Memorandum submitted by HSBC
CREDIT CARD
CHARGING AND
MARKETING
Thank you for your letter dated 19 July. As
you know, HSBC was pleased to provide written evidence to the
Committee in its earlier enquiries. We remain firmly committed
to provide products which are transparent and which our customers
can understand and we will continue to work within the industry
as necessary to make any changes which will further this aim.
In this spirit, I am pleased to provide further information and
I will respond in the order in which you have raised your issues.
My responses relate principally to HSBC branded
credit cards but reference is made to products provided by other
HSBC Group companies where their features are materially different.
SUMMARY
BOX
An example of our Summary Box is attached. This
was introduced in March this year for all our credit card products.
While I appreciate that we use a smaller font size than the 18
point recommended by the Committee for APRs, I am comfortable
that our Summary Box is well suited to its purpose for the following
reasons:
— The document is capable of being
easily read by anyone with normal or corrected eyesight.
— APRs, along with other key financial
information directly related to the cost of running a credit card
account, are clearly delineated in bold type.
— All of the information is presented
on one page. Using a larger font size results in the document
occupying two pages. A two page document loses impact and is less
likely to be read by consumers.
— All of our most popular credit card
products are contained within the one Summary Box to facilitate
easy comparison between our offerings. Our document is also readily
comparable with those produced by our competitors who all use
the guidelines for Summary Boxes developed for the industry via
APACS.
— The Summary Box is compliant with
current Consumer Credit Act requirements.
Two things have happened since the first version
of the Summary Box was introduced. Firstly, in February, the OFT
published its "Credit Card Survey, Final Report" ("Credit
Card Survey"). Secondly, in July, the Consumer Credit (Advertisement)
Regulations 2004 were laid before Parliament. In response to these
two initiatives APACS has issued revised Summary Box guidelines.
HSBC will introduce Summary Boxes compliant with these new guidelines
from 31 October. As a consequence, consumers will benefit from:
— APRs shown at 1.5 × the size
of other print.
— APRs calculated to one consistent
formula.
— Information on when the calculation
of interest starts and stops.
SCENARIOS
HSBC has developed an approach for the introduction
of illustrative scenarios in a format proposed by Lloyds TSB.
We are, however, mindful that:
— The Credit Card Survey proved inconclusive
on the demand for, and benefits associated with, provision of
illustrative scenarios.
— The DTI, in its "Supplementary
Government Response to the Committee's First Report: Transparency
of Credit Card Charges (HC 125)" ("Supplementary Government
Response"), is not convinced of the value of illustrative
scenarios on monthly statements and we feel the same logic applies
to credit card literature.
Thus, at the moment, we are not convinced of
the need to provide such scenarios. We will, however, review our
position periodically in the light of consumer demand and benefits.
MONTHLY
STATEMENTS
Our statements already provide a considerable
amount of relevant financial information, including estimates
of interest to be paid. By the end of December this year, we will
also include the "Wealth Warning" as proposed in the
recent review of the Banking Code.
We have, as yet, seen no demand from our customers
for the inclusion of Summary Boxes on monthly statements.
It is important that monthly credit card statements
serve their primary purpose of clearly and concisely:
— providing a record of transactions;
— advising the outstanding balance
and required repayment amount;
— listing any charges and interest
incurred/accrued;
— giving instructions on how to make
repayment and how that payment will be applied;
— explaining how certain transaction
amounts have been calculated, eg where transactions have been
made in a currency other than Sterling; and
— advising cardholders of any changes
to their service.
We are concerned that the inclusion of a Summary
Box would detract from these core messages and lead to information
overload.
If, however, we become aware of significant
customer demand for Summary Boxes to be replicated on monthly
statements we will reconsider our position.
INTEREST
CALCULATION METHODS
The Supplementary Government Response stated
that standardisation in the way that interest is calculated and
applied would not result in overall benefits for consumers. HSBC
concurs with this view.
The Supplementary Government Response also stated
that consumers would benefit from clear information about how
the interest charges on credit card accounts are calculated.
To ensure clear information is available to consumers there are
two initiatives currently underway:
— The revisions to the Consumer Credit
Act where new rules for the calculation of APRs will give consumers
a comparable measure for interest rates.
— The revisions to the APACS guidelines
for Summary Boxes which will ensure that credit card issuers include
a section explaining when the calculation of interest starts and
stops.
We believe the greater transparency which will
be achieved by the implementation of the above mentioned initiatives
will facilitate more informed consumer choice.
