made a number
of constructive recommendations, many of which, we are able to
report, have been implemented by Lloyds TSB.
2.2 The Committee urged the banks to commit
themselves to a shorter deadline than 10 working days within which
to provide account details to a new bank, that this should be
stipulated in the Banking Code and that there should also be penalties
for non compliance.
2.3 The current edition of the Banking Code
was published in January 2001, however, the Banking Code Guidance
for Subscribers which has been updated more recently, stipulates
a five working day commitment and Lloyds TSB was instrumental
in bringing about that change. Lloyds TSB also continues to be
the only bank to commit to a 72 hour (three working day) deadline,
with payment of £50 compensation in the event that we fail
to meet that deadline. (To date, we have a 100 per cent record
in meeting this commitment.)
2.4 Research published by the Banking Code
Standards Board in July 2000, highlighted that 96 per cent of
mystery shoppers found it quick and easy to move their bank or
building society account.
2.5 In January this year, the Consumers'
Association in their magazine Which?, published a survey
into the switching of financial products and found that 73 per
cent of people switched accounts with ease and stated:
"The conclusion is clearfor most
people, switching any kind of financial product is an easy process,
and one that could save you money. Quite simply, if you're unhappy
with any aspect if your products, you should seriously consider
3.1 Lloyds TSB has strongly supported the
Banking Code since its inception in 1991. As a signatory to the
Banking Code, Lloyds TSB fully endorses the provisions of the
Code and is committed to ensuring that measures are fully implemented
across our business. In many areas, Lloyds TSB's commitment to
the Code extends beyond the minimum standards outlined in the
Code, eg three day standard for account switching.
3.2 Lloyds TSB has played a leading part
in establishing the Business Banking Code and we have also been
working with the British Bankers' Association (BBA) on the role
of the Banking Code Standards Board. We also contributed to the
Banking Services Consumer Codes Review Group (DeAnne Julius Review)
in December 2000. The effectiveness and the profile of the Code
continues to be enhanced, initially by the creation of the Banking
Code Standards Board and more recently as a result of the DeAnne
Julius Report and the decision to carry out regular biennial reviews
under an independent chairman.
3.3 At Lloyds TSB we believe that voluntary
codes, rather than statutory regulation benefit consumers by being
more flexible, thus allowing more frequent updating and improvement.
Indeed, The DeAnne Julius Report stated that:
"There is broad consensus that service standards
in banking can be effectively dealt with by self-regulation. Indeed,
our consultation exercise revealed that many feel the Banking
Code, while not perfect, is an exemplar of self-regulation. The
Banking Code has evolved over time in light of changing market
conditions and customer needs."
3.4 In the current review of the Banking
Code, we recognise the need to further improve transparency, particularly
in respect of notification of interest rates, although this must
be done proportionately and in a way that does not confuse customers.
3.5 We understand that the Committee would
also appreciate views on The DeAnne Julius Review, which we have
covered separately in part B.
4.1 The Committee also concluded that banks
paid lower rates of interest on older accounts and that the Banking
Code Standards Board should enforce the provisions about superseded
accounts in the Banking Code, rigorously.
4.2 A superseded account is defined as an
account that is:
No longer opened by customers (this
could be because the bank or building society has withdrawn it
or for some other reason); or
Not actively marketed or promoted
to customers; and
Not a fixed rate account.
4.3 The Banking Code clearly sets out that
when an account is defined as "superseded", the bank
Keep the interest rate on the superseded
account at the same level as an account with similar features
from the current range, or
Switch the superseded account to
an account with similar features from the current range.
4.4 Lloyds TSB fully endorses the Banking
Code and with specific respect to superseded accounts implements
all of the provisions as outlined in the Banking Code in full.
5.1 The Committee recommended that banks
and building societies providing banking services should include
in their annual reports, information on the number and distribution
of their retail outlets, both via ATM and branches.
