Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 340 - 359)



  340. Mr Targett, do you think that is acceptable?
  (Mr Targett) No, there is a transparency issue there. Having been here for a couple of months and being new to retail banking, I should like to take that on board and understand it better. It is quite a big spread, but there is definitely a transparency issue.

  341. Mr Crosby, your bank is included in this table and on your credit card the charge was £7.48 to borrow this £300 for a month and a half or so, whereas at HSBC it was £5.50. How do you explain that? The same APR.
  (Mr Crosby) We have a large number of credit cards. One of the variants that sits in the middle of that is the interest free period, which I suspect is a key driver of the differences here. I will be very straight. Some credit cards have longer interest free periods than others. It looks there on the basis of that evidence as though you have chosen one of ours with a shorter interest free period and that is probably the key driver of that. If it is, then it is an argument for making sure that customers are clear about the interest free period.

  342. Is this not all about transparency? You have all said you are in favour of it and the banking code requires you to publish the APR so you can see it clearly. Is it not a fact that what the customer wants there is what this credit is going to cost me. If we now know that the APR does not necessarily answer the question, how do we then achieve transparency for a customer wanting to know what his or her credit is going to cost. How are we going to get to that point? Any suggestions?
  (Mr Harley) In essence you are going to come back to two choices: either standardisation, so that everyone charges the same interest on the same intervals with the same interest free periods, that is you diminish product choice; or through better communication with customers, more transparency in the literature. Those are the only two polar choices.

  343. Any other suggestions?
  (Mr Crosby) You can have greater transparency but you also have to recognise that where you are transparent about the interest free period and the rates, customers buy different products according to their needs. For example, customers who do not expect to borrow for more than a few days in the ordinary course of events are not that interested in the end rate in truth. More importantly, customers who continually borrow small amounts on credit cards, quite often go for a product where the credit interest rate is flat all the way through regardless and we have one there which charges 10.8 per cent flat across. That would give considerably lower figures than any of those you are quoting there. Customers do pick and choose according to what they think they are going to use the card for.

  344. How aware are they of the small print? We are back to this subject again. Do you not suspect that if a customer sees bank A advertising a credit card with 18.9 per cent APR and bank B in its window says their credit card is 18.9 per cent APR they think it is the same product. Yet when they go into it they could find this 40 per cent spread in what is actually going to be charged. Do you really think all the consumers out there are aware of that difference when they sign up?
  (Mr Crosby) No, I think your point is a good one. We should be much clearer about the interest free period and that is what we shall take away. On the other hand, customers who are borrowing not just one month for a short period but permanently are incurring much greater interest rate costs and there the spread is between 10.8 and up to 18 per cent. That is very real and very important for customers.

  345. Are there practical steps you can tell us today that you would be prepared to take to help achieve this greater transparency in relation to credit card charges? Or do you think you are doing enough at the moment?
  (Mr Harley) It does not sound like it. We have to look very closely at the literature and see in our own case where we are in the spectrum. That is the message I take away.[6]

  346. Are you all prepared to go and take a look at it to try to improve transparency?
  (Mr Harley) Yes; absolutely.
  (Mr Targett) Yes.
  (Mr Crosby) Yes.

  347. That would be very helpful. May I just have a quick look at overdraft rates? It is much the same story really. There is a big spread. I should like to know how you arrive at your different overdraft rates. The table we have which shows comparisons gives ranges from Abbey National overdraft rate at 8.7 per cent to Clydesdale at 19.5 per cent. Why is there such a wide spread on overdraft rates and how do you arrive at them? Perhaps the owner of the 8.7 would like to explain how he gets that one first of all?
  (Mr Harley) In our case, as we have hopefully made clear, we are trying to break into this market, we are trying to attract new customers, we are trying to offer to customers prices which reflect their behaviour, whether they are borrowers or balance holders. Therefore part of the price decision is about customer acquisition, it is about being attractive and visible and pulling in new customers.

  348. Mr Targett, how are you going to attract customers with a 19.5 per cent rate?
  (Mr Targett) Our rates range from 6.17, 8.34 and there is one at 19.56 per cent which is called our current account extra youth flexi cash. I should have to come back with more details.

