Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 320 - 339)



  320. What do you mean by "behaviour"? That they must have shirts and ties on?
  (Mr Harley) No. If they tend to have money in their accounts. If they are not users of overdrafts, for example, if they are customers who are typically in credit, I would suggest that they take the interest option, which is 3 per cent on the balance of the account. If they are borrowers, big users of overdrafts, we would suggest the overdraft option, which is 8.7 per cent on the overdraft side.

  321. I notice one of your Abbey National accounts for personal customers offers an APR of 3.04 per cent tied to 14.9 per cent interest for authorised overdrafts. Another account offers an interest rate of 8.9 per cent on authorised overdrafts and pays only 0.1 per cent APR on credit balances.
  (Mr Harley) That is right. What we are saying to customers is that if they are typically somebody who borrows money then they should go for the lowest possible borrowing rate. If they are typically somebody who has money in their account, they should go for the highest possible deposit rate. We are allowing them to make choices according to how they run their account.

  322. But you must put £1,000 a month in to get that 3 per cent. I have that here in front of me.
  (Mr Harley) That is right. What we are saying is that we would like customers to be as near as possible —

  323. Would you describe that as attaching strings?
  (Mr Harley) You could do, yes. We want customers to use the accounts as fully as they can, as opposed to not. The nature of the current account is that it is a transactional account and all of us aspire to have primary customers as opposed to secondary or tertiary customers.

  324. Would you accept that the ordinary customer would find that very clear and transparent and would not have any problem with that? They would not have been misled by the headline figure.
  (Mr Harley) The conditions are all very clear, as is implied by the fact that you have been asking about them. We try very hard to explain to our customers on all of our accounts exactly what the account does and what it does not do here.
  (Mr Targett) We pay a range of 0.1 per cent up to 2.35 per cent. The current account in particular is not one where customers have large credit balances. We try to switch them to other products where they can earn higher interest rates. We do not see the current account as something which should be used just as a mechanism for leaving funds earning interest.
  (Mr Crosby) We pay a rate which is currently 2 per cent but is positioned as base rate minus two on all accounts where the customer credits us with £500 or more a month. That is not that restrictive in practice because what we are looking to do there is to attract customers' primary banking relationship for the simple reason that it gives us the opportunity to build a relationship elsewhere. I would put £500 a month in the context of an average after-tax monthly take-home pay in the UK of £1,200. It is pitched to be a truly mass market offering. At the same time we offer an authorised overdraft rate of 8.9 per cent.

Mr Mudie

  325. Do you all offer basic bank accounts?
  (Mr Harley) Yes.
  (Mr Targett) Yes.
  (Mr Crosby) Yes.

  326. When did you start them?
  (Mr Harley) 1996 in our case.
  (Mr Targett) I am being told 1999.
  (Mr Crosby) We have two. We had the Halifax branded Card Cash which started in 1985 and the Bank of Scotland Easy Cash. I do not know when that started but it was apparently the first, so it must have been before 1985.

  327. When this Committee dealt with Cruickshank's we asked the bank to market these accounts more actively. When we met the Big Four we were not over-impressed by their enthusiasm for it and only one of them was showing any marketing or interest. Can you tell us what you are doing in terms of marketing and encouraging?
  (Mr Targett) I looked at the numbers from the Big Four banks. We have 120,000 basic bank accounts which we think for a bank our size shows that we are truly committed to this. Through local communities and so on, we are doing a fair bit of advertising and I think the number itself indicates that we are not excluding anybody from having one and that we have done fairly well in this area. We use local authorities, but I think that the basic figure of 120,000 with our market share compared with the numbers I saw from the Big Four banks suggests that we have done a good job in that area.
  (Mr Harley) We have 570,000 basic bank accounts but we use them not just as an account but also as a source of new current account customers. We migrate customers through the basic bank account into full blown current accounts. We migrated about 50,000 customers last year through the basic bank account into full-blown customers.

