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Cash Machine Charges

4.9 pm

Mr. James Plaskitt (Warwick and Leamington) (Lab): May I, through you, Mr. Deputy Speaker, thank Mr. Speaker for granting me this debate?

I raise this issue because of a series of concerns. One third of the cash machine network in the United Kingdom now charges people a fee for accessing their own money, and the proportion of fee-charging cash machines in the network is increasing. On current trends, we are not far from the point where the majority of cash-dispensing machines will charge.

Charges vary, but they are not less than £1 and are often more than that, and as a proportion of the average cash withdrawal they can represent a significant deduction. There is evidence to suggest an increasing concentration of such machines in lower income areas, and my major concern is that there is no robust code or regulation in place telling the customer what is going on. In other words, there is inadequate transparency in the industry and it should be addressed, given the trends. People should object to paying for the privilege of collecting their own money.

There is something ironic about the current situation. If my current account in the bank is in the black, I can go into a bank branch—an expensive building—go to a teller, who is employed at some expense to the bank, and withdraw cash from my account for free. However, if I go to a cash-dispensing machine in the street, where no expensive building or member of staff is involved, it is increasingly likely that I shall be charged for using that machine to do exactly the same thing. The hole in the wall has become the hole in my pocket.

There is currently much debate about the reform of gambling laws. If I engage with a gaming machine I know that I may lose my money, or I may win—I take a gamble. However, if I use a cash machine that charges, I will always lose. It is guaranteed to drain my account every time. According to a Which survey, two thirds of people do not expect to be charged by a convenience cash machine. I am beginning to wonder why there is so much fuss about slot machines, when there are already 20,000 one-armed bandits on Britain's high streets.

I have nothing against any company wanting to get into this business and make money out of it. I am not asking the Government to ban charges for accessing cash, or asking banks or finance companies to offer a free good. They are in business and they have the right to try to make money, and a network of cash machines costs something to operate. However, the consumer also has the right to fair trading, honesty and transparency. Consumers have choice as their weapon, but they can deploy it only if they have information, and they will have it only if those they are trading with are transparent about the deal on offer. That is where there is a big gap, and we need to work to close it.

The big high street banks are not the main culprits. For the most part, their machines, often in their branches, are free at the point of use with no charge to the customer withdrawing cash—a service that is funded by interchange fees exchanged between the banks. The main problem is with the cash machines owned and operated by other companies, such as Hanco,
 
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Moneybox, Cardpoint and Travelex. Hanco has the largest share of the market with 26 per cent. and Moneybox is second with a 15 per cent. share. Since Moneybox started in this business in 1999, it has raised its average charge by 60 per cent. Cardpoint currently has a 14% share of the market and has a declared strategy—it can be found in its annual report—of increasing the number of machines and increasing charges per withdrawal. A minority of the total cash withdrawn via the hole-in-the-wall operations is issued by these companies' machines. However, that is where the main problem lies and it could easily become a more significant problem unless appropriate codes or regulations are put into place.

Let me give a simple illustration of the problem. On Monday, I went to Leicester square. In between the Empire cinema and Ben and Jerry's ice cream parlour, there is a cash machine that prominently displays a Link logo. I inserted my card and went through the usual on-screen steps with which we are familiar. After the fourth step—the last before it would issue the cash—a message popped up saying that I would be charged £1.50 for the transaction. As I was attempting to withdraw £20, that would have meant a 7.5 per cent. deduction from my cash, so I aborted the transaction.

However, let us consider the problem. The machine was registered as a Link machine, which most people understand to be a free network. The Travelex sign was tucked away out of obvious sight. There was no prominent sign on that machine to tell me that it would charge; in fact, there was no sign at all.

When I began using the machine, there was no message to warn me that I would be charged. How realistic is it in normal circumstances to imagine that people will pull out of the transaction, as I did, having got that far? They have already queued, there are probably other people behind them, they want the cash, and they are in a rush. That is simply unfair trading. That machine belongs to Travelex, which cannot possibly argue that it is a convenience machine, serving only a limited clientele, and that there must be a need to charge.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe) : I am interested by my hon. Friend's argument. Could he describe the difference, as he sees it, between a convenience machine and the one in the case he has just outlined? I am trying to get clear in my head the differences in definition between a convenience machine and the one in Leicester square, next to Ben and Jerry's.

Mr. Plaskitt : To some extent, all the machines are convenience machines. The phrase has come into use to refer, by and large, to machines that are not located in branches of the main banks. That is what the term has come to mean, but it covers a collection of different locations and sites. I can help my hon. Friend further by pointing out that just a few metres away from that machine, in Leicester square, is a row of cash machines owned by NatWest that are not in a branch but all offer free withdrawal.
 
