Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 360 - 379)



  360. You are saying that you need assiduous research in order to find out how much is actually being charged. So how on earth can a customer do it?
  (Mr Harley) That is what the APR is designed to help with, but we are hearing that the APR does not work too well. APRs have been a problem.

  361. Is this a surprise to you that all of you do not know?
  (Mr Harley) No, I do not find it surprising at all. If you want to have absolute transparency you have to have standardisation of products on something like interest calculation. It is as simple as that. Otherwise you always get variations caused by whether you use opening day or closing day balances for example. There will be differences and we could disclose all that and that is one of the potential responses to the question by Mr Plaskitt. The question then is how much information can anybody cope with, whether they be a customer retail or customer corporate. The alternative is the poor choice of saying you will have a standard credit product which has fixed calculation methods for all suppliers.

  362. Would anybody else like to comment on this?
  (Mr Targett) Part of your question was whether we know what our competitors are doing and the answer is yes, we can see the headline rates and we can see how they are looking to service the market. The difficult thing in terms of how much money they make from it is that we all operate off different platforms and also have different systems and processes. To really understand where people are making their money is not that easy.
  (Mr Crosby) We look very closely at our competitors' products because we are a fierce competitor on the high street. We attracted more new credit cards last year from the Big Four than anybody else. We do not do that and make sensible returns for our shareholders without getting as far inside our competitors' products as it is possible.

  363. So you do know where they make their profits, either.
  (Mr Targett) We have as good an understanding as we need. We are not going to know precisely, but in total.

  364. Within a few percent.
  (Mr Crosby) We cannot both deliver better value to customers and deliver growth for our shareholders unless we understand that situation. The only other point I should like to make is that it is a fiercely competitive market, if you look at the rates, in the sense that our most attractive product, if it suits the customer, is the 8.9 per cent flat rate we have on our credit card for intelligent finance, which is a remote bank, or a 10.8 per cent flat rate in our branches. It is massively different from what is being offered by the Big Four and it is winning us customers.

  365. While you yourselves say that you want to go away and have a look at how the APR can be made more transparent but it is all so complicated, the public simply will not believe what you just said, even if it is true, that the market is fiercely competitive. They will not believe this because they will associate, rightly, fierce competition with some clarity and transparency about the relative prices each of you are charging, and there is no transparency. You yourselves are saying so today.
  (Mr Crosby) The specific point which has been made through that survey was that the interest free period for certain types of short-term borrowing can distort the calculation and therefore is an important piece of information. What we said today was very straightforward. If that does distort the customer's view of our product and the level of transparency, we should go away, look at it and address it and we shall do that.

  366. Mr Harley said, correctly I think, that there are only two polar possibilities in moving forward on this: one is greater transparency and the other is products defined by regulation. If we are to avoid the latter, do you not think you all have an urgent and immediate interest in coming forward with proposals for much greater transparency, transparency that at least the Treasury Committee can understand, never mind the public.
  (Mr Harley) I think we would agree that there must be a challenge and in what is a competitive marketplace it is difficult to see who is going to lead that apart from somebody outside the industry, that is Government.


  367. It is our intention to write out to yourselves and other banks anyway so the light you can shed on transparency would be very valuable to us.
  (Mr Crosby) I disagree. Why I am particularly struck by the observation on interest rates here today is that I think there is a great opportunity for organisations to compete on transparency and deliver it. If we are falling short here I want to know the reason why, because it is core to what we are doing to a great degree. Simple, transparent products really do work with customers. They understand them more, they buy them more, we have a better business.

  Mr Tyrie: We are at one on that.

Mr Mudie

  368. I am intrigued. How many credit cards does your bank run, Mr Crosby? How many different types?
  (Mr Crosby) Probably two fundamentally different types. I would say they are broadly the same but one has branch access and therefore offers a fuller service and has a slightly higher rate. That is one product type where the interest is flat throughout the period. The other type of product is typical of the marketplace, where you offer an introductory discount to customers to move their balances to you from a competitor, which is a natural force for competition. Those are the two main types. We will offer them under different brands because they are a different service proposition.

