Examination of Witnesses (Questions 20
WEDNESDAY 1 MAY 2002
20. Do you know what you are graded?
(Ms Childs) No, I do not.
21. Have you ever asked?
(Ms Childs) No.
22. Do you not think this is something that
we all should be asking?
(Ms Childs) Absolutely, yes.
23. As a matter of fact, I did ask recently,
for the first time, and then I started asking for more information,
partly because I am on this Committee, from my bank about the
way we are all graded. It seems to me this is information that
we should have. Armed with that information, another putative
bank or competitor has at his disposal information about the level
of risk he or she is taking on when they decide to take on a new
(Ms Childs) I can see that, but I also think from
the consumer perspective, what I would add to that if you were
going to pursue it, is that I think there should be a similar
right as there is to any other data that is held on you, that
you have the opportunity to correct it. Just saying that that
should be passed on to a bank without having the ability to do
anything about it I think would be a detriment to consumers.
24. Politicians are a better risk than I thought.
Maybe that is something to do with my majority. I do think that
some work needs to be done in this area, because without that,
I do not see that the suggestions you have made on switching are
going to be enough.
Chairman: Finishing mutuals and taking
up the Banking Code as well. Mr Beard?
25. On mutuals, have you had the chance to assess
the Industrial Provident Society's Bill, the Private Members'
Bill that has gone through the Commons and is now on its way to
the Lords, to see whether or to what extent that would solve the
problem you are referring to about carpetbaggers and demutualisation?
(Ms Hanson) We have not looked at it in detail, but
my understanding is that it will not give any further protection
to building societies that they already have.
26. Not even the requirement for 50 per cent
of members to vote?
(Ms Hanson) As I say, we have not looked at it in
detail, so we would probably want to come back to you about that.
27. Given these problems that we have been talking
about in the banking sector, about competition and the slowness
of moving accounts and so on, do you think the Banking Code is
a useful addition? Is it up to the job of trying to relax things
so there is more competition in that sector?
(Ms Childs) We have to be clear about what the Banking
Code can and cannot do. I think the Banking Code can deal with
some of the issues that consumers are facing when they go into
bank branches and some of the ways they are treated. Some of the
structural and systemic issues that we have talked about I think
can only be dealt with by PayCom, so I think we have to separate
the two issues. In relation to the Banking Code, our position
when we are looking at whether you should have self regulation
or statutory regulation is to look at the level of risk. Our belief
is that in the banking sector, certainly in relation to current
accounts, the Banking Code, if it is effectively enforced, will
deal with a number of the issues. What we would like to highlight
is that one of the issues that the Committee itself raised in
its previous report in relation to superseded accounts still appears
to be a problem, so that is something that we would like to be
pursued. What has changed, and I think is a change for the better,
is that the Banking Code is now up for review by an independent
reviewer, which I think allows for better communication for those
areas which we think need to be improved, and that is out for
consultation at the moment. The Banking Codes Standards Board
has made steps in trying to make their enforcement better. I think
there are a number of areas where they could give more data, particularly
in relation to compliance and complaints, which I think should
be in the public domain because that would help people when they
are deciding which bank to go to to look at their record.
28. Are you saying the only point where the
Banking Code is weak is the question of superseded accounts?
(Ms Hanson) No, I think there is a whole range of
areas. For example, in our evidence and input to the Banking Code
Review, we have argued quite strongly that the artificial distinction
between branch based and non branch based accounts should be abolished
because consumer behaviour now means that many consumers access
their accounts in various different ways, electronically, remotely.
So that is very important. Another very important issue is personal
notification of interest rate changes which, in many respects,
should overcome the problems of superseded bank accounts if you
are actually notified when your savings rate, for example, changes,
so that therefore you can switch. There are also some key issues
on credit card information which we have been pressing for a couple
of years now and continue to be concerned about.
(Mr Naylor) One of the issues really to do with credit
cards and banking products in general is the whole issue of clear
information and transparency about charges and interest rates.
There are a few specific things through the Guidance Notes that
support the Banking Code specifically about credit cards. There
is still some information that is not included, some specific
information about charges, issues about how clearlycredit
cards are actually quite complex when you get down to the nitty
gritty of how they calculate interest, and it is how that is communicated
and how clearly other information is given about charges. So that
is really quite an important concern.
29. Have you done, or are you planning to do
any survey of how well this Code is being applied in different
(Ms Hanson) I know that the Banking Code Standards
Board, whose role it is to enforce the Code and to monitor it
did do some research, and I think they have an annual mystery
shopping exercise where they look at various aspects of enforcement.
I do not have those details here, but the Banking Code Standards
Board should be able to help with that. We do not necessarily
go out to monitor ourselves, but, for example, we do pick up on
issues where we may look at other situational research. A very
interesting report that came out just last week was from the Financial
Services Consumer Panel which highlighted great concerns about
the way in which when consumers are asking about current accounts
and bank accounts, the provision of a basic bank account was not
highlighted. We would want to refer you to the research by the
Consumer Panel because I think it highlights a worrying trend
that basic bank accounts are not being offered to consumers and
some consumers clearly should have those offered to them. That
is quite an interesting piece of research.
30. Do you feel that the fact that it is a voluntary
code has affected participation in it or commitment to it?
