Examination of Witnesses (Questions 360
TUESDAY 18 JUNE 2002
360. You are saying that you need assiduous
research in order to find out how much is actually being charged.
So how on earth can a customer do it?
(Mr Harley) That is what the APR is designed to help
with, but we are hearing that the APR does not work too well.
APRs have been a problem.
361. Is this a surprise to you that all of you
do not know?
(Mr Harley) No, I do not find it surprising at all.
If you want to have absolute transparency you have to have standardisation
of products on something like interest calculation. It is as simple
as that. Otherwise you always get variations caused by whether
you use opening day or closing day balances for example. There
will be differences and we could disclose all that and that is
one of the potential responses to the question by Mr Plaskitt.
The question then is how much information can anybody cope with,
whether they be a customer retail or customer corporate. The alternative
is the poor choice of saying you will have a standard credit product
which has fixed calculation methods for all suppliers.
362. Would anybody else like to comment on this?
(Mr Targett) Part of your question was whether we
know what our competitors are doing and the answer is yes, we
can see the headline rates and we can see how they are looking
to service the market. The difficult thing in terms of how much
money they make from it is that we all operate off different platforms
and also have different systems and processes. To really understand
where people are making their money is not that easy.
(Mr Crosby) We look very closely at our competitors'
products because we are a fierce competitor on the high street.
We attracted more new credit cards last year from the Big Four
than anybody else. We do not do that and make sensible returns
for our shareholders without getting as far inside our competitors'
products as it is possible.
363. So you do know where they make their profits,
(Mr Targett) We have as good an understanding as we
need. We are not going to know precisely, but in total.
364. Within a few percent.
(Mr Crosby) We cannot both deliver better value to
customers and deliver growth for our shareholders unless we understand
that situation. The only other point I should like to make is
that it is a fiercely competitive market, if you look at the rates,
in the sense that our most attractive product, if it suits the
customer, is the 8.9 per cent flat rate we have on our credit
card for intelligent finance, which is a remote bank, or a 10.8
per cent flat rate in our branches. It is massively different
from what is being offered by the Big Four and it is winning us
365. While you yourselves say that you want
to go away and have a look at how the APR can be made more transparent
but it is all so complicated, the public simply will not believe
what you just said, even if it is true, that the market is fiercely
competitive. They will not believe this because they will associate,
rightly, fierce competition with some clarity and transparency
about the relative prices each of you are charging, and there
is no transparency. You yourselves are saying so today.
(Mr Crosby) The specific point which has been made
through that survey was that the interest free period for certain
types of short-term borrowing can distort the calculation and
therefore is an important piece of information. What we said today
was very straightforward. If that does distort the customer's
view of our product and the level of transparency, we should go
away, look at it and address it and we shall do that.
366. Mr Harley said, correctly I think, that
there are only two polar possibilities in moving forward on this:
one is greater transparency and the other is products defined
by regulation. If we are to avoid the latter, do you not think
you all have an urgent and immediate interest in coming forward
with proposals for much greater transparency, transparency that
at least the Treasury Committee can understand, never mind the
(Mr Harley) I think we would agree that there must
be a challenge and in what is a competitive marketplace it is
difficult to see who is going to lead that apart from somebody
outside the industry, that is Government.
367. It is our intention to write out to yourselves
and other banks anyway so the light you can shed on transparency
would be very valuable to us.
(Mr Crosby) I disagree. Why I am particularly struck
by the observation on interest rates here today is that I think
there is a great opportunity for organisations to compete on transparency
and deliver it. If we are falling short here I want to know the
reason why, because it is core to what we are doing to a great
degree. Simple, transparent products really do work with customers.
They understand them more, they buy them more, we have a better
Mr Tyrie: We are at one on that.
368. I am intrigued. How many credit cards does
your bank run, Mr Crosby? How many different types?
(Mr Crosby) Probably two fundamentally different types.