TRANSACTION/PENALTY
FEES
HSBC levies default charges to cover the costs
of managing certain breaches of our credit card terms and conditions,
eg late payment.
The OFT undertook a review of this area of our
business in late 2003. We provided all the relevant information
to assist them in their deliberations. We have yet to hear further
from the OFT but assume it is satisfied.
The figures requested are not discloseable in
our audited accounts and I therefore regret that I am unable to
provide full details to the Committee. However, I can tell you
that income from default fees is low; in 2003 it accounted for
0.2% of HSBC Bank's personal sector income.
RESTRICTIONS
ON UNSOLICITED
INCREASES IN
CREDIT LIMITS
HSBC views responsible lending as paramount.
It benefits neither the cardholder nor the lender if monies advanced
cannot be repaid.
We also recognise that cardholders need sufficiently
high credit limits to facilitate their spending needs but that
such limits must be commensurate with their financial circumstances.
One of the ways in which we can meet these needs is by regularly
reviewing the suitability of existing credit limits, using sophisticated
credit assessment techniques. Where it is deemed appropriate,
credit limits are increased and our customers are advised accordingly.
Customers are given the ability to decline credit limit increases
if they so wish.
For your information, HSBC's current policy
is to offer an increase in the credit limit to any individual
customer no more than twice a year. We do not offer unsolicited
increases to students.
CREDIT
CARD CHEQUES
Neither HSBC Bank nor First Direct currently
offers credit card cheques. Cheques are only available, on request,
to HSBC Platinum cardholders.
Credit card cheques are, however, provided by
HFC Bank to carefully selected customers in order to attract transfer
of balances from competitor cards. A copy of the "Marbles"
credit card cheque marketing material is attached for your information.[3]
You will note that the cheques are accompanied by concise information
regarding interest rates, usage and key conditions including a
clear statement about the non-applicability of protection under
section 75 of the Consumer Credit Act.
PAYMENT
PROTECTION INSURANCE
HSBC is a member of the General Insurance Standards
Council and follows the requirements of that code. In particular
we take customers through an information pack at the point of
sale before they buy the product. A copy is enclosed for your
information. It covers essential details such as:
— The special conditions that apply
to the self employed, those on a temporary or fixed term contract
and to pre-existing medical conditions.
— The primary features of the cover.
— The customer's duty to disclose material
information.
Credit card payment protection insurance is
optional. The vast majority of our customers elect not to take
it. Those who do are satisfied as evidenced by the very low level
of customer complaints we receive: just 57 complaints have been
made in the year to date.
The UK has a very well established and competitive
insurance industry that offers many ways in which consumers can
protect their financial commitments from risks such as accident,
sickness and unemployment. Such cover is also increasingly available
as part of employment contracts.
It is also possible to purchase credit card
payment protection insurance from independent suppliers. Such
suppliers will undoubtedly benefit from new delivery channels
such as the internet.
There are many web-sites that compare credit
card product offerings and prices. Our experience is that customers
already look at the total cost of holding a credit card and that
they are prepared to shop around with a focus on those features
which are important to them, including payment protection insurance
cover and cost.
The figures requested are not discloseable in
our audited accounts and I therefore regret that I am unable to
provide full details to the Committee. However, I can tell you
that income from payment protection insurance is low; in 2003
it accounted for 1.3% of HSBC Bank's personal sector income.
CREDIT
DATA SHARING
HSBC Bank and First Direct currently share negative
data on credit card products. HSBC also manages one store card
portfolio on which both negative and positive data is shared.
HFC Bank shares both negative and positive data
on its credit card and store card products.
HSBC supports the principle of sharing both
negative and positive data and is aiming to implement this in
all UK Group companies by the end of 2005, subject to the satisfactory
conclusion of industry level discussions on the sharing of positive
data on current accounts.
The benefits of full data sharing will only
truly accrue, however, if:
— all relevant institutions take part
and
— data protection legislation permits.
You will be aware that there are a number of
entities that extend considerable debt to consumers but do not
share relevant data. Among these are:
— The Student Loans Company
Your help to progress data sharing within these
organisations would be greatly appreciated. This will encourage
responsible lending and greater competition.
I understand that it is your intention to engage
the Information Commissioner in an effort to overcome those provisions
in the existing data protection legislation that currently prevent
the sharing, by all lenders, of certain relevant historic data.
I trust that the information provided in this
letter will be useful to you. HSBC has played a full part in the
progress achieved to date. I too hope for a positive discussion
at our October meeting.
3 not printed. Back
| 
