Examination of Witnesses (Questions 407
MONDAY 14 JULY 2003
GE CONSUMER FINANCE,
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
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
Mr Nicholson: It is not but we
could send that to you separately.
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
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.
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