(a) The Committee notes the banks' verbal commitment
to basic bank accounts, but is disappointed by the limited progress
made since the last report. The Committee believes the banks need
to engage in more pro-active and innovative marketing if they
are to be taken seriously on their expressed commitment and to
overcome financial exclusion (paragraph 8).
(b) The Committee welcomes the banks' involvement
in educating young people in financial matters including school
visits for that purpose but believes the setting up of accounts
should be separated from that exercise. The Committee recommends
that young people should be given a breathing space between an
educational visit to a school and the offering of a bank account
The Government believes that the availability of
basic financial products is essential to ensure access to wider,
mainstream services and is an important component in tackling
social exclusion. Basic bank accounts have a role to play in providing
this access. The Government notes there are initiatives to promote
knowledge of basic accounts by banks and other institutions, including
the Financial Services Authority. To tackle the problems of financial
exclusion effectively, the Government agrees with the Committee
that there are specific challenges to overcome to target and inform
those that might benefit most from a basic bank account.
We support links between schools and businesses,
provided the links contribute towards our educational objectives
of raising standards and reducing disaffection and social isolation.
We would also agree with the Committee's recommendation that any
attempts to set up accounts should be separated from the visits
themselves. In addition, it should be for the school to decide
whether or not pupils should be given the offer of opening an
account, and the banks should make approaches through the schools,
not direct to pupils.
The Personal Finance Education Group (PFEG) is a
voluntary organisation which helps teachers develop financial
capability in young people. Firms which adhere to their code of
practice agree to emphasise the educational benefits of any material
they might develop, and not to promote branded products or services.
PFEG operates a quality mark for material it recognises as recommended
resources, and which abide by the practices, procedures and standards
they set out.
(c) The Committee welcomes the commitment of the
major banks to the "Universal Bank", but concludes that
the "Universal Bank" is primarily an attempt to bolster
Post Office business and to preserve access to pensions and benefits
where such access would be lost by Post Office closures. Furthermore
the Committee is concerned that this duplicates rather than complements
the basic bank account. We believe that the limited scope of services
is likely to be of interest to a minority of potential banking
customers, and will in practice for the most part be used for
those unable to access banking services through a commercial service
provider. The "Universal Bank" is likely to be a long-term
commitment, as it will not be easy for people to graduate to full
bank accounts. Consequently the long-term success of the "Universal
Bank" may rely upon the continuing strength of the Post Office
network. (Paragraph 11).
(d) The committee welcomes the pilot study into
branch sharing, and looks forward to receiving the results of
this study. However it is disappointed by the lack of enthusiasm
shown by the largest clearing banks, and the limited scope of
the BBA pilot study. The Committee recommends that, following
the pilot study, the BBA publishes a report on the scope for a
more comprehensive range of services to be handled in shared branches.
In light of this, the Committee may look further at this matter
to review progress, in particular we should welcome examples of
bank sharing in areas which have lost all banking facilities (paragraph
(e) The Committee considers the Post Office network
may have a contribution to make to increase access to business
banking services (paragraph 16).
In June 2000 the Performance and Innovation Unit
recommended that the Post Office should develop the concept of
a Universal Bank. In working up proposals, the "Universal
Bank" concept evolved and from September 2000 became universal
banking services. Under universal banking services access to a
range of bank accounts will be provided through the Post Office
Universal Banking consists of two strands. The first
is access at post offices to basic bank accounts offered
by the banks enabling people to withdraw cash from
their accounts at post offices. Basic bank accounts are simplified
accounts primarily designed to meet the needs of those who are
new to banking and do not want or need the features of a standard
account. In particular they provide no overdraft facilities and
thus minimise the risk of accounts being overdrawn and incurring
bank charges. Because basic bank accounts have no overdraft facilities
a customer's credit history should not generally prevent them
from opening an account. The vast majority of people who have
difficulty opening a standard bank account should therefore be
able to open a basic bank account. Use of the Post Office network
would build on and extend the accessibility of these accounts
to areas without bank branches or ATMs, encouraging take-up and
reducing financial exclusion.
The second strand is the card account at Post
Office a stripped-down account accessible at post offices,
exclusively for benefits and tax credits recipients who are either
unable or unwilling to open even a basic bank account. The features
of the card account are minimalto avoid duplication with
and to complement the banks' own basic accounts. Only benefits
and new tax credits may be paid into the card account and cash
may only be withdrawn from the account at post office counters.
