Examination of Witnesses (Questions 240
TUESDAY 14 MAY 2002
240. It is always uppermost on the blurb which
comes thudding through the door.
(Mr Goodwin) That is not actually true. The preponderance
often do, but credit cards are often sold on other features such
as air miles.
241. Do you think consumers are aware that despite
the fact that you may be offering identical APRs it can lead to
very big differences in the interest that they have to pay on
your cards? Do you think people realise that?
(Mr Goodwin) The APR is the APR. It is the period
over which they pay interest which will affect the calculation.
The APR is governed by a set of rules which are very strict. If
there is anything wrong with anyone's marketing, then it should
be pursued and there is a variety of channels through which that
can be pursued. For our part we are not trying to demur from that.
APR is quite tightly controlled and that is how it can be quoted
and calculated. In the sort of comparison you are making reference
to it is to the other factors which distort it. What I would suggest
to customers is that they should not just look at the APR, they
should look at all the product features and satisfy themselves
how they are going to use the product and any charges or other
aspects of conditions will come across. The Banking Code also
requires us to expose those and for those to be transparent and
they are. It is not just the APR we are looking at.
242. Do you give those things equal weight?
I come back to your promotional blurb. You have 2.9 per cent all
over the front page, but on the small print insideI should
love to read out the small print but we do not have timeit
is incredibly difficult to understand, it is in tiny, tiny, tiny
print. Eventually we get down to when you have to make a payment,
how much it should be, how many days after the statement, all
sorts of little conditions. You just said APR is one factor, but
your blurb keeps pushing the APR and all the other factors are
in tiny print.
(Mr Goodwin) It is not on ours.
243. It is just one factor. Should you not be
giving equal weight in your promotional material to all the factors
which together result in how much the customer has to pay?
(Mr Goodwin) Without commenting on the specific piece
of paper, which I have not seen, I am quite content that our literature
makes reference to all the facts. We are in a competitive situation
in the market and every and any retailer highlights some features
rather than others. It is classic retailing to highlight what
you think is the best and most attractive feature of your product.
The test we have to meetand I certainly stand ready to
be judged by itis whether someone reading the literature,
taking it as a whole, is alerted to the material terms and conditions.
It is not just a Banking Code issue: there are absolute legal
requirements on us in this respect and that determines what is
disclosed in these notices. It quite often determines the wording
which is used.
244. Do you want to comment on the finding in
relation to the Lloyds TSB Asset Advance because you come out
the dearest with £7.48 as opposed to £5.50 down the
(Mr Ellwood) I would need to do a study of the research
in some detail.
Chairman: We have spoken a lot about
the Competition Commission report, but now we will look at the
245. Mr Ellwood, in your submission you pointed
out that we have now ended up as the only country where banks
have price controls slapped on them. If those price controls are
not mitigated, what do you think the effect on the Big Four's
market share of small business lending will actually be?
(Mr Ellwood) Because there are several new players
coming into the market now, over time we may see a slight erosion
of market share with the Big Four. I hope we do not, but I suspect
we may. It seems very clear that certainly Halifax and Abbey National
are very keen to get into this market in a very vigorous way.
Curiously the one difference they had in paying interest on current
accounts has now created a level playing field as a result of
the Competition Commission's decision. I suspect that will not
deter them however and I suspect they will still go very vigorously
for this market. People who go vigorously for markets with deep
pockets tend to gain market share over time. I suspect the market
share of the Big Four is likely to go down rather than up.
246. You say in your submission to us that this
will withdraw the only pro-competitive advantage of the new entrants,
HBOS and Abbey National.
(Mr Ellwood) Yes. If you look at the thing they had
which the Big Four did not have, it was the payment of interest
on current accounts. They were using that as a very clear marketing
tool. They did not have other things, they did not have the distribution
capability, they did not have the expertise and they probably
did not have quite the level of product range. What they did have
was the payment of interest and they were using that. What I am
saying is that because they were using that and because the outturn
of the Commission has said that we all now have to pay interest,
it has created a level playing field. Whilst it removes that advantage,
because we all now have to pay interest, it does not take away
the competitive forces of Halifax and Abbey permanently. Therefore
it is my belief that they will gain market share over a period
of time, but they have certainly lost an initiative that they
started with very recently.
247. I just want to be clear whether you think
the price controls are damaging or they are going to be irrelevant.
What is the cost in lost revenue if the price controls are not
(Mr Barrett) One hundred and fifty million as a crude
number. I certainly plan to not lose £150 million in revenue.
I have an ideological aversion to price control frankly There
are unintended consequences which arise when there is unwarranted
intervention into a market which is operating perfectly fine.
Therefore from the start I am against the whole notion of dictating
price. If one wants to prescribe remedies to increase competitiveness
and the propensity of new entrants to come in or whatever, there
are many, many classic remedies. Price control is extremely retrograde
frankly and I thought it was a discredited approach and therefore
I am, to be honest, quite upset about it. As a businessman I will
do my best to try to find ways either to increase productivity
by stealing more business from the other guys, doing more business
with existing customers, by coming up with a more valued proposition.
I will do everything I can because the CEO who runs that business
is not off the hook on the profit targets which he has agreed
with me for the next three or four years, so he is going to have
to find a way. I think it is wrong.
248. If price controls are so discredited, why
do you think you have ended up with them? Why do you think the
Labour Government confirmed them? How did you get into this mess?
(Mr Barrett) We are an easy target.
(Mr Ellwood) It is really not going to have a major
impact on the SME profit. The amount that an average SME customer
will get as a result of this imposition of interest rates will
be of the order of 40 or 50 pence per week.
249. What is the damage to Lloyds?
(Mr Ellwood) It is about £100 million or thereabouts.
