Examination of Witnesses (Questions 40
WEDNESDAY 1 MAY 2002
40. Let me draw you a bit further. Your own
submission to us says at paragraph 26,
"Credit card companies are making extra profits at consumers'
expense." That is your position, is it not?
(Mr Naylor) Yes, undoubtedly.
41. How does the consumer start to fight back
about this, or what assistance do they need to try to get these
rates down to a more realistic rate?
(Mr Naylor) They need to be given clear information
about exactly how much they are being charged and what the alternatives
are for them. It is very easy for people to switch cards. We found
that 97 per cent of people found it very easy. They need to be
given that information about what is available.
Mr Plaskitt: I am sorry, if it is that
easy and lots of people are switching, why is it still the case
that we have 60 per cent of people out there with the big banks
and they are still charging excessive rates of interest. Why has
that not been beaten down?
42. Is it because people pay off their cards
before interest is due so that the interest rate is not a competitive
(Mr Naylor) There is quite a large proportion of people
who do that, around two thirds, but then the rest of those peoplethere
is around £30 billion outstanding at any time on credit cards.
That is one element of the amount of money that is on them, the
people who have credit cards. Quite a large portion of people
do that, but the remaining people do have a large balance on their
43. As an Association, do you think anything
else needs to be done by Government, Regulator, FSA, whoever it
may be, to put even more pressure on the credit card companies
to end this extortion?
(Ms Childs) There are a combination of factors. Basically,
the way that they can get away with this is an element of confusion
marketing. There is not enough clarity for many consumers about
APRs and what they are, and therefore, and I think this is the
point that you were making, when you are actually looking at trying
to transfer, it can be quite difficult to compare one card with
another. I think that more needs to be done to make it clear about
what the APRs are. In the adverts that are being put forward,
we would like the FSA and also the Banking Code to look the promotional
rates that are being put forward to see whether those adverts
are actually fair and accurate, given the upfront promotion of
44. I take it from that, finally, that as an
Association, you are not at the moment at all satisfied with the
regime surrounding credit cards and their rates of interest?
(Ms Childs) It is fair to say that more could be done
for consumers to use their own power. At the moment, we do not
think that enough is being done to help them be able to switch
to people who could give them a better deal.
45. You are basically leaving it with the consumer
to do this?
(Ms Childs) No, what I have said before is that I
think there are specific things which we would want the FSA and
the Banking Code to cover in order to make the information clear
and transparent, so enabling people to take advantage of some
of these other cards that are out there. In terms of whether there
are other barriers that are stopping people from moving, we do
not have the ability to go into all of the data that the credit
card companies have to see if there are other competition or structural
issues which are preventing switching to some of these other good
deals. That would be something that the FSA would have to investigate
to see whether there isyou seem to be implying that there
is some other reason for people not being able to move and to
take advantage, and for that to be found out it would have to
require an investigation that we cannot carry out.
Mr Plaskitt: I am not saying that. What
I am saying is moving is not the answer, because there is lots
of moving going on, but there are still these extortionate interest
rates, and moving is not the answer.
46. Following up what James has said, you are
saying that there is a third of people out there who are paying
these rates, with two thirds paying them off every month, so it
is not so important for them, but they clearly do not know aboutI
should not use this as an advertisement operation here, but you
named a couple of banks that provide credit cards at single digit
figures, perhaps at half the general ratebut people do
not know about it. Why is that? Can you not get your message across?
(Ms Hanson) This is another thing that comes back
to the recommendations in the DeAnne Julius Committee. The Customer
Annual Summary Statement was a suggestion that consumers should
be sent an annual statement of charges applied to the various
products that they own. We very much welcome that. We felt that
if consumers did receive this, along with very easily understandable
comparator tables, say, that the FSA is using, if those were linked,
then consumers would be reminded that they should be thinking
about how much they are being charged and what price they are
paying for these products. It would also, if they have access
to comparator tables, help them understand that there are much
better deals out there, so I think there is, as Mike said, much
more to be done at the individual statement level. But you could
also argue that something like the Customer Annual Summary Statement
could be a spur to action as well, because it could well highlight
the very high rates that people are paying as against some of
the better deals that are definitely on offer.