The intention is that this account should be a stepping-stone
to bank accounts provided by financial institutionsand
to financial inclusion.
These two strands of universal banking services will
ensure that following the move to making all benefit payments
by automated credit transfer, starting in April 2003, all those
who want to will be able to continue to access their benefits
in cash at post offices. Complementing this, the Post Office is
also in discussion with the banks about "network banking"
which would extend Post Office access to conventional bank accounts.
The major financial institutions, including the four
largest clearing banks have agreed to contribute to the costs
of the card account at Post Office and to make their basic bank
accounts available at post offices.
Implementation of universal banking services is progressing
and is on track for delivery in April 2003.
(f) The Committee believes that the lack of transparency
in the credit and charge card industry acts against meaningful
competition, and is therefore against the consumers' interest.
The Committee recommends that credit and charge card companies
should publish, with equal prominence, all the variables that
make up the actual cost of credit. This should be done in a way
which allows consumers to make straightforward comparisons between
the costs of credit offered by all credit and charge card products
The Government agrees that credit card products are
among the most complex forms of consumer credit and that there
is a need to improve transparency. We recognise that the way the
APR is calculated for credit cards does not always facilitate
meaningful comparisons between different products and consequently
it can be difficult for consumers to identify the best value deal
that suits their circumstances. Credit card APRs are based upon
typical examples and do not reflect the consumer's actual usage
of a product.
The Government is currently undertaking a number
of initiatives to address this issue. Since July 2001 we have
been reviewing the Consumer Credit Act 1974. One of the main aims
of the review is to improve the transparency of credit products,
and this will include an examination of the current rules on APRs.
The DTI has held a number of meetings with members of the Association
for Payment Clearing Services about credit card APRs and we shall
continue to consult closely with them as we develop our proposals.
The European Commission has recently published proposals to amend
the Directive on consumer credit, which is implemented in the
UK by the Act, and detailed negotiations will follow. The Directive
contains provisions on the calculation of the APR and we will
also use this opportunity to address credit card issues.
In addition, the Government's task force on tackling
overindebtedness recommended that a working group should look
at revising the form and content of the credit agreement to ensure
it is clear and transparent to consumers, and reflects the type
of credit being offered. The working group identified what key
information should be clearly presented in the body of credit
agreements to improve transparency of the conditions and costs.
It also commissioned research to determine how the layout of the
agreements might be improved to aid consumers' understanding of
them and the best way to present the key information. The working
group has recently reported back to the task force and the task
force itself will reconvene shortly to review progress on its
original recommendations and make further proposals on the way
(g) The Committee recognises that product differentiation
can be an important feature of competition and satisfying customers'
differing needs, but is concerned that for individuals to understand
interest rate calculations requires an unreasonable amount of
time and effort. The Committee recommends that every credit and
charge card statement shows the "estimated interest charge
if only the minimum balance is paid by the due date", as
a number do already (paragraph 20).
(h) In light of confusion revealed over interest
rates and charges on credit and charge cards, the Committee expects
to carry out further investigation of this matter (paragraph 21).
The Government believes that improving the information
in credit card statements offers consumers a better opportunity
to understand how these products work. We welcome moves by credit
card companies to provide pre-estimations of future interest charges
As part of our review of the Consumer Credit Act
1974, we shall be examining information requirements under the
Act. The Act and its Regulations require lenders to give credit
card customers regular statements of account and also prescribes
the form and contents of these statements. We will look at how
we can improve the quality of the information contained in these
statements with a view to how the statement can be enhanced to
facilitate consumer understanding of the product.
(i) The Committee welcomes the recommendation
of the Competition Commission for a behavioural undertaking, by
the eight main clearing groups, to include transparency of overdraft
charges on bank statements (paragraph 23).
(j) The Committee is disappointed by the lack
of clear progress made by the banks in reducing the overall clearing
time for cheques (paragraph 24).
(k) The Committee welcomes the willingness of
Abbey National, HBOS and National Australia Bank to try and improve
transparency in their literature, and looks forward to reviewing
the revised literature. The Committee hopes that this positive
attitude is shared by all banks. The Committee urges all the banks
to review their promotional material with a view to achieving
genuine transparency (paragraph 26).
The Government notes the conclusions and recommendations
made to the industry on transparency. In relation to bank literature
the Government notes that there are commitments in the Banking
Code, to which all high street banks subscribe, concerning the
provision of information to consumers which should be clear and
in plain language.