  369. They would be different cards to look at.
  (Mr Crosby) Yes.

  370. You mentioned one where if you cleared your account you would pay a certain amount and you suggested another account if you were running an overdraft. Do these fall into these two categories?
  (Mr Crosby) The point I was making was that if you have a customer who has a small amount in debt all the time on his credit card, then the best deal for them is the flat rate throughout the life because they are always borrowing and it is a low, very competitive rate. If you have customers who are only temporarily there, they may prefer to bridge that gap with an introductory discount and then hopefully, and it often happens if we deliver the service, they stay with us after that.

  371. How do you market your cards then?
  (Mr Crosby) As clearly as we can to customers but obviously not as clearly as we might.

  372. Do you do mail shots?
  (Mr Crosby) Yes, but 50 per cent of our credit cards—and this is unusual—are actually sold in branches, which I like because I think it means that customers have a chance to ask questions about the product.

  373. Are you active with your customers? The banks come under some criticism where a person has money in an account that you know could be in another account earning more and you do nothing about it. Do you have an active policy with your credit card holders where you point out to them that they would be better having a different card? Or is it the first card I sign up with you that sets what rate I have regardless of my spending patterns.
  (Mr Crosby) We do not have a specific review policy which we have in savings and in current account areas. We are very clear in disclosing what products we have to customers and they are all available in branches and I suspect we mail-shot them as well.

  374. Do the other two have different credit cards with different rates, the same as Mr Crosby?
  (Mr Harley) Different features, yes, absolutely, which are offered to reflect different behavioural patterns of customers so they can choose one which suits their lifestyle best.

  375. I see them coming into my household all the time. You fill it in, you send it away, you get a credit card back. I am trying to keep them away from my youngsters. There is nothing in that literature which says, ". . . depending on your spending patterns". You just sign up for a credit card with lovely introductory rates and hidden down below is the rate you eventually go onto. I think I got one from you yesterday, saying I could transfer all my present credit card debts to you at a great rate and then I would move on to another rate. You are not actually marketing to the customer telling them the different cards and different rates, are you? You are signing them up with a lovely introductory rate and if their spending pattern is inappropriate for the card that is tough, is it not?
  (Mr Harley) Like James, the bulk of our cards are sold in our branches, so that is part of the sales process. I agree, that if there is direct mailing there is less.

  376. Easier.
  (Mr Harley) That requires the customer to read all of the literature discussed.

  377. We are talking about a lot of money to somebody who has the least appropriate account surely.
  (Mr Crosby) The key point here is that we have different products actually because customers are driving us to have different products. The reality is that I personally would prefer it if we could build a big market share in credit cards and take that away from the clearers, solely by having the product with the flat rate and no complexity, if we could do that and change the competitive dynamics of the market we would do it, no doubt about it. The fact of the matter is that large portions of the population are mostly only moved by the product you were mail-shot with yesterday. That is at this stage of the competitive environment where you are trying to bring down long-term returns.

  378. You were very keen on transparency and you market without transparency. You do not tell me what I am signing up for. You do not analyse how I spend and what would be appropriate for me. You sign me up and off we go and I have the interest rate I have signed up for.
  (Mr Crosby) At the end of the day it is not in our interests to have customers with credit cards who should not have them in the first place. That is the key point.

  379. I am not suggesting that. Until you said that in an off-the-cuff remark to Mr Plaskitt, I was unaware that my credit card could be changed within that organisation depending on my spending patterns. How are people going to know? Where is the transparency, where is it in your literature? Where is the encouragement to change accounts? You tell me you encourage people to change from basic bank accounts, but what about credit cards?
  (Mr Crosby) We do mail-shot customers with both products and they choose.

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