Select Committee on Treasury Minutes of Evidence

Further memorandum submitted by The Abbey National Group


  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 accounts—with 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 solutions.

  We welcomed the Competition Commission's report, which showed that the big four banks—as 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 confidence.


  We provide further information on various issues below, in the order in which they were raised in the 18 June 2002 session.

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.

Credit Cards

  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 cards.

  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 understanding.

  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.

Branch Closures

  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 Committee's work.

July 2002

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