(l) The Committee believes it is vital that SMEs
have confidence that any switch of bank accounts will be trouble-free
and timely. The Committee recommends that the five-week target
for account switching (where no borrowing is involved) is strengthened
to a guarantee, with non-delivery triggering a compensation payment
to the SME (paragraph 29).
The Competition Commission considered what a suitable
target for account switching should be and recommended tougher
targets (5 days for a substantial percentage of cases where no
borrowing is involved, 10 days where borrowing is involved) with
compensation if those timescales are not met. The Government accepted
this recommendation and the DGFT is seeking undertakings from
the banks to this effect.
(m) The Committee welcomes the proposal for portable
credit history to be included in the Business Banking Code, monitored
by the Banking Code Standards Board (paragraph 30).
(n) The Committee found that the SME banking sector
is still dominated by the major four clearing banks, despite new
entrants, and that insufficient competition exists. The cost of
this monopoly situation is borne by SMEs, a vital component of
the UK economy, and as such remedial action is required (paragraph
(o) The Committee notes the criticisms of the
methodology used by the Competition Commission put forward by
the four main clearing banks. However, HBOS, Abbey National plc,
and National Australia Bank did not complain about the methodology
employed by the Competition Commission; indeed National Australia
Bank commented that "it is a calculation which is broadly
sound" (paragraph 39).
(p) The Committee welcomes the proposed behavioural
remedies but is concerned that they will not on their own be sufficient
to increase competition. In light of these concerns the Committee
recommends that the Director General of Fair Trading reassess
competition in the industry after the remedies have been implemented
and to report further to Parliament by March 2003 (paragraph 43).
The Government has asked the DGFT to monitor the
implementation of the package of remedies and to monitor the state
of competition in the market. Given that the remedies will only
begin to be implemented from no later than 1 January 2003 for
the interest rate or free banking remedy, and from a variety of
dates but none earlier than the end of September 2002 for the
behavioural remedies, a report in March 2003 would seem to be
too early to observe an effect. However, as the Chancellor made
clear in his statement to the House on 15 March 2002, the DGFT
is free to review all the remedies at any point that he sees fit,
with 3 years from implementation being the latest time at which
such a review should be carried out.
(q) The Committee has sympathy with the Competition
Commission's view that because the behavioural remedies will not
have a significant impact for a few years, additional remedies
should be considered to benefit SMEs in the short term (pararaph
(r) The balance of the evidence suggests that
lack of portability and transparency are the main barriers to
increased competition in the SME banking market and this has generated
calls for price controls. The Committee was not convinced that
price controls were the appropriate solution, and shares the misgivings
of the Bank of England about their effectiveness in securing competition.
However, we accept that in the short term the reduced charges
will have a beneficial effect on SMEs. We are concerned that crude
controls of this kind could damage rather than improve SME financing,
and could well deter entry of the smaller banks into SME lending.
The Committee is also concerned that regulation of charges could
hinder competition, by reducing or eliminating a differentiating
feature of new entrants' products in particular (paragraph 48).
The Competition Commission recommended interest on
current accounts or free banking as a transitional measure to
ameliorate the effects on SMEs arising from the complex monopoly
situation, bearing in mind that behavioural remedies would take
time to have an effect on the market. The Government agreed with
this recommendation and felt the remedy should not interfere with
the development of competition in the market.
(s) In view of the Chancellor's original wish
to have the transitional remedy in place ahead of the behavioural
remedies, we look to Ministers to make an early announcement of
(t) The Committee notes that it has been over
four months since the Competition Commission report was laid before
Parliament, with a timetable of six months for implementing all
remedies. The Committee believes that the largest clearing banks
should not profit from procrastination, and recommends that the
DGFT should report to Parliament by the end of September 2002
on the progress made on implementation of the transitional remedy,
including if necessary further proposals (pararaph 51).
The DGFT reported to Ministers in July that the four
largest banks had given undertakings to implement the transitional
remedy. The DGFT advised that there were some technical issues
that the banks needed to overcome and that a suitable deadline
should be for the banks to begin paying interest or offering free
banking on SME accounts in England and Wales by no later than
1 January 2003. The onus remains on the banks to implement the
remedy as quickly as they can. There are likely to be competitive
advantages to be gained by those banks that decide to bring the
remedy in ahead of the others.