5.2 Since the merger of Lloyds Bank and
TSB Group in 1995, the number of branches in the retail network,
the number of Lloyds TSB operated ATMs and also the number of
ATMs available for use by our customers free of charge has been
included in the Annual Report and Accounts. Figures contained
in the Lloyds TSB Group Annual Report and Accounts 2001 provides
the following information:
More than 2,300 branches of Lloyds
TSB Bank, Lloyds TSB Scotland and Cheltenham & Gloucester.
4,350 cash machinesone of
the largest cash machine networks in the UK
Customers additionally have access
to a further 32,400 cash machines via LINK in the UK.
5.3 In our submission to the committee in
September 2000, we outlined in detail the Group's commitment to
maintaining a wide and well-balanced network of retail branches
(section 5.2). Lloyds TSB continues to invest in its branch and
ATM network, which provides comprehensive geographic coverage
in England, Scotland and Wales. In May 2000 we became the first
bank to pledge not to close a branch where we were the "last
bank in town" and we continue to be the only bank with that
5.4 Since December 2000, we have only closed
eight branches. We have also merged 71 branches, many of which
are literally side by side or no more than half a mile apart.
By merging, what were originally Lloyds Bank branches and TSB
branches, we are able to remain in local communities.
6.1 Lloyds TSB remains committed to supporting
the Universal Banking Services scheme and was one of the initial
11 (now 10 post merger of RBS and Natwest) banks to sign the Memorandum
6.2 We are on track to meet the Government's
deadline of 31 May for signing the Deed. We hoped to be able to
sign before now, had it not been for contractual changes, which
are still being introduced by the Post Office. We have been at
the forefront of negotiations and have met every deadline. We
look forward to working with the Department of Trade and Industry
and Department of Work and Pensions regarding the practical implementation
of automated benefits. Following our concerns regarding the number
of benefits recipients likely to be in either basic bank account
or the Post Office Card Account, we are comforted that the Government
has pledged that all benefit recipients will have free choice
about which account they prefer.
7.1 The Committee welcomed developments
in the provision of basic bank accounts in its recommendations
and urged the banks to market these accounts more actively than
they had been, and look at the scope for upgrading basic accounts
to accounts with borrowing facilities.
7.2 Lloyds TSB outlined its extensive financial
inclusion programme in its written submission to the Committee
(section 5.5-5.9.1). We continue to promote financial inclusion
and as part of a wider package of support measures, including
inter alia support for community credit unions, we made
our pilot basic bank account available nationally in October 2000.
We have now opened over 100,000 basic bank accounts.
7.3 As we explained in our last submission
(126.96.36.199.8), our experience of the accounts indicates
that basic bank accounts are not profitable. Of the 100,000 accounts
opened so far: 21 per cent have nil balances; 28 per cent balances
under £100; and 69 per cent balances under £1,000. Since
the Cruickshank report cited £1,000 as the balance to break
even costs, which was during a period of higher interest rates,
these accounts are in practice being cross-subsidised by other
7.4 Lloyds TSB is, however, one of the most
inclusive UK financial services companies. Even prior to the launch
of its basic bank account, it has provided more current accounts
to low income customers than any other high street bank.
7.5 We have sought to market the Lloyds
TSB Bank Account ie: basic bank account, in a way, which will
reach those who are currently unfamiliar with banks. In 2001,
we undertook a mailing to all community credit unions in the UK
enclosing posters and literature promoting the Bank Account and
outlining details for opening the account. We have also undertaken
direct marketing to all individual members of two community credit
unions, Burnley and St Machar, in Aberdeen and there are further
plans to repeat this exercise with other credit unions this year.
We also encourage referrals from Portsmouth Area Regeneration
Trust (PART) a community based financial institution developed
by Lloyds TSB in partnership with Portsmouth Housing Association
and Salford University, which was launched in July 2000.
7.6 With the introduction of automated benefits
(ACT) in 2003 the Department for Work and Pensions (DWP) will
undertake a huge communication campaign. Every benefit recipient
will receive an individual letter explaining the changes to the
payment of benefits and describing the options available to the
recipient, including basic bank account. Lloyds TSB with other
banks has already provided DWP with a draft leaflet which can
be used in Post Offices and Benefit Payment Offices, which will
describe what is on offer and how individuals can access an account.
