Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 500 - 504)

TUESDAY 30 JANUARY 2001

MISS MELANIE JOHNSON MP AND MR WILLIAM LEA

  500. I have not had the opportunity of looking at this document in detail, but it does seem to me—and I am just trying to confirm that my impression is right—that what the Government is proposing is a CAT standard for basic bank accounts, the possibility or probability perhaps of a CAT standard for credit card accounts, but the document is silent about the possibility of CAT standards on normal current accounts as most consumers now have them. Is that right?
  (Miss Johnson) Yes, but, just to make sure you are absolutely clear, I think the CAT standards on basic bank accounts and credit cards are on a par in the document, that is to say, we are seriously proposing that we do a CAT standard in each case. The detail is obviously something that can be discussed and is part of the consultation, but we are thinking it would probably be a good thing to do something in both cases. We are seeking views on whether there are applications elsewhere, and again, it would be very interesting to have people's views on that. We have, for example, canvassed ideas about whether travel insurance is an area where people would appreciate having a CAT standard. We think there are other areas where they may be applied. At the moment the specific proposals in here are for two areas, but we do think there is scope for further applications.

  501. The Government has an open mind and is willing to listen to representations on extending the CAT standard concept to the cheque accounts, current accounts and savings accounts that are now normal?
  (Miss Johnson) Yes. We think there is a role for these things. The evidence on ISAs, for example, has been very good, that about half of ISA savings are actually in CAT standard products, and there is a very much higher proportion of people buying CAT standard ISAs direct than there is of those buying non-CAT standard direct, which indicates that the consumer feels more empowered by the CAT standards for ISAs. There is good evidence that they are effective. We want to see what other areas the public think they would be effective in. At the moment the two specific proposals in the paper are on credit cards and basic bank accounts, but we would be very happy to receive suggestions about other areas, including the ones that you have mentioned.

Mr Beard

  502. On credit cards, Europay International have argued that, because they are already regulated at European level, there is no need for them to be regulated at UK level. How do you respond to that?
  (Miss Johnson) The fact is that we are in the UK here, and the evidence is that there is not sufficient competition on the credit card side of things, so we do not think there is enough evidence to suggest that there should not be a UK approach to this issue. I think all the evidence points in the direction of us being right on this.

  503. Europay again have complained that if the rules for membership of the transmission system for credit cards were widened to new members, there could be a systemic risk if new members were unable to meet their obligations. Do you agree with that? What can be done to safeguard against it?
  (Miss Johnson) Issues of systemic risk are really matters for the Financial Services Authority and the Bank of England. I do not think there is a problem there, but it is up to the FSA in particular to make sure that prudentially firms in the financial sector are viable and other parts of the financial services sector are viable, and not likely to cause systemic risk of some kind. We think this is a good proposal. It will drive competition. It may be that those who do not wish to go along with that have their own reasons for not doing so.

  504. So you reject that point.
  (Miss Johnson) I do indeed.

  Chairman: Thank you very much.





 
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