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Mr. Plaskitt: It was beyond that mathematician.
Mr. McFall: It was beyond quite a number of people—certainly beyond chief executives whom we asked to calculate it when they came before the Committee.
So our concerns were aroused. We found that there were not one but two definitions of annual percentage rates in existence. We have been pushing the Minister and the Department of Trade and Industry to ensure that we have one APR definition. I believe that that matter has now been resolved, but I should like the Minister to reassure us and the public on that point.
Still today, the way in which interest rates are calculated means that we can have two credit cards with identical APRs and balances to be paid over the same period but subject to different amounts of interest, in some cases varying by about 70 per cent. The Minister must look at this issue. There are 10 different ways of calculating interest. For example, some credit card companies start calculating interest from the day of purchase. Some wait until the purchase is posted to the
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account. Some stop charging when the statement is issued. Some stop charging when the payment is made. Most credit cards offer interest-free periods for new purchases, but some apply them to all new purchases while others apply it to those accounts on which there is no outstanding balance. So there is a recipe for confusion and ignorance in the market today.
Mr. Pike: Does my hon. Friend agree that the way in which the company uses the repayment is also important? People may be charged different interest rates on different parts of what they owe. Usually the repayment is used to repay the part that is subject to the lowest, not the highest interest rate.
Mr. McFall: That is exactly right. I defy any hon. Member to explain to me in simple terms how their interest rate is calculated.
When we do not have information readily available, we do not have informed customers and we do not have a level playing field. The need for transparency is still as urgent today as when we took the issue up, even though advances have been made.
According to opinion polls, 80 per cent. of consumers are unaware of the differences in how interest is calculated, never mind being able to work them out. The industry has not yet made a convincing argument, certainly to our Committee, against some form of standardisation. The companies state that this is a competitive issue. The Committee and others do not take exception to that, but there must be some form of standardisation while retaining the competitive aspect. The last thing the Committee and others would want is to take away that aspect. We want it to remain. We have pushed hard on the issue of transparency.
As a result of our inquiry, the banks and credit card companies have introduced summary boxes on monthly statements. A number of them—not all—are making progress on minimum repayments. We know the concept of the monthly bill stating a minimum repayment. We asked two banks that came before us how long it would take customers to repay the full amount if only the minimum repayment was made. One said 18 years and nine months and the other said 24 years. That is if some of the capital is paid off. But some minimum repayments are only 1 per cent., so the capital is not repaid, and in some cases the customers would never pay their balance off. We are saying to the industry that surely it is right, in fairness to the customer, for that to be on the statement so that they can take an informed decision. If they see that it will take 20 years to repay the debt, perhaps they will do something about paying more to clear the debt more quickly. I am glad to report that both Barclays bank and Lloyds bank have made progress and put that information on the monthly statement.
There is also the issue of transaction and penalty fees. As we know, fixed fees are charged if payment is not made. There is concern that such fees could result in excess moneys coming into the banks. The banks tell us that they merely clear their costs, but not one has declared that publicly. Indeed, most of them say that they do not even declare it to their shareholders. As a result of our work, the Office of Fair Trading looked into the issue and asked the banks for that information.
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I hope, in the interests of the banks themselves, that they declare the information in public, because then they could reassure the public that the banks are not exacerbating the problems of indebtedness for low-income borrowers, which some groups such as Citizens Advice, the National Consumer Council and others in submissions to the Treasury Committee have said could be the case. We need that public declaration to provide that reassurance.
Mention has been made by some individuals of marketing. It is a big issue. We found in our inquiry a real case of a drug addict in a drug clinic who had been offered a £10,000 credit card loan by a company. He was going to take it up to feed his habit, but the supervisor in the clinic saw it and stopped it. I label that as irresponsible marketing. Companies need to do something about it.
Since the Treasury Committee undertook the inquiry, I regularly receive 40 or 50 letters a week from people all over the country on the issue. I will read one from an individual who said:
"My son 24 has a cluster of learning difficulties including dyslexia, dyspraxia, Aspergers Syndrome etc, a maths age of 12, cannot read print below 12 point and only half a page—but he holds down a job in known limits. He can enter into an agreement with a Bank or mobile phone company but the Data Protection Act prevents parents who primarily care for him from having details of commitments he makes.
I will not name his bank; it is a major high-street bank—
"were made aware of his special needs and in June 04 I asked them not to raise his credit limit." But it was immediately raised from £400 to £650 automatically. The parent continues:
"by late August his overdraft was £660—Bank then convinced him to have a £2,500 loan at 19 per cent. (spent in 6 days)—the overdraft became £1,200 despite my warnings to Bank."
He then went for another loan of £10,000, which was spent in five days. The letter continues:
"Bank charges alone now amount to £200 on top of repayments and each time a statement is needed it costs £20."
Mr. Stephen O'Brien: The right hon. Gentleman has made an extremely important point. I know of a case in which someone wanted his elderly father to remain independent. However, he did not find it easy to cope with his father's financial affairs, so he sent a notice to the bank asking it to keep an eye on his account. The father never spent more than £50 at a time, but he lost thousands of pounds to a rogue roof tiler and builder. The right hon. Gentleman is making a strong and wise point—we must find an effective binding for high street banks. It should be possible to put them on notice, given that a son has no right to demand a power of attorney to conduct his parents' affairs and prevent them from being ripped off.
Mr. McFall: I am grateful to the hon. Gentleman for his support. I think that we are all at one on this issue. In my discussions with banks, credit card companies and others, we have pointed out that such action would help them as well as their customers.
The Treasury Committee found that data sharing was crucial. We have heard, and will do so again today, of tragic cases in which people commit suicide. They are a minority, but there is a tipping point for many people. However, information is not available for banks and
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credit card companies to assess an individual's needs and responsibilities, so a tipping point is reached and extreme consequences result. The Treasury Committee has written to the Information Commissioner and, along with him and the OFT, we are working towards all banks sharing full information on credit cards, as that could help to prevent situations arising in which consumers with a large outstanding debt relative to income manage to make the minimum repayment every month but none the less are struggling. If individuals make a repayment every month they do not come to anyone's attention. However, as I shall illustrate later, someone with 20 or 30 credit cards could be struggling, so the sharing of positive and negative data is extremely important. The Information Commissioner and the DTI have a role in ensuring that comprehensive data sharing is introduced. The lender must always assess an individual's ability to repay, but can only do so with full credit data. They need to make an examination of a customer's full credit commitments in relation to income.
The lack of data sharing hampers responsible lending. The availability of credit is good for our constituents and society generally. It helps individuals and families to achieve their ambitions, and meets their needs. However, we must make sure that the equation between responsible borrowing and responsible lending is in sync. Since the major banks appeared before the Select Committee advances have been made. Recently, one of those banks wrote to me:
"I wanted to say how pleased we were that the Committee recognised the progress . . . made in increasing the transparency of our credit cards. As we have said before, we are not complacent and believe it is in the interests of consumers and the business to find ways of increasing clarity and transparency. I can assure you that we intend to maintain this progress in the months ahead . . . We accept that many consumers do not yet fully understand the differences in interest charging methods between credit card issuers."
Clearly, transparency is still a long way off in the industry. Progress has been made, but the Government must be robust. I am not making any criticisms of the Minister, who has engaged positively with the issue, but it is scandalous that we have had to wait more than 30 years for a consumer credit Bill.
The country's £1 trillion debt has been mentioned. That is a sizeable sum, but we must remember that more than 80 per cent. of that borrowing is for mortgages on our homes, which are worth more than £3 trillion. If we add the value of other financial assets, including pensions, shares and stocks, the asset figure is well over £5 trillion.
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