7.7 In response to the recommendation regarding
a transition to accounts with borrowing facilities, take up to
date has been low. However, it may be too early to judge since
Bank Account has only been available nationally since October
2000. We also have a range of leaflets available to assist customers
not familiar with financial services products such as banking
made easy which offers practical advice on using a bank account
and help with financial problems offering information and advice
to help customers manage their money.
ID FOR ACCOUNT
8.1 The Committee also raised the issue
of account opening ID verification for the financially excluded.
The ID account opening process is twofold. Firstly, in accordance
with money laundering guidelines, customers must be able to prove
that they live where they do and secondly, customers must be able
to prove ID, ie they are who they claim to be. This is in response
to the FSA guidelines about "know your customer".
8.2 As outlined in our September 2000 submission
(section 5.9.1), Lloyds TSB introduced new procedures for ID verification
intended to increase flexibility in the forms of ID that the Bank
is able to accept. As a result of this procedure, in the first
three months of this year alone, we have been able to confirm
the ID/address of over 8,000 people who do not hold standard forms
8.3 ID verification is currently being hampered
by denied access to the Electoral Register for address verification,
following the "Robertson" judgement made by the High
Court earlier this year. Local councils have been advised by the
Department of Transport, Local Government and the Regions (DTLR)
that sale of the Register of Electors to commercial organisations
is potentially in breach of the Human Rights Act, 1998.
8.4 Banks and credit reference agencies
rely on the Electoral Register for address verification, required
under money laundering regulations. There are clearly, therefore,
implications for banks if access to this most reliable data source
is denied. Customers wishing to open a bank account may find it
harder to confirm their address and the financially excluded in
particular, may find it difficult to satisfy banks' address verification
8.5 The Treasury and FSA have been supportive
of industry concerns on this issue and we await the DTLR's policy
proposals on this issue.
8.6 At the end of April, the Financial Services
Authority Consumer Panel published research suggesting that the
banking system is failing to address the needs of low income customers
and that there was lack of access to basic bank accounts. We are
concerned about the robustness of the data as the report was based
on only 16 applicants. However, Lloyds TSB will work to ensure
that the issues raised in the Financial Services Authority Consumer
Panel's report are addressed.
8.7 In contrast, The National Association
of Citizens Advice Bureau (NACAB) also undertook a mystery shopping
survey in Yorkshire on availability of basic bank accounts. Lloyds
TSB was praised for:
having staff who were aware of the
basic bank account;
having the clearest and easiest leaflet
being flexible in accepting proof
8.8 We are committed to ensuring that our
branch staff are aware of our basic bank account product and also
our special procedures for account opening ID verification.
9.1 All customers of Lloyds TSB have access
to 4,350 Lloyds TSB cashpoints free of charge and in addition,
have access to a further 32,400 cash machines via the LINK network
in the UK free of charge.
9.2 Under the provisions stipulated in the
Banking Code, Lloyds TSB will give all customers details of any
charges we make for using cash machines when the card is issued.
When using a card at a cash machine, a message on the screen tells
all customers, before they commit to making a withdrawal, the
amount (if any) the customer will be charged for the transaction
and who is making the charge.
9.3 At a time when the banks have withdrawn
charges for cash machines, it is difficult to understand why it
is acceptable for the Post Office to charge customers £1.25
per withdrawal. The unviability of cash machines in small or remote
locations equally applies to banks as to Post Offices.
10.1 The Committee's fifth Report concluded
that banks appeared reluctant to invest in modern technology to
speed up cheque clearing, but found that cheques are likely to
remain an important part of the financial system.
10.2 Lloyds TSB provided extensive comments
on the money transmission system in its response to the committee
in September 2000 (section 3) and we would therefore direct the
committee to that summary of money transmission and the clearing
10.3 The last 10 years have witnessed a
behavioural shift in the personal sector as customers increasingly
use debit and credit cards for retail payments instead of cheques.
