Examination of Witnesses (Questions 340
TUESDAY 18 JUNE 2002
340. Mr Targett, do you think that is acceptable?
(Mr Targett) No, there is a transparency issue there.
Having been here for a couple of months and being new to retail
banking, I should like to take that on board and understand it
better. It is quite a big spread, but there is definitely a transparency
341. Mr Crosby, your bank is included in this
table and on your credit card the charge was £7.48 to borrow
this £300 for a month and a half or so, whereas at HSBC it
was £5.50. How do you explain that? The same APR.
(Mr Crosby) We have a large number of credit cards.
One of the variants that sits in the middle of that is the interest
free period, which I suspect is a key driver of the differences
here. I will be very straight. Some credit cards have longer interest
free periods than others. It looks there on the basis of that
evidence as though you have chosen one of ours with a shorter
interest free period and that is probably the key driver of that.
If it is, then it is an argument for making sure that customers
are clear about the interest free period.
342. Is this not all about transparency? You
have all said you are in favour of it and the banking code requires
you to publish the APR so you can see it clearly. Is it not a
fact that what the customer wants there is what this credit is
going to cost me. If we now know that the APR does not necessarily
answer the question, how do we then achieve transparency for a
customer wanting to know what his or her credit is going to cost.
How are we going to get to that point? Any suggestions?
(Mr Harley) In essence you are going to come back
to two choices: either standardisation, so that everyone charges
the same interest on the same intervals with the same interest
free periods, that is you diminish product choice; or through
better communication with customers, more transparency in the
literature. Those are the only two polar choices.
343. Any other suggestions?
(Mr Crosby) You can have greater transparency but
you also have to recognise that where you are transparent about
the interest free period and the rates, customers buy different
products according to their needs. For example, customers who
do not expect to borrow for more than a few days in the ordinary
course of events are not that interested in the end rate in truth.
More importantly, customers who continually borrow small amounts
on credit cards, quite often go for a product where the credit
interest rate is flat all the way through regardless and we have
one there which charges 10.8 per cent flat across. That would
give considerably lower figures than any of those you are quoting
there. Customers do pick and choose according to what they think
they are going to use the card for.
344. How aware are they of the small print?
We are back to this subject again. Do you not suspect that if
a customer sees bank A advertising a credit card with 18.9 per
cent APR and bank B in its window says their credit card is 18.9
per cent APR they think it is the same product. Yet when they
go into it they could find this 40 per cent spread in what is
actually going to be charged. Do you really think all the consumers
out there are aware of that difference when they sign up?
(Mr Crosby) No, I think your point is a good one.
We should be much clearer about the interest free period and that
is what we shall take away. On the other hand, customers who are
borrowing not just one month for a short period but permanently
are incurring much greater interest rate costs and there the spread
is between 10.8 and up to 18 per cent. That is very real and very
important for customers.
345. Are there practical steps you can tell
us today that you would be prepared to take to help achieve this
greater transparency in relation to credit card charges? Or do
you think you are doing enough at the moment?
(Mr Harley) It does not sound like it. We have to
look very closely at the literature and see in our own case where
we are in the spectrum. That is the message I take away.
346. Are you all prepared to go and take a look
at it to try to improve transparency?
(Mr Harley) Yes; absolutely.
(Mr Targett) Yes.
(Mr Crosby) Yes.
347. That would be very helpful. May I just
have a quick look at overdraft rates? It is much the same story
really. There is a big spread. I should like to know how you arrive
at your different overdraft rates. The table we have which shows
comparisons gives ranges from Abbey National overdraft rate at
8.7 per cent to Clydesdale at 19.5 per cent. Why is there such
a wide spread on overdraft rates and how do you arrive at them?
Perhaps the owner of the 8.7 would like to explain how he gets
that one first of all?
(Mr Harley) In our case, as we have hopefully made
clear, we are trying to break into this market, we are trying
to attract new customers, we are trying to offer to customers
prices which reflect their behaviour, whether they are borrowers
or balance holders. Therefore part of the price decision is about
customer acquisition, it is about being attractive and visible
and pulling in new customers.
348. Mr Targett, how are you going to attract
customers with a 19.5 per cent rate?
