Letter from Melanie Johnson MP, Economic
Secretary to the Treasury, to Rt Hon Giles Radice MP, then Chairman
of the Committee
RESPONSE TO THE TREASURY COMMITTEE'S FIFTH
REPORT 2000-01:
BANKING AND THE CONSUMER
The Treasury Committee published its Report on Banking
and the Consumer in March 2001. There were a number of conclusions
and recommendations in that report to which the Treasury wishes
to respond. I herewith enclose the Treasury's response.
I would like to thank the Committee for its work
in preparing this report, which is a valuable contribution to
an important debate.
TREASURY RESPONSE TO THE FIFTH TREASURY COMMITTEE
REPORT 2000-01: BANKING AND THE CONSUMER
(a) We believe that very easy transfer of current
accounts between banks is essential to ensuring increased competition
in personal banking services. We believe that the major retail
banks' efforts to achieving this aim in the twelve months since
Cruickshank's recommendation on this point have been disappointingly
slow. They must do very much better in the next twelve months.
Once the computerised system has been devised and tested, we expect
banks to commit themselves to a shorter deadline than ten working
days within which to provide account details to the new bank.
The time limit should be specified in the Banking Code. Furthermore,
there should be penalties (or liability to pay compensation, or
both) in the event of noncompliance. We look forward to
Dr DeAnne Julius's report, which the Minister said would be available
by the end of April 2001 (paragraph 12).
The Treasury agrees that considerable consumer benefits
can be accrued through increased competition in personal banking
services. Easier switching of current accounts between providers
has a key role to play in this. There remains a perception amongst
consumers that switching involves too much hassle, and we are
looking to the banks to make good on their recent Banking Code
commitment to facilitate easier switching. DeAnne Julius has indicated
that her Group's report will contain specific recommendations
designed to improve the process of switching personal current
accounts. The Government has given this Group a month's extension
to complete their work, and the Group is due to deliver its final
report to the Government by the end of May.[1]
(b) We agree that the revised Banking Code must
be implemented fully and fairly by all banks. If this does not
happen we believe that the case for further statutory regulation
will need to be considered (paragraph 14).
The Treasury acknowledges that the Banking Code should
be enforced fully and symmetrically on those banks that subscribe
to it. That is why we established a review group to consider,
among other things, whether the voluntary codes for banking services
are delivering sufficiently strong benefits to consumers. The
group is due to report at the end of May, with what we hope will
be a range of recommendations designed to maximise the benefits
to banks' customers.
(c) When banks pay lower rates of interest on
older accounts, they hope that their customers will not notice.
We regard this practice as unacceptable. The Banking Code Standards
Board should report on the elimination of such bad practices and
enforce the Code's provisions about superseded accounts rigorously
(paragraph 17).
The Treasury agrees with the Committee that such
a practice is unacceptable. We therefore welcome a recent commitment
from the Banking Codes Standards Board to pursue disciplinary
action against those banks and building societies that fail to
abide by this aspect of the Banking Code.
(e) We believe that "Clear" accounts
being designed by the Post Office as part of Universal Banking
should also provide for cash withdrawals other than in single
weekly payments and should provide direct debit facilities (paragraph
22).
The "Clear" Account is now known as the
Post Office Card Account (POCA).
The Post Office is planning to outsource the POCA's
banking back office operations. The precise features of the POCA
are still being decided upon in consultation with Government and
potential suppliers. But it is currently intended that customers
will be able to withdraw less than the full amounts of their available
balances; and that any remaining balances will accrue interest.
Under the proposals for Universal Banking Services
banks will make their basic bank accounts accessible through post
offices. Such accounts will include direct debit facilities. The
POCA is for those people not yet ready for a bank account. It
has therefore been designed to be as simple as possible and to
meet customers' core needs. So it will allow payment in of benefits
and tax credits only, and cash withdrawals at post offices only.
Those people wanting more sophisticated features should be able
to open a basic bank account allowing post office access.