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Leicester square is obviously a busy area. There is a very high footfall, to use the jargon, so Travelex's uncommunicative machine is just a cynical bit of consumer exploitation. In its briefing, Link says:

"You will only be charged . . . if you use a 'convenience' cash machine. These are found in locations that would not normally justify the cost of installing a cash machine because fewer people are expected to use them".

That is what Link says should be the case with convenience machines, but it is patently the case that in Leicester square, one of the busiest locations one could find, Link's policy is being breached by that Travelex machine. I do not believe that it is the only such example.

If we move away from Leicester square and London altogether, we can find even more interesting examples. Let us travel instead to Liverpool, to the L5 postal district, one of the poorest in the United Kingdom. In the core of that area, nine of the 10 available cash machines charge. Or we could go to Glasgow, and the G34 postal district—six of the 10 machines in that core area charge. By contrast, in some of the more prosperous parts of the country, such as Fleet, in Hampshire, in the GU51 postal area, we find that eight of the 10 core machines are free. In the RG40 postal area of Wokingham, seven of the 10 core machines are free.

There is a financial exclusion issue arising out of the conduct of those companies. Where bank branches have largely gone from an area, people are left increasingly dependent on so-called convenience machines. They are incurring the charges, which fall disproportionately on customers with lower incomes. Benefits are increasingly paid directly into bank accounts. If a mother in the L5 area withdraws the money for her child benefit via a so-called convenience cash machine, 5 per cent. of it will end up in the hands of the automated teller machine provider.

There is also an element of age discrimination. Once a child has reached the age of 14, he or she can obtain a cash card—not a cheque account or a credit card, just a cash card. In general, children of that age will be drawing out very small amounts, so the £10 cash withdrawal on the Saturday morning trip to the shops could very well incur a charge of £1.50 if taken from a convenience machine. That is a 15 per cent. deduction from the young person's cash. Those customers do not have many other available sources from which to obtain their cash and may well be less aware of their options.

A pattern of disadvantage begins to emerge and will only worsen if the current behavioural trends in the industry are left to continue. The signs are that they will, which is why I want to bring this issue to the attention of the Chamber. Many of the banks are disposing of their cash machine network—that is, machines outside their branches. HBOS, for example, sold its non-branch machines to Cardpoint. All those machines used to be free, but they are unlikely to remain so. Abbey has also sold off part of its network to Moneybox, so free machines—in this case, those in petrol stations—are now becoming charging machines. The banks can still be involved even when the machines are sold off to other operators. RBS, for example, owns Hanco.

It is objectionable to have to pay for the privilege of collecting my own money, but I accept that those in business will see this as an opportunity to make money.
 
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As I said in my opening remarks, however, I as a consumer have or should have some power in this relationship. At the moment, however, too many consumers are being deprived of those powers. Action is necessary to restore a level playing field.

What intervention is there in this relationship? The system is currently governed by the Link network, which applies a voluntary code, part of which I just quoted. The code quite rightly indicates that cash-dispensing machines that charge should say so, but, as the Leicester square example showed us—it is not the only one—the code is not worth the paper it is written on because it is not policed.

I want customers to be able to vote with their feet and walk away from charging machines wherever possible. That will be possible only if there is greater transparency about what those machines do. I want an enforceable code that will protect the free parts of the network, such as those operated by Nationwide. That will give consumers the power to which they are entitled. The code should say that machines must display a clear and prominent warning that they charge. This warning must be on the machine itself, not only on the screen, and it should not be tucked away or disguised. After all, if a small cigarette packet can contain a large, clear sign saying, "Smoking kills", surely a much larger cash machine can display a sign saying, "This machine charges."

Wherever possible, the amount of the charge should also be given equal prominence. The same charge notice needs to be included on the promotional signage associated with that machine, not just on the machine itself. All non-financial transactions must remain free of any charge.

This is not yet a massive problem, but I suggest to my hon. Friend the Minister that it is already significant. The trends are worrying, and are clearly established. For example, the number of fee-charging machines has increased by 40 per cent. in only the past six months. Last year, 63 per cent. of the 5,600 new ATMs installed in this country charged fees. Very soon, there will be more fee-charging machines than free ones in this country.

Those who are trying to maintain a free and convenient cash machine network are under siege from others in the industry who are anxious to charge us for accessing our own money. The voluntary code is not working, which is probably unsurprising, given the big banks' dominance over the Link network. I therefore say to my hon. Friend that it is time for the Department, which does act in the consumer's interest, to enforce fair play.