  349. It is certainly extra, is it not?
  (Mr Targett) As to why it is priced at that sort of level, there must be some product features which suggest that it is there. Off the top of my head I cannot give you an answer, but we will get back to you with it.

  350. You do not know why you have one product with an overdraft rate of 19.5 per cent.
  (Mr Targett) I cannot tell you the answer to that off the top of my head.


  351. What percentage of credit card customers pay off in full each months, thereby incurring no charges?
  (Mr Harley) I do not have the answer to that question. I will come back to you specifically. It will vary because we have a number of cards out there which reflect customer behaviour, such as those who borrow for short terms and those involved in the long term. It will vary but I will give you a written reply.[7]

  (Mr Targett) We are in the same situation. I do not have the answer at the moment. We will come back to you.

  (Mr Crosby) Like the others I will come back with the data on that.

  352. It seems a big issue. If they are paying off every month and incurring no charges, then you are running a non-profit organisation. Given that you are very keen on competition and attracting customers I would have thought that figure would have been there in neon lights.
  (Mr Harley) Interest is only one of the sources of income. Some cards are fee paying cards. It is not simply a matter of interest.
  (Mr Crosby) It does vary by card, I am afraid. The card I referred to earlier on, which is a 10.8 per cent flat rate, has a much higher proportion of customers who do not pay it off.

  353. So we cannot infer that it is a benign approach by you to the credit card market.
  (Mr Crosby) No. I should like to but I cannot.

Mr Tyrie

  354. I should like to follow up one point made in response to some of James Plaskitt's questions about credit cards. You say that you are going to go away and look carefully at all the literature you produce to see where you are on credit card rates. If you are competing with one another, if there really is competition out there, surely you know this spread very well already, you know exactly what the relationship is between your charges and those of your competitors. You know where they are making the money and where you are making the money, do you not?
  (Mr Harley) Up to a point. It depends entirely on where the public fall. I would not necessarily know, for example, what the interest charging dates were on a competitor's product. It is not necessarily information which would be highly available.

  355. Do you look at the oppositions' products?
  (Mr Harley) Absolutely.

  356. When you look, do you not try to work out where they are making their money?
  (Mr Harley) Yes indeed.

  357. But you are saying that it is so non-transparent that even you cannot work out how much they are getting back.
  (Mr Harley) No, what I am saying is that it would not necessarily be obvious in the guts of an interest calculating model what a competitor was doing at first glance.

  358. So I would be wrong to conclude that the fact you do not already know this information is something to be concerned about? You do not need to worry, even though you do not know exactly where you are making money on these products, yet we can feel assured that there is strong competition in the market.
  (Mr Harley) If I may say so, from a competitive point of view it is quite encouraging. If we all knew exactly what we were doing there would be more possibility of collusion and a market which was imperfect than if they do not know what we are doing.

  359. We are not talking about you exchanging secret information. We are talking about you obtaining information available in the marketplace to other consumers and working out on the basis of it who is making money. As I recall, we had a fracas like this about 20 years ago over the sale of petrol in petrol stations. Petrol stations were required to put up signs which said how much they were going to charge and they were not allowed to alter the sign as you drove in, to make sure that what you saw on the sign was what you really were going to pay. What we are discussing in a million different ways here is how to bring some transparency to your business. If I may say so, you have not only not said anything other than that you will go away and look at it, you have said that when you do go away and look at it you will not in any case really know what your competitors are doing. In any other competitive market if you go down to the high street they know exactly what is going on in the other shops, how they are trying to sell their products, whether it is Sainsbury's against Tesco or clothing shops one against another. You do not seem to be up to speed on this.
  (Mr Harley) I think your colleague was pointing out the fact that even if one follows the statutory disclosures on APRs it is possible to get different results. That is the point I was making in reverse. I cannot see inside someone else's system in terms of interest calculation. It may be that with assiduous research you can pin down every aspect of the calculus, but I am afraid the product does not sell on the calculus.

6   See Ev 124-5. Back

7   See Ev 125. Back

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