(Mr Targett) Our rates range from 6.17, 8.34 and there
is one at 19.56 per cent which is called our current account extra
youth flexi cash. I should have to come back with more details.
349. It is certainly extra, is it not?
(Mr Targett) As to why it is priced at that sort of
level, there must be some product features which suggest that
it is there. Off the top of my head I cannot give you an answer,
but we will get back to you with it.
350. You do not know why you have one product
with an overdraft rate of 19.5 per cent.
(Mr Targett) I cannot tell you the answer to that
off the top of my head.
351. What percentage of credit card customers
pay off in full each months, thereby incurring no charges?
(Mr Harley) I do not have the answer to that question.
I will come back to you specifically. It will vary because we
have a number of cards out there which reflect customer behaviour,
such as those who borrow for short terms and those involved in
the long term. It will vary but I will give you a written reply.
(Mr Targett) We are in the same situation.
I do not have the answer at the moment. We will come back to you.
(Mr Crosby) Like the others I will come
back with the data on that.
352. It seems a big issue. If they are paying
off every month and incurring no charges, then you are running
a non-profit organisation. Given that you are very keen on competition
and attracting customers I would have thought that figure would
have been there in neon lights.
(Mr Harley) Interest is only one of the sources of
income. Some cards are fee paying cards. It is not simply a matter
(Mr Crosby) It does vary by card, I am afraid. The
card I referred to earlier on, which is a 10.8 per cent flat rate,
has a much higher proportion of customers who do not pay it off.
353. So we cannot infer that it is a benign
approach by you to the credit card market.
(Mr Crosby) No. I should like to but I cannot.
354. I should like to follow up one point made
in response to some of James Plaskitt's questions about credit
cards. You say that you are going to go away and look carefully
at all the literature you produce to see where you are on credit
card rates. If you are competing with one another, if there really
is competition out there, surely you know this spread very well
already, you know exactly what the relationship is between your
charges and those of your competitors. You know where they are
making the money and where you are making the money, do you not?
(Mr Harley) Up to a point. It depends entirely on
where the public fall. I would not necessarily know, for example,
what the interest charging dates were on a competitor's product.
It is not necessarily information which would be highly available.
355. Do you look at the oppositions' products?
(Mr Harley) Absolutely.
356. When you look, do you not try to work out
where they are making their money?
(Mr Harley) Yes indeed.
357. But you are saying that it is so non-transparent
that even you cannot work out how much they are getting back.
(Mr Harley) No, what I am saying is that it would
not necessarily be obvious in the guts of an interest calculating
model what a competitor was doing at first glance.
358. So I would be wrong to conclude that the
fact you do not already know this information is something to
be concerned about? You do not need to worry, even though you
do not know exactly where you are making money on these products,
yet we can feel assured that there is strong competition in the
(Mr Harley) If I may say so, from a competitive point
of view it is quite encouraging. If we all knew exactly what we
were doing there would be more possibility of collusion and a
market which was imperfect than if they do not know what we are
359. We are not talking about you exchanging
secret information. We are talking about you obtaining information
available in the marketplace to other consumers and working out
on the basis of it who is making money. As I recall, we had a
fracas like this about 20 years ago over the sale of petrol in
petrol stations. Petrol stations were required to put up signs
which said how much they were going to charge and they were not
allowed to alter the sign as you drove in, to make sure that what
you saw on the sign was what you really were going to pay. What
we are discussing in a million different ways here is how to bring
some transparency to your business. If I may say so, you have
not only not said anything other than that you will go away and
look at it, you have said that when you do go away and look at
it you will not in any case really know what your competitors
are doing. In any other competitive market if you go down to the
high street they know exactly what is going on in the other shops,
how they are trying to sell their products, whether it is Sainsbury's
against Tesco or clothing shops one against another. You do not
seem to be up to speed on this.
(Mr Harley) I think your colleague was pointing out
the fact that even if one follows the statutory disclosures on
APRs it is possible to get different results. That is the point
I was making in reverse. I cannot see inside someone else's system
in terms of interest calculation. It may be that with assiduous
research you can pin down every aspect of the calculus, but I
am afraid the product does not sell on the calculus.
6 See Ev 124-5. Back
See Ev 125. Back