Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 480 - 499)



  480. What is the timescale within which you will make some response to DeAnne Julius? You say in April she will report. Are you going to get on with it, assuming you are still in power?
  (Miss Johnson) We will be getting on with it as quickly as we can, but obviously we will have to see what is in the report at the end of April. It would be foolish of me to give you a definitive timetable at this moment, because only when we see the scope of what is being suggested and any answers that may be suggested will we able to predict what the exact timescale will be. But again, we are keen to see this progress rapidly.

Mr Davey

  481. Minister, would you consider withdrawal from a cash machine an everyday transaction with a bank account?
  (Miss Johnson) Yes, I think so.

  482. Could you therefore answer me why in the consultation paper on Standards for Retail Financial Products the CAT standard for basic bank accounts does not include free withdrawals from cash machines?
  (Miss Johnson) What we are putting out today is for discussion and consultation. We will welcome people's suggestions on ways in which they think other things might be needed in this, if that is appropriate.

  483. But Minister, on page 55 of your consultation document you say about basic bank accounts on charges that there should be "no one-off or regular charges for everyday transactions." You told me that you considered a cash withdrawal from an ATM, a cash machine, an everyday transaction. I agree with you. Why then are you proposing in your consultation paper to allow banks with a CAT standard for a BBA to charge for those withdrawals? That is your proposal. You published the document.
  (Miss Johnson) Yes, and it is for discussion and it is for people's input, so it is not a finished piece of work. That is why we have put it out for consultation. What we have at the moment is a situation where you will only pay for using an ATM in certain limited circumstances, as I was explaining earlier on. The effect of the debate around Cruickshank, the public pressure on ATMs and the measures that we have taken has been that ATM withdrawal is free for the vast majority of consumers at the vast majority of ATMs.

  484. But you are not proposing that with respect to CAT standards for basic bank accounts, are you? Am I right?
  (Miss Johnson) Yes, but that is an item for further discussion. We would welcome your views on it.

  485. Let me give my views, most strongly, on behalf of my constituents. My constituents, as indeed do you, consider withdrawal from a cash machine, an ATM, to be an everyday transaction. But you are not proposing that a CAT BBA should include free cash withdrawals. I would suggest to you that most people would consider that that ought to be free.
  (Miss Johnson) They will be free from charges.

  486. That is not what it says on page 54. It only says that withdrawals will have to be free over the counter. There is some discussion of buffer zones, because there is a minimum withdrawal from a cash machine of sometimes £10, but it is not clear in the CAT standard for BBAs which you published yesterday, or maybe you gave to the press at the weekend, that cash machine withdrawals should be free.
  (Miss Johnson) We published it this morning, as I am sure you are aware. It says "no one-off or regular charges for everyday transactions".

  487. Are you telling me now, because it does not appear to be the case when you define that on page 54, that that includes ATM withdrawals from cash machines? If that is your line, I am delighted.
  (Miss Johnson) It is a question, is it not, of the inter-relationship between that and the statement "Account holders must be able to use the following", cash machines, and a number of other outlets. My understanding of what we are proposing at the moment is that we should have no regular charges for everyday transactions.

  488. You are looking at page 55.
  (Miss Johnson) I have page 53.

  489. Turn to page 54. Paragraph 9—I have read it two or three times, but I think it is phrased interestingly—does not make it clear at all that all withdrawals from a cash machine from accounts that have the CAT standard would be free.
  (Miss Johnson) What it says is, as you have read yourself, that account holders should be able to withdraw all their money free of charge either by free withdrawals over the counter or through access to a buffer zone, and it goes on to talk about the minimum withdrawal from a cash machine of £10. It says, "accounts which do not provide free withdrawals over the counter should offer individuals a buffer zone, to enable them to withdraw their last penny via a cash machine." That is what the buffer zone idea is.

  490. But it does not say that it would be free. The free withdrawals relates to withdrawals taken over the counter.
  (Miss Johnson) We are talking about the fact that they will be free from charges.


  491. Maybe you can drop us a note on this.
  (Miss Johnson) I certainly can. I will be very happy to do so.[7]

Mr Davey

  492. Can I take you on to money transmission systems. You may be aware that the British Retail Consortium in relation to your proposals that OFT should have a regulatory position over this have said that they are not convinced that the modus operandi of the OFT is appropriate for non-competitive environments such as money transmission. They are worried about the powers. Can you address these concerns? Will the OFT have sufficient powers and be able to devote sufficient time to ensuring there is competition in money transmission services?
  (Miss Johnson) Yes is the answer to your question, and I am very confident that it will do. I think it is important just to remember what the issues in terms of competition problems in the payment systems were that were identified and, just to run through them quickly, they were things like poor, outdated governance structures; lack of effective competition between the schemes; anti-competitive restrictions on access; anti-competitive, inefficient wholesale prices; lack of innovation; slow and inflexible service; poor transparency; and an ineffective framework for government intervention. What we are doing with the new regime is giving the OFT new powers which will enable them to conduct competition investigations into the provision of payment services, they will be able to investigate complaints about competition in payment services, they will be able to collect information about the way those payment systems are working, and they will be able to enforce rules. They will establish an initial set of rules which is aimed at ensuring price transparency, efficient wholesale pricing, and fair, reasonable and non-discriminatory access to payment systems. We are resourcing the OFT specifically for the payment systems issue, because I think that is also something that needed to be addressed, and they will have specific duties in relation to the exercise of their new powers.

