Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 407 - 419)



  Q407  Chairman: Good afternoon, welcome to the Committee. Thank you for responding to our invitation to come and give evidence on the issue of store cards. From the left could you identify yourselves and your organisation for the sake of the shorthand writer, please?

  Ms Hague: My name is Gillian Hague, I am from Arcadia.

  Mr Budge: My name is Paul Budge, I am also from Arcadia.

  Mr Smith: My name is Seamus Smith, I am from GE Consumer Finance.

  Mr Nicholson: My name is Steven Nicholson, I am also from GE Consumer Finance.

  Mr Wayment: My name is Richard Wayment from the House of Fraser.

  Q408  Chairman: My first question is to GE, is GE Capital the same as Consumer Finance?

  Mr Smith: It is.

  Q409  Chairman: You were quoted in a recent article on the BBC On-line as wanting to address certain misplaced allegations which have been levied at store cards, what were they that you wish to refute?

  Mr Smith: Firstly, Chairman, we are very pleased to be here to assist this inquiry with its findings in relation to transparency and charges and other matters on credit cards. First and foremost we dispute any allegations that our products offered by the retailers we do business with are sold inappropriately. I think we would refute any suggestion that we encourage consumers to become over-indebted by using store cards. We would be pleased to point out how behaviourally customers use store cards, typically very differently, from how they use credit cards. There are a number of points in the submission that we made to the Committee that do make that fairly clear.

  Q410  Chairman: Okay. Why should a well-informed consumer be advised to use one of your store cards charging interest of up to 30%?

  Mr Smith: Firstly, it is a very clear issue of consumer choice. Consumers who shop regularly in the retail outlets that are provided with store cards by GE will typically be asked if they have a card pertaining to that particular retailer. Where a customer does not currently have a card they will normally be offered a discount from the merchandise they wish to purchase in that store in order to become a store card holder of that particular retailer. There are first and foremost a number of benefits for the consumer, which they take advantage of, typically discounts, but often other promotional offers, like additional items of merchandise or indeed loyalty points if retailers offer such schemes.

  Q411  Chairman: We tried to undertake some financial examination of the accounts and I noted at the weekend GE Consumer Finance signed a new contract with Debenhams which will save Debenhams and GE Consumer Finance £10 million a year. There is no information as to how much money you make from these store cards, could you tell me how much you make?

  Mr Smith: Certainly, Chairman, the declared profits in my organisation from its store card operations at about 5% of revenues and £9 per active customer total £90 million in the course of 2002.

  Q412  Chairman: 5%?

  Mr Smith: Of our revenues, which are about 2 billion on our products across our 10 million active store card customer base.

  Q413  Chairman: Do have you very clear printed information on that?

  Mr Smith: I can provide the Committee with that.[1]

  Q414  Chairman: We tried at the weekend and we could not find that.

  Mr Nicholson: The accounts for the store card are within the overall accounts of GE Capital Bank Limited, for these purposes we pulled out the store cards separately.

  Q415  Chairman: It is not publically available?

  Mr Nicholson: It is not but we could send that to you separately.[2]

  Q416  Mr Plaskitt: The card figure is £90 million.

  Mr Smith: Yes, the card figure is £90 million.

  Q417  Mr Beard: Of which the profit is 5%?

  Mr Smith: The profit figure is 90 million. The revenue is in terms of total sales that are underwritten or serviced on our cards across the UK. In 2002 we are just short of £2 billion, and out of that our declared net profit after tax was £90 million.

  Q418  Chairman: House of Fraser Finance made profits of round £13.5 million on a turnover of £20 million in 2002. I know there could be a VAT avoidance issue here, £13.5 million out of £20 million is 67% profit. Arcadia Card Services made £8.8 million profit on a turnover of £24 million pounds. Could I ask both the House of Fraser and Arcadia for their comments on that?

  Mr Budge: To put it in to perspective, for Arcadia in last financial year our overall profits were of the magnitude of £106 million on a turnover of £2 billion, therefore the card part of those profits was not a significant amount of the overall profits.

  Ms Hague: I think it is important to recognise that the 24 million you are talking about there is a merchant fee, if you like, it is levied by Arcadia Card Services it is not turnover, it is only a proportion of the sales.

  Q419  Mr Beard: What does that mean?

  Ms Hague: You are looking for a profit to turnover ratio, that turnover is I think 2.5% of sales that have gone through on credit cards in our organisation, it certainly does not pertain only to store cards. I do not think a profit ratio based on the turnover that you quoted is a particularly valid one to look at.

1   Ev 206. Back

2   Ev 205. Back

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Prepared 23 December 2003