  328. That is the next question to the three of you. Do you have an active policy of encouraging movement onto a full account?
  (Mr Harley) Absolutely. We have taken about 300,000 customers through that process in the last five years, in addition to the stock of 570,000 basic bank accounts at the moment.
  (Mr Crosby) We have 2.5 million basic accounts, roughly 80 per cent of the market. Last year in terms of our marketing effort I suppose the best measure was that we took half of the new accounts in the UK last year with 400,000. If you look in our branch brochure displays they are given as much prominence as anything else, as the current accounts. In terms of migration, our card cash product is actually a very full service basic account product. The only thing it does not give is credit and it is not credit scored. It gives you access to all sorts of things. In practical terms therefore it does meet the long-term needs of a lot of customers. Nonetheless, we migrate around about 72,000 a year through discussion with them.

  329. Two and a half million sounds amazing.
  (Mr Crosby) We have been in it a lot longer than anyone else.

  330. When I asked you when you started, what did you say?
  (Mr Crosby) Before 1985.

  331. A bit before the others.
  (Mr Crosby) It stems a little bit from our building society origins. In the late 1980s it was a way of acquiring customers.

  332. Do all three of you specifically market them? If someone walks into your branches, is there literature?
  (Mr Crosby) Yes.
  (Mr Targett) Yes.
  (Mr Harley) Yes.
  (Mr Targett) Basic bank accounts are not excessively profitable. Clearly if you have people there and they improve as customers you want to migrate them onto other products anyway so we actively try to do that.


  333. May I refer back to Abbey National? This is what I picked up at the bank last week. Your preferred authorised overdraft rate is 8.7 per cent and unauthorised is 27.0 per cent. In the follow-up at the bottom in very small print it says "We ask that you mandate at least £250 per month into your Abbey National bank account". Do you think that is helpful to the financially excluded who want to open an account?
  (Mr Harley) Is this basic bank account literature that we are talking about here?

  334. If you want to attract the financially excluded, do you think this is helpful?
  (Mr Harley) The key issue is migrating them to the right account, that is through basic bank account into a full-blown current account. I would be the first to accept that if your monthly income is less than whatever threshold one sets, there is an issue. We do try very hard to be as inclusive as possible in terms of these accounts.

  335. Why could it not have been in bigger print? Why do I have to read 18 lines before I get to the second from the bottom line?
  (Mr Harley) We will take that away and have a look at the layout. If there is an issue with the format, we will look at it again.[4]

Mr Plaskitt

  336. All of you have told us of your plans to expand your market share over the next few years. In the case of each of you are you including in that ambition expanding your share of credit card business? A simple yes or no to start with.
  (Mr Harley) Yes.
  (Mr Targett) Yes.
  (Mr Crosby) Yes.

  337. You are all trying to expand your credit card business. When we had the Big Four in front of us, we asked them about their methods of charging on their credit cards. We did this on the basis of some research carried out by the Consumers' Association which showed us that even if on all the cards the APR is the same, absolutely identical, and the amount on the card for purchase and repayment is the same and all done at the same time, in other words exactly parallel circumstances all on the same APR, there is still a 40 per cent spread on the actual cost to the customer of that amount of credit for that period of time. Do you think that is an acceptable state of affairs, given that all of you have said you are interested in transparency of charges? Do you want to comment on that 40 per cent spread?
  (Mr Harley) Personally I would have to take that question away. I am not sure I understand exactly the question and I would want to look at it. Are you saying with the same APR you get a different answer?[5]

  338. Absolutely. I can explain it briefly for you. Identical APR, identical amounts of money, identical time of purchase and time of part repayment and yet you can get this 40 per cent spread of actual cost because of the way in the small print you actually work out when you levy the interest and so on. Lots of little devices you are using to produce this difference. The example, for your information, is £300 borrowed at 18.9 per cent APR but the cost for a month can vary between £5.50 and £7.96. How transparent is that? Is this acceptable?
  (Mr Harley) The whole issue of defining APRs and defining credit costs is fraught, as you have just indicated. I agree that on the surface that sounds like a very odd disparity. I would have to take that away and look at it.

  339. We can certainly send you the table; we are happy to do that.
  (Mr Harley) By all means.

4   See Ev 124. Back

5   See Ev 124-5. Back

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