I would say they are broadly the same but one has branch access
and therefore offers a fuller service and has a slightly higher
rate. That is one product type where the interest is flat throughout
the period. The other type of product is typical of the marketplace,
where you offer an introductory discount to customers to move
their balances to you from a competitor, which is a natural force
for competition. Those are the two main types. We will offer them
under different brands because they are a different service proposition.
369. They would be different cards to look at.
(Mr Crosby) Yes.
370. You mentioned one where if you cleared
your account you would pay a certain amount and you suggested
another account if you were running an overdraft. Do these fall
into these two categories?
(Mr Crosby) The point I was making was that if you
have a customer who has a small amount in debt all the time on
his credit card, then the best deal for them is the flat rate
throughout the life because they are always borrowing and it is
a low, very competitive rate. If you have customers who are only
temporarily there, they may prefer to bridge that gap with an
introductory discount and then hopefully, and it often happens
if we deliver the service, they stay with us after that.
371. How do you market your cards then?
(Mr Crosby) As clearly as we can to customers but
obviously not as clearly as we might.
372. Do you do mail shots?
(Mr Crosby) Yes, but 50 per cent of our credit cardsand
this is unusualare actually sold in branches, which I like
because I think it means that customers have a chance to ask questions
about the product.
373. Are you active with your customers? The
banks come under some criticism where a person has money in an
account that you know could be in another account earning more
and you do nothing about it. Do you have an active policy with
your credit card holders where you point out to them that they
would be better having a different card? Or is it the first card
I sign up with you that sets what rate I have regardless of my
(Mr Crosby) We do not have a specific review policy
which we have in savings and in current account areas. We are
very clear in disclosing what products we have to customers and
they are all available in branches and I suspect we mail-shot
them as well.
374. Do the other two have different credit
cards with different rates, the same as Mr Crosby?
(Mr Harley) Different features, yes, absolutely, which
are offered to reflect different behavioural patterns of customers
so they can choose one which suits their lifestyle best.
375. I see them coming into my household all
the time. You fill it in, you send it away, you get a credit card
back. I am trying to keep them away from my youngsters. There
is nothing in that literature which says, ". . . depending
on your spending patterns". You just sign up for a credit
card with lovely introductory rates and hidden down below is the
rate you eventually go onto. I think I got one from you yesterday,
saying I could transfer all my present credit card debts to you
at a great rate and then I would move on to another rate. You
are not actually marketing to the customer telling them the different
cards and different rates, are you? You are signing them up with
a lovely introductory rate and if their spending pattern is inappropriate
for the card that is tough, is it not?
(Mr Harley) Like James, the bulk of our cards are
sold in our branches, so that is part of the sales process. I
agree, that if there is direct mailing there is less.
(Mr Harley) That requires the customer to read all
of the literature discussed.
377. We are talking about a lot of money to
somebody who has the least appropriate account surely.
(Mr Crosby) The key point here is that we have different
products actually because customers are driving us to have different
products. The reality is that I personally would prefer it if
we could build a big market share in credit cards and take that
away from the clearers, solely by having the product with the
flat rate and no complexity, if we could do that and change the
competitive dynamics of the market we would do it, no doubt about
it. The fact of the matter is that large portions of the population
are mostly only moved by the product you were mail-shot with yesterday.
That is at this stage of the competitive environment where you
are trying to bring down long-term returns.
378. You were very keen on transparency and
you market without transparency. You do not tell me what I am
signing up for. You do not analyse how I spend and what would
be appropriate for me. You sign me up and off we go and I have
the interest rate I have signed up for.
(Mr Crosby) At the end of the day it is not in our
interests to have customers with credit cards who should not have
them in the first place. That is the key point.
379. I am not suggesting that. Until you said
that in an off-the-cuff remark to Mr Plaskitt, I was unaware that
my credit card could be changed within that organisation depending
on my spending patterns. How are people going to know? Where is
the transparency, where is it in your literature? Where is the
encouragement to change accounts? You tell me you encourage people
to change from basic bank accounts, but what about credit cards?
(Mr Crosby) We do mail-shot customers with both products
and they choose.