During this time, cheque payments have fallen by 34 per cent to
2.64 billion. Since 2000, cheque volumes have fallen by another
5.8 per cent and are expected to fall a further 41 per cent by
10.4 The Cruickshank Report recognised the
decline in usage (Section 3.217):
"The regulatory framework would not by itself
require a faster clearing cycle. Cheques are in decline, and the
investment required may not be justified by the potential gains"
10.5 Since our last submission, we have
also introduced a number of new initiatives intended to directly
benefit customers of Lloyds TSB:
In April 2001, Lloyds TSB Scotland
began a three month pilot which allows customers paying in cheques
at branches of Lloyds TSB Scotland to request "instant cheque
access". Under the terms of the pilot, the value of the cheque
is credited to the payee's account instantly and the customer
has immediate access to the funds. Although the period of the
pilot has been extended, demand for the service has, however,
been very low and there are huge implications for potential fraud
which are currently being assessed.
In addition, from late 2001, customers
of Lloyds TSB paying in a cheque drawn on another Lloyds TSB account,
have benefited from the Bank's on-line real time banking system,
which enables the cheques to clear immediately.
As indicated earlier, customers are
increasingly choosing to use more convenient forms of payment
such as electronic or online payments. On-line/internet payments
generated via Phonebank, Phonebank Express and the internet, for
transactions between Lloyds TSB bank accounts, allow an immediate
clearing of funds.
10.6 The average personal customer only
pays in one cheque per month but issues four per month. Therefore,
the advantage of an immediate credit is far outweighed by a greater
number of cheques being debited immediately from an account. Indeed
many customers, particularly those on low incomes, actually rely
on the delay in cheques being debited from their account, to help
10.7 Therefore, the main beneficiaries of
a shortened clearing cycle would not be personal customers but
those companies who receive large numbers of cheques such as utilities
companies and retailers.
10.8 In terms of value, a Lloyds TSB customer
paying in a cheque drawn on another bank will start to earn interest
on day three with the cheque issuer continuing to earn interest
on days one and two. There is not, therefore, a "float"
on which the banks earns interest.
11.1 The Committee welcomed an undertaking
by MasterCard/Europay to investigate the Consumers' Association
claims that credit cards statements were being sent out some days
after the date on them.
11.2 Lloyds TSB provides a 25 day interest
free period from the date statements are issued on credit cards
which offer an interest free period (this can be up to 56 days
for purchases.) Our Asset Advance Card is designed specifically
for borrowers and therefore does not have an interest free period,
but a lower standard APR.
11.3 Lloyds TSB outsource some aspects of
their credit card operations including mailing of statements to
customers. The despatch of statements is subject to strict service
level agreements and we are confident that there is no delay in
sending out statements to our customers.
12.1 As outlined in our submission to the
Committee in September 2000, Lloyds TSB welcomes any changes that
lead to an improvement in consumer information.
12.2 Lloyds TSB responded to the Treasury
Consultation document, Standards for Retail Financial Products,
issued in January 2001. Through the British Bankers' Association
(BBA), Lloyds TSB has also been in discussion with the Treasury
about the proposed CAT standard for a basic bank account and look
forward to receiving further details when available.
12.3 In October 2001, The Financial Services
Authority (FSA) launched the first of its comparative tables intended
to compare similar products available from various providers.
The FSA currently has tables available for pensions, unit trust
ISAs, investment bonds and endowments.
12.4 These tables provide a useful comparison,
which enable customers to quickly search the available products
and pick out the most appropriate products for their needs so
that they are able to obtain more information, but their limitations
must be considered. The tables compare and rank product providers
based only on charges takenjust one factor that should
be taken into consideration and not always the key driver in recommending
a particular product or product provider.
12.5 There are many other equally important
factors that should be taken into consideration including investment
choice, investment performance, other product features and financial
strength when choosing a suitable product.