4.24 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe) : I congratulate my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) on securing this debate on an important subject, which is a matter of concern. I thank him for the work that he is doing, not only as a constituency Member, but as a member of the Treasury Committee. The matter that we are debating is one of several being
 
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considered by the Select Committee and I am pleased to see the Chairman present today. I am grateful for the opportunity to respond.

Mr. John McFall (Dumbarton) (Lab/Co-op): I thank the Minister, on behalf of the Treasury Committee, for his interest in these consumer issues. The Committee will have a couple of hearings on this topic in December; no doubt an invitation will be winging its way to him.

Mr. Sutcliffe : How can I resist such an invitation? It was my privilege as a very new and junior Minister to appear before the Committee last year. I gave extensive commitments, and I know that the Committee has been considering them, so I look forward to returning. The number of serious issues that it is considering, the detail of its scrutiny and its use of witness hearings show the House working to maximum effect. That work, together with the Government's examination of the issues in the wider context, will, I hope, enable us to reach the right outcomes for consumers, our constituents and the industry. There are many in the industry who operate fairly and appropriately, but we need to think about other aspects of the matter.

Protocol forbids me to mention what may or may not be in the Queen's Speech, but if we are fortunate enough to learn from it that there will be a consumer credit Bill, that will provide an opportunity to consider the issues and what can be done about them.

Cash machine charges affect everyone in the UK. Such machines are the first port of call for many of us. As my hon. Friend the Member for Warwick and Leamington said, they have supplanted the traditional counter as the mechanism of choice for withdrawing money. Many significant changes have been made to the system in the past few years. I welcome many of those developments, including the removal, in most cases, of charges to customers for using machines—notwithstanding the issues raised by my hon. Friend—the increasing transparency where charges are applied, and the wider deployment of machines. We can be sure, however, that the changes have provided, and can continue to provide, real benefit to consumers. The Government are committed to ensuring that consumers get a fair deal, value for money and greater choice. We see that as good not only for consumers but for British businesses.

My hon. Friend will know that many of the changes to cash machines result from the March 2000 report by Don Cruikshank on competition levels in UK banking. In that context, Cruikshank examined the UK machine network, Link. I want to say a few words about the report, which had a huge impact on the industry. It found that many consumers faced charges levied by their card issuer and, sometimes, additional charges levied by the cash machine provider. Those charges were not, in many cases, made clear when the cash withdrawal was made. The requirement to be an issuer of cards in order to operate cash machines was a real barrier to entry to the market.

Following the report, Link made several changes to its rules. I am interested in my hon. Friend's interpretation of those rules. Link opened its membership to non-bank organisations. It required that all charges, whether applied by the cash machine owner
 
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or the card issuer, should be notified to the customer by means of an on-screen message at the time of the transaction and that customers should always have the option to cancel the transaction without charge.

Link also banned double charging, which means that card issuers will not charge customers for cash withdrawal at a machine that attracts a convenience fee, and a machine will not apply a further charge to a cash withdrawal where a customer's card issuers charge a cash advance fee. Link has made those welcome changes to its rules, and the Government believe that they have had a positive impact on the market.

Mr. Plaskitt : I am grateful for my hon. Friend's response, but he has just referred to the Link document calling for information to be given to customers using cash machines "at the time of the transaction". That is a very vague phrase. In the case that I cited, the machine in Leicester square, the time of the transaction is the last moment before it issues the cash. A lot more activity goes on before that. Does my hon. Friend agree that the customer needs to know from the outset that they are to be charged, not at the very last moment?

Mr. Sutcliffe : Given my experience in the Treasury Committee, my hon. Friend will not be surprised if I do not respond immediately with my personal opinion. I am sure he will appreciate that in these debates it is important to consider in detail the information that hon. Members give us and respond accordingly. By happy coincidence, my officials are meeting Link representatives tomorrow, and I shall ask them to take up the issues raised by my hon. Friend in the debate. I undertake to respond to him and to the Treasury Committee in due course.

On the whole, it is extremely good news that the vast majority of customers do not have to pay to withdraw cash when they use a cash machine that is not owned by their bank. According to recent Link figures, about 97 per cent. of all cash machine transactions are now free.

Mr. Plaskitt : I am grateful to my hon. Friend for giving way again so soon. Does he acknowledge that even though a charge is incurred on a small percentage of all the cash being dispensed, if we take the figure that he has just mentioned, £3.6 billion in cash is dispensed on which fees are charged? Will my hon. Friend bear in mind the fact that that amount is 48 per cent. higher than the figure for the year before, which is a fast growth in the section of the network that charges?