(f) We agree that there may be a demand for bank
accounts without borrowing facilities. We therefore welcome the
development by the banks of basic banking accounts and the arrangements
to make them available at post offices as well as bank branches.
We urge banks to market these accounts more actively than they
are at the moment. We believe that the draft Memorandum of Understanding
between the Post Office and the banks participating in the "Universal
Banking Service" should be published. We believe that there
should be scope for transition from basic bank accounts to accounts
with borrowing facilities and that these followon accounts
should also continue to be available at post offices (paragraph
24).
The draft Memorandum of Understanding between the
banks and the Post Office is a commercially confidential document
whilst negotiations are taking place. Subject to the agreement
of the parties it is intended that the final document will be
made public.
The Post Office already has in place commercial arrangements
with banks (including Lloyds TSB, Barclays, Alliance & Leicester
and the Cooperative) which allow banking transactions to
be done at post offices. The Post Office wants to extend these
services through its plans for network banking and is in discussions
with the banks about this.
(g) While we accept the need to guard against
money laundering and fraud we also believe it is essential that
banks do not debar people from access to basic financial services
because they do not possess the usual identity documents (paragraph
27).
The Treasury agrees with the committee that possession
or otherwise of certain documents commonly used as evidence of
identity should not, of itself, govern access to basic financial
services. Where the lack of documents has presented such a barrier,
this has invariably been as a result of a misapplication of banks'
internal procedures, which generally make it clear that not possessing
certain documents should not be a barrier to opening an account
or otherwise accessing financial services. The Government is in
frequent contact with institutions and trade associations to make
it clear that there is no legal requirement to use only certain
documents for the account opening process. The situation was further
clarified in the FSA's Money Laundering Rules published in January
2001, which made it very clear that the simple fact that a customer
does not possess particular documents should not, of itself, be
a barrier to accessing financial services.
(h) We welcome the abolition of charges for cash
withdrawals from most machines, and recognise that this was largely
the result of public pressure. We believe that charges should
not be reintroduced (paragraph 34).
The Treasury agrees with the Committee that public
pressure was instrumental in changing the charging structure for
cash machine withdrawals. We believe that this demonstrates the
benefits to consumers of clear price information. To this end
the OFT, in its proposed new role as payments regulator, will
aim to ensure that charges are made clear to consumers and are
subject to an effective and competitive market. This should ensure
that consumers are well informed about the charges they face and,
for example, are made aware of any changes to charges for cash
withdrawals.
(i) Banks appear to be reluctant to invest in
modem technology to speed up cheque clearing. Even though the
use of other methods of payment is growing, we believe that cheques
are likely to remain an important part of the financial system
and customers' convenience should be given a higher priority (paragraph
36).
The Government believes that increased competition
and transparency is the key to innovation and development in payment
systems. Better, clearer information about the cost and time involved
in clearing payments will show up those providing a poorer service
and help to drive up standards. Effective competition will give
consumers real choice and innovative services at a fair price.
(j) We are persuaded that credit card networks
need to be regulated along the lines suggested by the Government
(paragraph 39).
The Treasury welcomes the Committee's support for
the Government's proposals.
(l) The OFT will need access to both bank charges
and their internal cost details if it is to ensure that the market
for banking services is operating competitively. In addition,
consumers need accurate, comparable price information and we look
forward to being able to assess the extent to which the Government's
CAT standard proposals and the FSA's comparative tables achieve
this (paragraph 45).
The Government is proposing to give the OFT robust
new powers to promote effective competition in payment systems.
These will include powers to investigate complaints and to collect
information, as well as powers to make determinations and to impose
financial penalties.
The Treasury agrees with the Committee about the
importance of accurate, comparable price information. The Government's
proposals to extend CAT standards for retail financial services
will help consumers to make informed choices.
1 HM Treasury published this reply on 9 July 2001 as
Cracking the Codes for Banking Customers, Banking Services
Consumer Codes Review Group, May 2001. Back
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