13.1 We understand the Committee would also
welcome a summary of the Group's response to the Banking Services
Consumer Codes Review Group (DeAnne Julius Review) report, Cracking
the Codes for Banking Consumers, published last year.
13.2 Lloyds TSB welcomes the DeAnne Julius
report, which found that "there is much to commend in the
current system of self-regulation through voluntary codes."
13.3 The conclusion that voluntary regulation
through consumer codes is an effective means of managing industry
services standards, without stifling innovation and inhibiting
competition is particularly to be welcomed. The report represents
a vote of confidence both for the revised Banking Code and the
establishment of the new monitoring regime under the Banking Code
13.4 We are committed to the concept that
good compliance is good for business and that there are substantial
benefits in the retail business in ensuring that what is good
for the customer is good for the organisation.
14.1 Lloyds TSB has already implemented
many of the recommendations. On account switching Lloyds TSB has
gone beyond the DeAnne Julius recommendations as explained earlier
in part C. We have been extensively involved in both drafting
the new guidelines for those in financial difficulties and the
creation of the Business Banking Code.
14.2 We agree that biennial code reviews
by the industry and led by an independent reviewer will enhance
the credibility of the code.
14.3 We are, however, not convinced that
the recommendations regarding portable credit history provide
substantial benefit to personal customers. There is no standard
format for assessing creditworthiness and the customer could be
misled to believing that credit with one bank means automatic
right to credit at another. We note that the Consumers Association
also has concerns regarding credit ratings and the need for banks
to make their own credit assessment.
14.4 In terms of better customer information,
we welcome all attempts to make customers more informed and financially
aware, although it is perhaps important to remember that customers
already have access to a wealth of information and it is therefore
necessary to avoid duplication and overload and ensure information
14.5 Finally, we are concerned that the
publication of monitoring visit reports is in contradiction to
the Review Group's comments that "regulation must therefore
be justified by demonstrating that the benefits it delivers outweigh
the costs it creates." The proposals would undermine the
principles of a voluntary code and are also at odds with the FSA
which has opted not to publish the reports out of consideration
to costs and proportionality.
14.6 At Lloyds TSB, we always seek to achieve
the highest standards of service and we maintain that customer
satisfaction, media comment and the current monitoring, disciplinary
and enforcement regimes are incentive enough for any firm to take
code compliance seriously.
14.7 Overall we welcome the review findings
and were pleased to be able to support a number of new initiatives
designed to further enhance the consumer codes and their regimes.
15.1 Lloyds TSB is the leading bank for
new business start-ups with around one in five choosing to open
accounts with the Groupin the last year alone, we helped
100,000 small businesses get started. We recognise that the health
of small and medium sized firms is crucial to the success of the
economy and the employment of many people. Lloyds TSB supports
about 550,000 SMEs, who in turn employ some 2.5 million people
in the UK. We are aware that the banking services we provide are
an important influence on their future growth and success.
15.2 Lloyds TSB Business Banking customers
have access to a variety of tailored business services ranging
from traditional banking products through factoring, insurance
and investments to non-financial solutions to their business problems.
These include Debtor Management services providing legal support
to help customers recover debts and Prospect Finder providing
customers with a tailored list of potential customers for their
15.3 Lloyds TSB is currently involved in
bi-lateral discussions with the Office of Fair Trading (OFT) on
the remedies proposed by the Commission. The Committee will appreciate
that it would be inappropriate to comment in any detail on the
proposed remedies whilst discussions are ongoing and we have therefore
provided a limited outline of the Lloyds TSB Group's initial response
to the Competition Commission report.
16.1 The Competition Commission's, Report
on the supply of banking services by clearing banks to small and
medium-sized enterprises within the UK was published on 14 March
2002. The Commission found that a complex monopoly exists in this
market and that as a result, SMEs in England and Wales are overcharged
for their banking services.
16.2 We are disappointed with the findings
of the report and disagree with its conclusions. We know from
practical experience how competitive the SME market is, as our
managers compete day in day out on the high street for SME business.