Mr Tyrie: All right. I will just have
one last go. I am moving towards James's view that switching may
not be the answer, but I just want to get to the bottom of this.
There are banks out there supplying products that are super-competitive,
much more competitive than the average in the market, and yet
they are not cleaning up. Why not?
47. We have to get to the bottom of that question,
otherwise it seems to me we are not going to solve the problem.
(Mr Naylor) There are some specific things that could
be done through the Banking Code in terms of clear information
on people's statements, quite simple things, for example, showing
the base rates so that people can compare automatically against
the annual rate that they are being charged; information about
fees, explaining the way that these cards are charging them interest
and exactly how much they are costing them. Quite a big part of
it is that the big banks do spend quite a lot of money advertising
their products, selling across other products that their customers
are holding. If it is an issue about information, I think it can
be addressed through the information they receive through the
Banking Code, to some degree, on their statements.
48. What proportion of consumers do you think
understand APR, roughly?
(Ms Childs) You are getting to the heart of one of
the problems in financial services and in our country generally
there are low levels of financial literacy, so I think there are
issues of a lack of understanding of APR. Even the terminology
is difficult, so there are difficulties for people in working
out what the best deal is, even though some of those deals are
out there. I think there is a role for better comparative information
to be out there which makes it clearer for people to make that
49. But you do not have a figure, whether it
is 70 per cent or 40 cent?
(Ms Childs) No.
50. One final question. It is a question I asked
a year ago, maybe not to you but to the banks, and you referred
to itthis delay in credit cards and issuing statements,
whereby a statement could be issued maybe a few days after the
statement date, and then issued, as you said, by second class
post: has this problem got worse? Have you any evidence on it?
(Mr Naylor) Yes, we looked at this again. We initially
looked at it in December 1999, and we published a report in November
2001. Again, we asked people to track their bank statements. We
found that statements were typically taking between four and six
days to arrive. We asked the card companies, and they were still
sending them out sometimes three to four days after the statement
date, and still using second class post, yes.
51. Do you have that evidence, and could we
have it, because we will be seeing the banks as part of this inquiry
and we would want to pursue that.
(Mr Naylor) Yes, definitely.
52. My colleague asked about APR. Are you concerned
about the use of APR in the mortgage industry, because when I
was recently buying a house, I was struck by the fact that different
definitions were being used by different companies. I have a PhD
in Mathematics and I still could not work it out. Some were doing
it on the basis of the period of the special offer, and some were
doing it to the end -
(Ms Hanson) The APR is an incredibly difficult calculation
and I think people are currently struggling with how they might
be able to make it more uniform and more understandable because
obviously it covers all the charges that apply.
(Mr Naylor) The total cost of credit. There have been
issues recently with credit cards and their move to stop companies
quoting six monthly introductory rates as APRs because it was
not representative of the cost over the year. I think one of the
problems is that there has not been an alternative put forward
that could replace it. With APR, it does give you a starting point
to compare, although two credit cards with the same APRs may charge
slightly differently, but it does give you a starting point. I
think there are issues to do with how it is used and how it is
used in advertising and expressed.
53. Thank you very much. Before we finish, could
I just mention the issue of financial inclusion. Many people feel
that access to basic financial services is a prerequisite for
individuals to participate in in modern society. Have you done
much work on that issue in this particular field?
(Ms Childs) We have not. What we have sought to do
is to balance our resources, so we have worked very closely with
NACAB who have done some work particularly in relation to indebtedness,
which is a growing issue. There are two issues, there is financial
inclusion in getting people to have an account, but there is also
a growing issue of the amount of credit and people who are then
in financial difficulties. In relation to access to basic accounts,
as I say, we have also been in discussion with the FSA Consumer
Panel and they have carried out research, which is what we mentioned
to you earlier, and I would commend that research to you. In relation
to indebtedness, this is a growing issue. The FSA Panel's research
also showed how quickly credit and other issues were pushed onto
people, and I would recommend to the Committee that they talk
both to the panel and to NACAB about this issue, because I think
it is one that is very much linked to financial exclusion.
Chairman: Can I thank you for your submission,
and also for your evidence today. It will be very helpful to us
in our banking inquiry, particularly when the big four banks meet
us in a couple of weeks' time. I apologise for the inadequate
acoustics in this place. Maybe some day it will get better.
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