Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by the Nationwide Building Society

  Nationwide Building Society welcomes the announcement of the Treasury Inquiry into banking and I am pleased to set out below our initial thoughts and observations.

  Nationwide takes great pride in championing the interests of consumers and actively campaigning for greater fairness, transparency and accountability in the financial services marketplace. We have over two million current account members and offer a full range of personal banking services, including personal loans and credit cards, and also a restricted set of business accounts for the SME market. We particularly welcome the decision to broaden the scope of the inquiry to cover both the SME and personal banking market place, as many issues and opportunities for change are common to both. Our stance has delivered significant benefit for UK consumers, for example, in championing free use of cash machines (ATMs). However, we do believe that there are still areas of value where consumers are disadvantaged, either through poor practice or a reliance on inertia not to shop around for better products.

  We responded positively to the recent Competition Commission Review and the de Anne Julius Committee in 2001. Our approach in adopting the new APR guidelines for credit cards in 2001 (in support of the Office of Fair Trading), our adoption of CAT standards and our consistent lobby to improve the Banking Code demonstrate our track record and willingness to embrace changes that put customers first. The key issue today, we believe, is ensuring greater transparency by giving appropriate, timely information to consumers. The right industry-level practice would enable consumers to be better informed and make better decisions while also reducing customer inertia.

  We are currently involved in the formulation of the Small Business Code, the Review of the Banking Code, the work of the Overindebtedness Task Force and the review of the Consumer Credit Act. We see significant benefit in a Treasury Committee Inquiry which can take a holistic view, streamlining and focussing regulatory support on fair and open competition to the genuine benefit of the consumer.


Improved customer communications

  We strongly believe that the nature of communication to consumers can and should be dramatically improved. Today's market is characterised by a plethora of information, much of which has little attraction to consumers. There are many examples of poor practice that are hidden within that information. People simply cannot see the wood for the trees. Nationwide is promoting effective, appropriate communication, for example, by supporting the Customer Annual Summary Statements (CASS), as recommended by the deAnne Julius Review of the Banking Code. One option we are supporting is a clear concise annual statement of the value and the costs of a banking relationship, which could either assure consumers that they are getting value for money or kick-start them into switching if they feel they are not.

  There are many other examples. To take just one: the provision of interest rate information is becoming so frequent that, at best, we feel it is being ignored and, at worst, is being treated with contempt by many customers. We support focussed communication, for example, when an account's interest rate has changed out of line with a customer's expectations. In this way interest rate communication will become something for the consumer to act upon and by itself could deter poor practice in interest rate management.

Switching accounts

  Barriers to switching accounts apply in both the personal and business banking sectors, limiting the impact of market forces to drive improved consumer propositions.

  The Cruickshank report (Competition in Banking March 2000) followed by the deAnne Julius Committee sought to establish agreed standards for switching bank accounts. Limited progress has been made—the introduction of the automated BACs process to transfer Direct Debits (November 2001) and the proposed incorporation of the five day timetable for providing information into the Code of Banking Practice.

  Our observations are as follows:

  (1)  Clear and unambiguous process definitions are required to set out the responsibilities for both the losing bank and the gaining bank.

  (2)  Government direction and support should be provided to the banking industry to ensure changes to systems (BACS) are delivered to an acceptable timetable and therefore underpin an open switching process across the industry. BACS has considered and rejected a highly automated switching system which operates "almost at the press of a button" that would be invaluable. Its reasons for rejection should be challenged.

  (3)  We welcome the focus on achieving a five-day start for both personal and business customers. We do question the appropriateness of a five-week finish service level on the gaining bank. Without the ultimate BACS solution, which we believe is essential, the timing and nature of when a consumer makes their new account operational should be at their choice. Many banking customers prefer to "experiment" with an alternative service before deciding to undertake the switching process.

  (4)  Portable customer (and small business) credit histories would also facilitate a more dynamic switching process and enhance competition. We support such an initiative.

The development of a Small Business Banking Code

  As reported to the Competition Commission, our activities in the small business market are very restricted compared to the clearing banks. However, we fully support the development of the Business Banking Code and, in so much as it mirrors the Personal Code, we welcome its introduction and further development.

  There is scope, going forward, to link the development of the two banking codes to improve efficiency and to simplify the key messages for both consumers and bank and building society employees.

Code integration and Review Code reviews

  We are actively engaged in the development of the Banking Codes, especially for personal customers. We suggest that it could be useful to review the following areas:

  (1)  Promoting greater transparency and information in consumer dealings.

  (2)  Bringing the Small Business Code and the Personal Banking Code together and to make the single code available in all media formats.

  (3)  The publishing of aggregate compliance data. This is an area that could have positive effects on raising standards. Timely, accurate comparison and clear data definitions are necessary for this to be effective. We do not believe that publishing individual compliance data would have any positive effect and would serve only to increase compliance costs and bureaucracy.

  We believe that that the Banking Code provides the "blueprint" for biennial review of the other codes and that a streamlined process of self regulation, which is open to independent scrutiny, would provide the best vehicle to drive sustainable change.

3 May 2002

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