Memorandum submitted by MBNA Europe
Thank you for your letter of 19 July.
We welcome the role played by your Committee
and we particularly welcome your attempts to make it easier to
share credit data, which we believe would be of great benefit
to consumers and to lenders. I am glad that you welcome the changes
that have been made by us and by the industry since the publication
of your Report.
Let me answer your specific points in the order
raised.
(a) Summary Box
As you know, MBNA has long experience with summary
boxes from our business in the US. MBNA Europe implemented a summary
box on its marketing material before last year's hearings.
We continually look at ways of refining and
improving both the content and presentation of our summary box,
and we are actively participating in APACS's Summary Box Review.
I am pleased to enclose an example of the newest version of our
summary box for your information. As you will see, the summary
box is positioned on the front of the brochure containing our
terms and conditions. It features the APR in an 18pt. font size.
This new-style summary box is currently being introduced across
all our marketing material.
(b) Scenarios
We are always happy to consider ways of improving
transparency for our Customers. However, General Krulak told
the Committee last year that he feared that illustrative scenarios
were more likely to confuse than to enlighten consumers.
Since then, we have carried out extensive analysis,
and participated actively in an industry review of scenarios undertaken
by an APACS working group. The working group concluded that scenarios
could not be made to work in a fair or representative way because
it is quite impossible to define a typical Customer. Nevertheless,
a number of providers are planning to introduce illustrative scenarios
in spite of APACS's concerns. We will monitor their experience
closely.
(c) Monthly statements
Summary boxes now feature prominently on all
of our marketing and sales materials. We have also been considering
whether summary boxes should be included on monthly statements
for existing Customers. APACS is currently undertaking a review
and consumer research of this issue. We think it sensible to await
the outcome of this review, at which time we will carefully study
and consider the findings.
The information in monthly summary boxes will
vary from Customer to Customer, and possibly from month to month,
so introducing monthly summary boxes would pose significant technological
challenges. Because of the lead-time necessary to develop this
technology, we would not be in a position to introduce summary
boxes on monthly statements before 2006.
(d) Interest calculation methods
We welcomed the involvement of the Treasury
Select Committee in the process leading to a single agreed APR
calculation method for issuers, a matter on which we have long
sought resolution.
In relation to the interest calculation methods,
we of course agree that these should be clear. Indeed, MBNA already
provides information to Customers explaining how interest is calculated.
This information appears in Customers' terms and conditions and
is currently being introduced to summary boxes.
However, as we understand it, the Committee's
concern is with standardising the ways in which banks charge interest
on different products. We do not think that standardising interest-charging
policies would be in the best interest of the consumer, since
we believe it would lead to less choice and less competition in
the market, and consequently higher costs for the consumer. We
understand that our view on this issue is shared by APACS and
by the Department of Trade and Industry.
(e) Default charges
This information is commercially sensitive and
therefore something that we do not make publicly available. Additionally,
this matter is the subject of an ongoing enquiry by the Office
of Fair Trading, so we are not able to comment further.
(f) Restrictions on unsolicited increases
in credit limits
We take on new Customers through a process designed
to take account of Customers' "ability, stability and willingness
to repay." We review and evaluate each Customer's personal
financial situation and make decisions accordingly. This process
is applied to decisions regarding increases in credit limits,
using credit bureau attributes, account performance, as well as
a Customer's total exposure with MBNA, to ensure that increases,
if granted, are appropriate, given the Customers' circumstances.
For this reason, we do not believe that Customers
would benefit from restrictions being placed on the issuance of
credit limits increases.
(g) Credit card cheques
We participated fully in the creation of the
APACS best practice guidelines for credit card cheques and more
recently in the review of the Banking Code.
We believe our marketing material on credit
card cheques provides the clear guidance on terms and conditions
sought by the Committee. In particular, our marketing material
makes clear that Customers do not have the same degree of protection
under section 75 of the Consumer Credit Act 1974 as they would
when using their card. We also advise Customers that we cannot
enter into disputes with merchants where a credit card cheque
is used. I enclose a copy of cheque marketing material.
(h) Payment protection insurance
We take a number of measures to ensure that
this product is suitable for Customers. We always check eligibility
and suitability with our Customers. We take the time to ask questions
about age, employment details, whether there is any impending
unemployment or they are receiving any medical treatment. We then
advise Customers of the significant exclusions such as pre-existing
medical conditions and unemployment within the first ninety days
of taking the cover. We send an insurance certificate to all Customers
asking them to read it and advising them that they have a 30 day
"cooling off" period during which time they can cancel
the cover without any obligation. In addition, of course, our
Customers can cancel this insurance at any time.
Because of the commercially confidential nature
of the information, and because of the agreements we have in place
with the underwriters of these products, we are unable to supply
the Committee with figures on premiums and claims.
CREDIT DATA
SHARING
We agree with the Committee about the desirability
of more widespread data sharing and would support a move for the
mandatory disclosure of, at the very least, all the information
MBNA Europe provides to the credit reference agencies, which is
both "positive" and "negative".
A number of banks feel that they are prevented
from sharing data as they have historically not obtained their
Customers' consent to sharing this data with other lenders via
the credit reference agencies. However, we understand that it
would only require minor secondary legislation and/or the agreement
of the Office of the Information Commissioner to remove this impediment.
We would ask that the Committee do whatever is necessary and appropriate
to maintain the impetus to greater data sharing of all credit
and debit products.
The Committee could also take an active role
in pressing the Government to provide financial information such
as incomes, income and council tax arrears, student loans etc
to the credit reference agencies. This is clearly a longer term
opportunity, but one that we believe merits full consideration.
I look forward to discussing these issues further
with you and your colleagues on 26 October.
September 2004
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