Mr. Sutcliffe : I am grateful to my hon. Friend for making that point. In the spirit of how we progress on these matters, he will understand that a Minister's response comes from the advice given him by officials. I know that my hon. Friend will appreciate that I, as Minister with responsibility for consumers, want transparency, to ensure that the consumer is not treated unfairly. My hon. Friend was right to make the point about percentages and what they mean in real terms.

Our information is that Link rules state that customers must be warned of the charge and given the option of cancelling the transaction. They stipulate that
 
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an on-screen message detailing all charges will appear before the transaction is completed, and the customer can pull out of it without charge. I recognise that there is some discussion about when that point is reached.

I understand that Link members have also agreed that a sign saying:

"This machine may charge you for Link cash withdrawals"

will be clearly visible to card holders before the card is inserted in a cash-charging machine, either by a notice on the machine or an upfront screen message, at the discretion of the cash machine owner. My hon. Friend knows of our work on transparency and advertising; the sign must be very clear and the consumer must be aware of it.

On the whole, I welcome these developments and encourage the widespread adherence to the principles. It is important that consumers have relevant, correct and transparent information in order to make informed decisions and avoid being misled, which is the key issue.

As my hon. Friend said, fees are still charged in some cases, such as the use of store, credit or charge cards, when the card issuer charges a cash advance fee, or the use of non-bank cash machines, which are often called convenience machines. Increased competition in the market has led to a growth in the number of cash machines, both those provided by the banks and those provided by non-bank operators. Most non-bank or convenience machines are found in locations that would not otherwise justify the cost of installing a machine, and I was interested to hear what my hon. Friend said about the machine in Leicester square. The issue about charging in areas where convenience machines are likely to be—garages, pubs and stores—involves the number of transactions. Many of us, if we find that we need cash but would otherwise not have access to it, are prepared to pay for that opportunity of access.

The recent increase in the number of convenience machines is a benefit resulting from the changes to open up the market. Competitive markets provide the best means of ensuring that the economy's resources are put to their best use by encouraging enterprise and efficiency, and widening choice. Where markets work well, they provide strong incentives for good performance, encouraging firms to improve productivity, to reduce prices and to innovate, and they reward consumers with lower prices, higher quality and wider choice.

Allowing non-banks to join Link has allowed new operators to fill a niche and to deploy cash machines in many locations where there had previously not been a machine. The Government believe that the growth in the number of non-bank cash machines has led to an increase in choice for consumers and is driven by demand from consumers. The machines provide access to cash in locations that were not previously served, and the operator must cover the cost of providing that service. It is important to remember that prior to the change in the Link rules to allow that to happen there would have been no cash machines in most of those locations. Despite the growth in the number of non-bank cash machines, I have been told that they account for only 3 per cent. of transactions, notwithstanding the point about the value of that 3 per cent.

As my hon. Friend knows, the Government are committed to promoting financial inclusion and I would be concerned if poor people were more likely to pay for
 
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cash machine use. The Government have acted to make the benefits of banking services more widely available; I will say something about that in a moment. I would be very concerned if the rules on the transparency of charging information were not being properly adhered to or enforced.

I must now say a few words about the regulation of the industry. The provision of payment services, including the deployment ofATMs, is not regulated by the Government. However, that is not to say that there are no safeguards in place. The amount of money that flows through the UK's payment systems—Link is one, albeit one through which relatively small amounts of money flow—means that the Government must take an interest in the possibility of risks to banks or to financial stability. Most of the participants in the UK's main payment systems are banks, which are authorised by the Financial Services Authority. The non-banks that are members of Link are not FSA-authorised, and the Bank of England has responsibility for overseeing payment systems as part of its wider responsibility for financial stability.

The Government have no plans to make the provision of payment services a regulated activity. We do not believe that the risks posed are such that the costs of regulation would be outweighed by the benefits.
 
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However, the European Commission is currently developing a directive for a new legal framework for payments, which is likely to create a pan-European regulatory regime for payment services. The Government are currently engaged in ensuring that that regulation is both focused and proportionate. Although the Government do not support regulation of the provision of payment services, we believe that it is important that the market functions efficiently and that the competition is driving good service for consumers.

In conclusion, it is good news for consumers that most do not now pay for using cash machines, but I understand the points made by my hon. Friend, and I will ask my officials to discuss them with Link at the meeting tomorrow. It is important to me that there is transparency and fairness and that consumers are not misled. The work of the Treasury Committee, in conjunction with what we are trying to achieve in my Department and the work of the Treasury, will offer a better deal for consumers. The work that my hon. Friend has done means that consumers will be protected, and I am grateful to him for raising the matter today.

Question put and agreed to.

Adjourned accordingly at twenty-one minutes to Five o'clock.

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