(Ms Hanson) Most of the UK banks are members of the
Code and they say that they are very committed to it, but clearly
because it is voluntary, the industry's reputation is in its own
hands. We very much support, for the simple banking products of
current and savings accounts and credit cards and personal loans,
which are relatively less complex than some other investments,
that the Voluntary Code should be able to deal and protect consumers
adequately, but the banks have to comply to it and it has to be
rigorously enforced. Clearly in some areas, for example, on the
provision of basis bank accounts, that is not happening.
31. You mention the basic bank account point.
In what other areas would you like to see the Banking Code strengthened,
(Ms Childs) There has been a continual issue with
the way that they deal with people who are in debt, and I think
that that is a question for the Standards Boards to look at, how
effective compliance with those particular provisions have been.
I know that the Citizens Advice Bureau had some concerns about
the way in which that was applied across all of the banking sector.
The other thing that needs to be done is to give greater publicity
to the Code itself to individual consumers and the rights that
are set out. Again, the Julius Committee suggested ways in which
that information could be given, and we would look to the independent
reviewer to consider not just the modification of the Code, but
the way in which that is communicated so that consumers themselves
know their rights and where to go to if things go wrong. That
is an issue that does need to be pursued.
32. What is it you would like to see it do in
relation to consumer debt?
(Ms Childs) There are provisions in the Banking Code
that set out what banks should do when a customer is in debt,
and it also says that they should talk to Citizens Advice Bureau
Advisors. What we would like is for that particular section of
the Banking Code to be strengthened, but, more importantly, that
there is specific review of compliance with that provision. We
would like the Banking Code Standards Board, when they are carrying
out their mystery shopping in particular, to check compliance
with that provision.
Mr Beard: Thank you very much.
33. Coming back to the basic banking service.
The basic banking service essentially has been promoted by, I
suppose, the Treasury, if anybody, in line with the original Cruickshank
Report. But then you also have Universal Bank which is being set
up by the DTI in Post Offices. Do consumers need both?
(Ms Childs) We are in some difficulties in responding
on that. We have not done a lot of work in that area. We have
worked with other groups in terms of taking that forward, so I
think it would be unfair of me to comment on that. What we have
looked at is those things which are available at the moment which
is basic accounts. As I say, I think that would be a question
that you should put to the FSA Consumer Panel because they have
done the most recent research on that.
34. I just wondered whether there was a view
from you, whether there was an entirely separate category of people
who might not take out basic bank accounts, but would welcome
the Universal Bank being available in the Post Office.
(Ms Childs) It is down to location and ease of use.
It is just speculation for me to give a broad view on that. What
I could say more safely is that there is a need for what both
the Universal Bank and the basic accounts are trying to address
which is a way to give people access to money who would otherwise
be excluded. There may be a question about how that is distributed,
but I think with the Big Four in certain areas retrenching from
branch accounts, that is where you would look at whether the Post
Office can infill, but again there are problems there. So I think
the most that you could say would be that there clearly needs
to be some liaison between the two to see how they are working,
and I am not yet clear on that process.
Mr Beard: Thank you.
35. Mr Naylor, coming to credit cards. You said
a little while ago that competition has, I think I quote you exactly,
"produced more competitive rates", or "made more
competitive rates available", but you have also reminded
us that 60 per cent of the cards are with the big banks. Is it
not still basically a cartel? That is my Barclaycard, it has a
17 per cent interest rate on it; this is a store card with about
a 22 per cent interest rate on it. Is there not still a cartel
supporting extortionate interest rates on credit?
(Mr Naylor) It is very surprising that so few people
have switched. We find it is only around a third of people who
have ever switched their credit card and the big banks are charging
these rates that are typically more than the average rates that
36. I am sorry, but there is not a lot of choice
once you switch.
(Mr Naylor) There are about 1500 cards available in
37. Yes, but not a lot of choice between the
rates that you end up paying. Yes, there are a lot of cards; yes,
there is a lot of switching, but is there anybody out there offering
a credit card at about 7 per cent? No. They are all double digits,
and yet boast rates of 4 per cent. What is the point of switching?
(Mr Naylor) There are several cards that have rates
of less than 10 per cent8.9, Cahoot, with variable rates.
There is quite a lot of competition; there are quite a few cards.
We publish Best Buy Reports in Which? Magazine and it would
list out 7, 8, 9, 10 cards that have rates of around 10 per cent.
The amounts of money that people could save by switching is significant.
It is in the billions of pounds.
38. Yes, but are you not worried about some
of the inducements to switch which are around at the moment, which
is the zero or 2 or 3 per cent rate on transferred amounts, which
then quickly lead us back up to 12, 13, 14 ,15 per cent after
six months or so? Do you have worries on the consumers' behalf
about these inducements?
(Mr Naylor) Yes, it goes back to the issues about
information and transparency. Credit cards, on the face of it,
are quite simple products, but, as you say, with these introductory
rates, the standard rates are much higher. When you take out the
card you get that low rate initially, but new purchases are at
the higher rate. It goes back to what we do with the Banking Code
in making sure that people are aware of what they are taking out,
aware of the information that is given to them, and, more importantly,
when they have got the products, it is explained clearly on the
statements. There are bits of information that could be on there
making it much clearer to consumers so that they can see exactly
how they are going to be charged interest.
39. Do you think the big banks have any plausible
defence for still plugging away with credit card interest rates
at around 15, 16, 17 per cent? Can that actually be defended?
(Mr Naylor) The rates are three or four times the
base rates which does seemthere are card issuers who can
manage to issue cards with much lower rates.