250. One proposal has been, to help small and
medium-sized enterprises changing banks, that there should be
a standard portable credit history which they could take with
them between banks. I understand that Lloyds have said that this
is not possible because there is no standard format already. I
should like to hear the comments of everyone on this but would
you also comment on why you could not get together to provide
a standard format so that it could be transferred easily?
(Mr Ellwood) What we are saying is that as far as
portable history on SMEs is concerned, it is something we are
very happy to work towards; indeed it is part of the Business
Banking Code and we are looking at it right now. We have a slightly
different view on portable history for individuals. What we do
not want to do is dilute
251. I was just talking about SMEs.
(Mr Ellwood) Exactly.
(Mr Barrett) I support that; not the adjudication,
the other bank would not rely on your adjudication anyway. I have
no problems with providing the credit, the base data which forms
the credit history of the client.
(Mr Goodwin) We already have something which we term
a portable credit history. It is not standard because we developed
it on our own. It is a good thing. At the end of the day it does
not actually make a lot of difference because one of the issues
in switching was not assessing creditworthiness; our own processes
do that pretty effectively and we find that our relationship managers
can quite quickly determine the credit status of someone. If it
is felt helpful, and we think on balance it is, then we are quite
happy to do it. As ever, sometimes the devil can be in the detail
of what you try to prescribe as the standard one across the industry.
Some things are more easily delivered than others. If you want
five years' history, that is difficult from today. It will be
much easier in five years' time if we know today what is called
for. It is an area in which progress can be made.
(Mr Dalton) We would work toward one as well but we
do wonder about the practicality of it. We think that there is
already a pretty good portable credit history in the bank statement
and if you wanted to change your bank and you walked in with your
bank statement showing your overdrafts and the various funds going
out of your account, that is pretty good information for your
banker. We use that in determining our credit process.
252. In the light of those answers and in the
light of the recommendation, will the four of you get together
now to derive a common format so that these portable credit assessments
can be made?
(Mr Goodwin) We do not find it difficult to take business
from the people sitting around this table. It requires broader
co-operation than just the four of us.
253. Why could it not start with the four of
you as you are in apparent agreement?
(Mr Goodwin) It is probably a good idea.
254. I am not asking you whether it is a good
idea but whether you are going to do something practical about
it to make it an operating possibility?
(Mr Ellwood) The answer is yes. The Business Banking
Code indicated that portable credit history was going to be a
feature of that and that would be monitored by the Banking Code
Standards Board. Therefore it will happen and it is clearly better
if it happens in a uniform way.
255. Another recommendation of the Commission
was for sharing branches, which if it has no relevance anywhere
else, would probably have relevance in sparsely populated areas.
I think Lloyds have said in their written submission that you
were adamantly opposed to this. Could you say why and what is
the attitude of the other banks to this?
(Mr Ellwood) We are implacably opposed to this. It
is a bit like saying to Marks & Spencer that they have to
give a corner of their shop up to Next. It does not make any economic
sense. We also do not think it is credible for new entrants to
come into the market without a branch network of their own. If
we do have people come into our network on a non-reciprocal basis
it is going to damage the service we give to our customers. We
do not see ourselves as a public utility in this regard, so we
are implacably opposed to that.
(Mr Barrett) In principle I agree with Mr Ellwood.
That is why we have some months to go in discussions with the
OFT on these various remedies and a lot of the devil will be in
the details. Philosophically, the notion that my shareholders
should pay for branches and distribution and others capitalise
on that without remuneration for the capital invested in it is
not acceptable. It is de facto confiscation of our sovereignty
as a commercial enterprise. I would be opposed to being forced
to provide that. Having said that, in a different context, in
remote areas and branches, we are co-operating with a shared branch
ideal to bring banking service access. We have a pilot going on
between the four of us in ten branches which we are piloting for
a year to see whether we can collaborate in a co-operative sense
to provide banking services in a remote community which would
otherwise be uneconomic to any one of us and therefore not granted.
In that respect, we are co-operating. As a general principle,
I do not think we should be required to yield our own facilities
to a competitor.
256. I do not think there is any force implied.
You say it is not economic for any one of you. Maybe it is not,
but the whole idea is that the four of you or even more would
share it. Would it not become economic then?
(Mr Barrett) We have no need for it at the moment,
so we look after our own customers.
(Mr Goodwin) As one of the important factors of competition
we believe, in common with others, that where we locate our retail
facilities is important to our customers and that we have a choice
to make on where we locate them. Where we locate them, we would
hope to attract customers to them. It seems to me to cut fairly
dramatically across that if you start saying it does not matter
where we have them, everyone else has to come in and use them.
(Mr Dalton) There are two quite different things here:
the issue of banking services in remote communities is one thing.
Then the sharing of a branch in Oxford Street in London is quite
different. We are working together on a pilot in ten communities
to make sure that those communities are served with banking. We
are sharing branches in that case. I would agree with my colleagues.
I cannot see us sharing our branch on Kensington High Street with
257. I suggested remote areas.
(Mr Dalton) Remote areas are quite a different matter
and we are doing that together now and the pilot is going well
and if it is successful and the issues which are related to it
are solved, then we would expand it.
(Mr Barrett) We will hopefully ask the Competition
Commission not to get mad at us for colluding.
258. There is another point on collusion here.
They have also recommended that in relation to small and medium-sized
enterprises you publish certain interest rates and charges in
the interests of transparency, so that when people are transferring
they know what they are getting or might get. How would you react
(Mr Ellwood) Very happy.
(Mr Barrett) I have no problems with that.
259. What plans are there to do it?
(Mr Ellwood) We do it now.
(Mr Barrett) The Banking Code requires it.