Further memorandum submitted by The Abbey
During the oral testimony provided on 18 June
2002, Abbey National Chief Executive Ian Harley promised to provide
the Treasury Committee with further detail on a number of items.
Abbey National is pleased to provide that and other information
relevant to issues discussed.
As we have tried to emphasise, Abbey National
is keen to promote increased competition in the banking sector.
We have been making inroads into the four big banks' market share
in personal current accounts, and over the past few years our
Business Banking operations have been increasing our range of
services and attracting new accountswith openings now running
90 per cent higher than last year at this time.
While we recognise that we need to make further
changes to improve, where possible, the transparency of various
financial services, we have already done much to break the mould
of the big four and present customers with simple, straightforward
We welcomed the Competition Commission's report,
which showed that the big four banksas well as four others
providing business banking services (not including Abbey National)were
engaged in activities against the public interest. We supported
the rapid implementation of the report's recommendations, especially
the remedies to provide for portable credit histories and transparency
of charges, which have the potential to change the dynamic of
the business banking market.
Likewise, pressure must continue to be placed
on the Big Four to make further improvements in the personal bank
accounts switching process. Abbey National will continue to push
for adoption of its recommendations to speed the process, which
will ultimately reduce barriers to swtiching and improve consumer
We provide further information on various issues
below, in the order in which they were raised in the 18 June 2002
Bank Account Literature
The following exchange took place between the
Chairman and Mr Harley:
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 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 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.
It appears the literature in question was not
that relating to the basic bank account, Instant Plus, but rather
to the Abbey National Bank Account, our "full-service"
account. As such, there is a great deal of information that must
be communicated in the leaflet, and some information necessarily
must be lower profile.
The rationale for the £250 requirement
is that we want customers to have their primary accounts with
us, and it benefits no one for accounts to be left dormant. The
£250 credit requirement is not a problem for the vast majority
of our personal account applicants.
The £250 requirement may indeed by of concern
to some potential customers of the Instant Plus Account, to which
it also applies. Enclosed is a copy of the Instant Plus Account
leaflet, which states the requirement very clearly on the front
page. This requirement will not feature in a new version of the
basic bank account to be offered in 2003.
Mr Plaskitt asked:
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?
In follow up questions, Mr Plaskitt asked:
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?
As suggested during the session, different credit
card providers offer different interest-free periods. They also
use different cycles for payments and issuing statements. These
factors contribute to the differences between monthly payments
for the same balance on different cards with the same APR. As
a result, it can indeed be difficult to compare costs of different
Abbey National is committed to straight talking
and plain English, and we believe that our credit card literature
states very clearly the way interest is calculated in the literature
provided to customers. Nonetheless, we have initiated a review
of our credit card literature and will be examining how we can
aid increased transparency and, most importantly, ensure customer
On an industry-wide level, APACS is currently
in discussion with the Department of Trade and Industry about
how interest rate calculations can be more simply communicated.
Indeed, the calculation of APR follows a formula set out under
the regulations of the Consumer Credit Act, and this may need
to be revisited.
Abbey National supports industry initiatives
to improve transparency. However, we believe that care should
be taken to ensure that standardisation does not reduce choice
to the detriment of consumers.
Later in the session, the Chairman asked:
351. What percentage of credit card customers
pay off in full each months, thereby incurring no charges?
Mr Harley agreed to give a written reply. However,
upon reflection, this information is commercially sensitive, and
we are unable to release it into the public domain. The Committee
may be interested to know, however, that industry-wide figures
suggest that about 30 per cent of customers pay off their balance
in full each month. APACS will be able to provide further information.
As Mr Harley indicated, charging interest on
balances is not the only way credit card providers make money.
Other revenue streams include interchange fees from retailers,
customer fees, and payment protection cover.
Competition Commission Inquiry
In the discussion about the Competition Commission,
there was some confusion about what aspects of the report applied
to Abbey National.
The Chairman said:
380. . . .The Competition Commission said
that the eight largest clearing banks, including yourselves, as
a group were providing more than 25 per cent of services, indeed
the Big Four were providing 86 per cent. The second issue is that
you are so conducting your affairs as to restrict or distort competition.
The third one is to show that restriction or distortion is working
against the public interest. The Competition Commission have been
very clear in saying that you as a group have been involved in
this complex monopoly situation. Do you accept their conclusions?
The oral responses focused on the fact that
the three banks giving evidence were not asked to apply the remedies
suggested by the Commission. However, the Chairman pursued further:
I shall just refer to the Competition Commission's
report, volume 1, page 128 which says, "We have therefore
concluded that by virtue of the provisions of section 7.1(c) of
the Act, Alliance and Leicester Bank, Girobank, AIB, Abbey National,
Bank of Ireland, Bank of Scotland, Barclays Bank, Clydesdale,
the Co-op Bank, HSBC, Lloyds TSB, Northern, RBS, National Westminster
and Ulster comprise a group of persons who . . .". So you
are included in it. What is your answer? Do you accept the Competition
Commission's view that you are engaged in a complex monopoly?
Abbey National was consulted in the Commission's
work, as we indeed have a presence in the small business banking
market. However, the Commission concluded (Volume 1, Chapter 2,
Section 501, pages 134-5) that "Of those clearing banks in
whose favour we have identified the complex monopoly situation
to exist, we do not believe that the practices of Abbey National
Bank, Alliance & Leicester Bank and Girobank, or the Co-operative
Bank operate or may be expected to operate against the public
interest . . ."
Bank Account Interest Rates
Mr Beard asked about the options Abbey National
personal bank account customers have. Abbey National personal
account customers have the option of either:
3.0 per cent interest on in-credit
balances and 14.9 per cent interest on overdrafts, or
0.1 per cent interest on in-credit
balances and 8.7 per cent interest on overdrafts.
Mr Beard asked what proportion of accounts fall
into each of the above categories. Mr Harley agreed to get back
to the committee with that figure, but upon further reflection
that information is commercially confidential.
Mr Ruffley asked for information about branch
closures in the past three years, and specifically how many of
these were in rural or semi-rural locations.
During the past three years, Abbey National
has had a net reduction of 37 branches, which includes a total
of 62 closures and 25 openings. Most of the openings were branches
in Safeway stores.
A number of the openings were in the same areas
as closures; as a result we have not withdrawn from any rural
or semi-rural locations. There may be differing definitions of
"rural" or "semi-rural" but the only two closures
that might be considered as such (Newquay and Haverfordwest) were
replaced with Safeway branches.
Abbey National is pleased to see the Committee's
active interest in ensuring competitive markets in financial services,
and we hope that the information provided above is useful in the