  493. You said the OFT would have certain powers to collect information. Can you confirm that they will have full powers to collect full information on the cost structures of the payment systems operated by the banks?
  (Miss Johnson) They will be able to gain information that is necessary for them to be able to do their own job and to make sure that control of the payment systems cannot be abused. They are also going to have strong enforcement systems. That is another aspect of it. They will be able to tell providers what they have got to do to bring a breach of the rules to an end. They will be able to specify the conditions, including the price, upon which a new entrant might be granted access to a payment system. They will also be able to impose financial penalties to encourage compliance with the new rules.

  494. Minister, that sounds like a long way of saying no to my question.
  (Miss Johnson) Far from it.

  495. I asked you a very clear question about cost information, and one of the key concerns that many people have, looking at the payment system, is that a lot of the costs are hidden, and the experience of the regulators in other industries is that unless they have specific powers to go after the information on those costs, they cannot promote competition and prevent monopoly. My question to you is: can you reassure this Committee that on the specific issue of costs, the OFT will have sufficient powers to go after that information?
  (Miss Johnson) Yes, and I was trying to expand on the ways in which they will have the ability to go after that information and to enforce their decisions when they have gone after that information. The answer is a very categorical yes.

  496. Can you just explain to the Committee then why you went for the OFT solution rather than PayCom as proposed by Cruickshank?
  (Miss Johnson) We have a system at the moment where we have a number of regulatory bodies already alongside the Bank of England who are dealing with payments issues. There is the FSA itself and the Financial Ombudsman as well. We felt it was probably better to give the powers to an existing body. Of course, the OFT has significant expertise in this sort of area because they have dealt with competition more widely, and competition issues, indeed, in the financial services sector explicitly as well in the past. So there are issues and experience there in common with their present role. It fits in with their remit to deal with competition in all sectors of the economy. All in all, we thought there was a very good fit, and I have to say that Don Cruickshank agreed with us on that. He said that the Government's proposals for payment systems were the final piece in the jigsaw to deliver competition in banking markets, that the introduction of new rules and new powers for the OFT would herald a new era of effective competition in payment systems and that he fully supported the Government's proposals. So he is very much behind us.

Mr Cousins

  497. Minister, I am having great difficulties in studying your document which you put out this morning. I think it is extremely commendable of my colleague that in the time available to him he has not only been able to read it and study it, but has also consulted his constituents. It is an absolute miracle of modern communications. What I would like to ask you is this. Is it the Government's intention that consumers of banking products should readily be able to make sensible comparisons of the charges to them at their particular provider and to compare that provider's charges with other providers' charges?
  (Miss Johnson) Yes, you are exactly right, and obviously you have a good grip on this, even if you have not managed to consult 100 per cent of your constituents this morning on this subject. It is the case that we want to make it easier for people. They have to be able to understand what is in front of them anyway, and at the moment that is difficult. For example, on the credit cards people often do not understand that if they do not pay the balance off at the end of the month, interest is charged from the time they bought the item rather than from the end of the month when they have not met the full repayment on the balance. Issues like that we want flagged up clearly so consumers can see what is going on at the present time with their existing provision. Then they need to be able to compare it, and the advantage with the CAT standards and other clear and transparent information is that people can make a more ready comparison of one provider with another, and therefore make decisions about whether they are getting a good deal as consumers or not, and that will drive the competitive competition in the market.

  498. It is your intention that the OFT—at the moment it is the OFT that will be charged with these responsibilities—will be able to compare not merely the charges between different providers, but will be able to look at the underlying cost structures within those providers to see how they compare with the charges.
  (Miss Johnson) We are aiming for the OFT to have access to things so that it can make a very clear diagnostic analysis of what is going on in the payment system. Obviously, if it is to analyse the payment system in this way and to come up with effective answers and identify effectively any problems that are working in it, it needs to be able to get to the root of the information in order to achieve that task.

  499. Mr Sweeney of the British Bankers Association, who the Committee had the advantage of speaking to a week ago, said that, of course, costs and charges may not be in any way connected, and the particular banking service provider might well decide as a matter of deliberate policy to disconnect costs and charges in order to achieve bigger market share for a particular kind of product. Of course, one accepts that, but notwithstanding that, it is the clear intention of government that OFT will be in the position of being able to compare the underlying cost structures of banks with their charges to deliver those services to consumers.
  (Miss Johnson) Yes, it is.

7   See p 117. Back

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