Furthermore, the Competition Commissions own SME survey showed
that 84 per cent of customers are generally satisfied with service
quality. It also concluded that the "cost and availability
of lending are in general not a problem."
16.3 We welcome some of the recommendations,
many of which have already been addressed by Lloyds TSB and the
industry in the new Business Banking Code or will be addressed
in due course following the negotiations with the OFT.
16.4 The Commission's main criticisms foundered
on switching, barriers to entry and bank profit's being too high.
17.1 The Competition Commission acknowledged
that it "saw no evidence" that the banks caused unnecessary
delays in switching and accepted that once a customer decides
to move it is in the bank's interest not to delay matters. Indeed,
the Commission said that apart from the perception that switching
is complex, one of the main reasons for low switching was the
importance of an SME relationship with a bank manager who understands
17.2 We have worked with the industry, through
the British Bankers Association (BBA) to address this issue. The
Business Banking Code published in March 2002 stipulates a five-day
switching commitment for transfer of information on standing orders
and direct debits and an aim to complete the process within five
weeks. (Unless borrowing is involved).
17.3 The Banking Code also addresses transparency
and access to information, containing details of where and how
our business banking customers can obtain information on interest
rates and bank charges. The code also covers portable credit history.
18.1 Lloyds TSB does not accept that it
makes excess profits. The market is highly competitive and profits
are cyclical. The report only looked at profits for the three
years between 1998 and 2000, which are unrepresentative of a full
cycle. Clearly bad debts are higher and revenues lower in times
18.2 We do not also accept the methodology
for calculating the profitability. There are numerous factors
which will change the level of profitability in a market, from
measurement of capital to the treatment of intangible assets.
The Competition Commission chose to take the highest figure.
18.3 In fact, using the Commission's own
methodology there are 15 other sectors which make much higher
returns than banks such as: cars on 185 per cent; transport 99
per cent and the media 62 per cent.
19.1 Lloyds TSB has already addressed some
of the perceived barriers to entry such as switching, portable
credit history and greater transparency. However we robustly oppose
the principle of price control and the idea that we should share
19.2 In terms of price control, we are not
aware of any other OECD country with price control in financial
services. The introduction of interest on current accounts is
likely to reduce competition by withdrawing the only pro-competitive
advantage of the new entrants HBOS and Abbey National. It will
also undermine the incentive to switch, if a customer actually
wants interest on current account.
19.3 The banks will have to demonstrate
to the Office of Fair Trading that things have "improved"
before price regulation can be relaxed. The concern is, that by
introducing price controls which in turn reduce competition and
damage the prospect for new entry, that the regulation will remain
19.4 We are also adamantly opposed to the
idea that we should share our branches on a non-reciprocal basis
with those without a local presence. Our branch network is an
asset in which we have invested heavily over many years and is
a fixed cost to the bank. It is not just the premises, but our
technology, operational systems and trained staff.
19.5 If one applied the same principle to
any retailer with a branch network, one could equally say that
Marks & Spencers should give a corner of its store to Next
because the latter has not invested in a local store itself. Our
branch network is not a public network and we are not a utility.
19.6 This remedy also has potential unintended
consequences for both the banks and its customers. Some banks
may rush to close branches in areas where other providers are
not present to avoid servicing non-customers, particularly if
the branch is not allowed to sufficiently cover costs. We are
also concerned that our existing customers could be disadvantaged
because we have to serve customers of other banks.
19.7 In light of the drive by the Post Office
to improve its profitability, one could also argue that sharing
bank branches is a further threat to the future viability of the
Post Office. The Post Office has stopped its exclusive contract
with Girobank and wants to work with other banks to offer business
banking services over its counter, as it does with personal customers.
If, however, banks are forced to accept SME customers there will
be even more competition to the Post Office's new revenue stream.
20.1 In conclusion, we do not accept the
Competition Commission report findings and fail to see how some
of the remedies will enhance competition.
1 DeAnne Julius Committee, Cracking the Code for
Banking Customers (The Julius Report), May 2001, p 14; section
Ev 56. Back