Examination of Witnesses (Questions 1-19)
MR ERIC
DANIELS, MR
JAMES CROSBY
AND MR
FERGUS BROWNLEE
19 OCTOBER 2004
Q1 Chairman: Good morning, gentlemen,
welcome to this latest inquiry on transparency of credit card
charges. Could I ask you to introduce yourselves, please.
Mr Daniels: I am
Eric Daniels from Lloyds TSB.
Mr Crosby: James Crosby, from
HBOS.
Mr Brownlee: Fergus Brownlee from
Capital One.
Q2 Chairman: Welcome. As you know, it
is over a year since the Committee has undertaken its inquiry
into transparency of credit card charges. In that time, there
has been substantial progress on a number of issues; for example,
the industry has introduced the summary box and the DTI has finally
agreed within the industry on a single method of APR calculation.
I note that the Chief Executive of Barclaycard has said that the
Committee's inquiry was a "wake-up call" to the entire
industry. But the Treasury Committee business will not be finished
until we see industry-wide agreement, so this is a continuing
inquiry—and this is just but one evidence session until
we reach our conclusion. I think it is important to get that message
across to the industry. But you are here today as individuals
of your companies to give us a progress report on how far you
have come on these particular issues. Would each of your briefly
state what improvements your organisations have made to the transparency
of your credit cards. Where have you gone above and beyond the
minimum requirements negotiated by APACS?
Mr Daniels: We are, as you know,
embarked on a programme of treating the customer fairly which
looks at all of our policies/procedures/marketing literature to
make sure that in fact we are transparent and straightforward
with our customers and that we give them suitable products. Embedded
within this, I think, we have some advances within the credit
card frame, notably we have also agreed with APACS on the credit
limits and the credit card cheques' guidelines, and in addition
Lloyds TSB has had illustrative scenarios put into their marketing
literature.
Mr Crosby: I think firstly we
have worked hard to comply with all industry initiatives and to
deliver them all on time. Over and above that, I would probably
highlight three things. First of all, we have put the summary
box on our monthly statements, which we think enhances the use
of that. We have put some scenarios into our literature. We have
also put data around minimum payments: the warning on statements
that if you pay the minimum payment you will pay the maximum interest,
and also the equivalent element if that comes into the scenarios
that we have put into our literature. I guess the third area,
really, if you ask what we do that is ahead of normal practices,
is probably data sharing: we have for quite a long time shared
both positive and negative data.
Q3 Chairman: Could I ask you why you
put the summary box on monthly statements? What was your reason
for doing that?
Mr Crosby: I think because it
keeps it fresh in the minds of the customer. It is not the full
summary box, I would add, but it has all the charges in. Those
are the things that can change with time. We think that consumers
are more likely to have these things in their minds if they see
them in their monthly statement. That is the core of the relationship.
Q4 Chairman: So it is important for customer
information?
Mr Crosby: Yes.
Q5 Chairman: Mr Brownlee, welcome to
the Committee.
Mr Brownlee: Thank you. We have
worked on all the recommendations that have been put forward.
On the summary box, for example, we have done a lot of work in
terms of implementing the summary box and in terms of looking
to our customers. In fact, we have surveyed our customers in terms
of how they feel about the specific summary box that we have put
out there. We are working with APACS on that and we continue to
work on that towards a conclusion as to what a suitable summary
box would be. On credit limits, on credit card cheques, we have
also worked with APACS in terms of the way we market both the
cheques but also how we extend credit to individuals. We have
looked at scenarios, and in fact we do not recommend that we pursue
scenarios, but we have looked at options on that. Over and above
some of what has been suggested, we have done a lot of work as
to what further progress could be made in terms of data sharing:
what data we have and where some of the gaps are in that, but
also, in terms of our specific welcome guide that we issued in
advance of this meeting, we have done some more work on that and
made sure that that is giving the sort of transparency and clarity
that our customers deserve.
Q6 Chairman: You mentioned the summary
box. The Committee recommended 18 point type. I have a copy of
your leaflet here with the summary box. Quite frankly, I am putting
my reading glasses on and I find it very hard to read. That is
just merging into the small print. That is of no value to consumers
that size. In fact the Federal Reserve—you work in America—have
a statutory obligation for 18 point type in the summary box, yet
you come here and this is miniscule. Why can you not do the same
here as you do in America?
Mr Brownlee: I do not think in
America it is a statutory obligation for 18 point.
Q7 Chairman: Federal Reserve.
Mr Brownlee: I think it is about
10 or 11 point maybe.
Q8 Chairman: I have seen a copy of it.
Mr Brownlee: Yes. So have I.
Q9 Chairman: Why are you not doing it
here?
Mr Brownlee: One of the aspects
of the summary box is the size. There are many other aspects,
such as the use of white space, the use of lines, etcetera.
We have tested with our customers: we went to our customers—
Q10 Chairman: Have you tested this with
your customers?
Mr Brownlee: Yes, we have.
Chairman: You are joking! Look at it.
I will pass it around the Committee. Come on! We can hardly read
this.
Mr Fallon: None of us can read it.
Q11 Chairman: We can hardly read it.
That is the point. That is the issue here. We are saying to people
like yourselves: "Play fair with the consumer." This
is not playing fair. This is everything hidden in small print.
Why do you not do the same here as you do in America?
Mr Brownlee: We tested it with
100 customers. In independent survey results of that 100 customers,
83% of them said that that summary box, the one you have in your
hand, is at least as understandable and legible as other financial
information they receive.
Q12 Chairman: That is total nonsense.
To the ordinary consumer, that is just total nonsense. It is what
our eyes see, that is what it is. Please do not come here with
flannel early on in the meeting.
Mr Brownlee: I am giving you the
result of a survey.
Q13 Chairman: This is why we have companies
along to see if we can get an industry-wide view, because HBOS
has moved on this. In fact, HBOS has moved on the issue of summary
boxes in monthly statements. I have asked Mr Crosby specifically
why he did it and he said, "Because it keeps it fresh in
the mind of the customer." Neither Lloyds nor yourselves
are going towards moving summary boxes on monthly statements.
We have already, at this early stage in the session, found a difference
here, where one chief executive is saying very clearly that the
customer needs it in order to get that information. Why are you
not putting summary boxes on monthly statements?
Mr Brownlee: We are not putting
summary boxes on monthly statements because they are for two entirely
different purposes in the cycle of dealing with credit. The summary
box, in terms of marketing material, we think to be enormously
important. We have been very supportive of that. We have put a
summary box, as I have said, that our customers understand and
appreciate. At the statement date, the credit card (in this case)
has already been opened. The customer is interested in information
on the status of that card at that time. This would add further
information and could, we believe, confuse our customers.
Q14 Chairman: Mr Crosby does not think
it confuses customers. Why, Mr Daniels, have you not put the summary
box on monthly statements?
Mr Daniels: I think there are
two reasons. One is that we include on the monthly statement all
of the pertinent information that would be included in a summary
box. All the information is there, we simply have not boxed it,
so we think that we are being absolutely transparent with the
customer. We also believe that the critical time to have the summary
box is when the customer is making a purchase decision. While
we remind the customer of their terms and conditions on the statement,
we have not put it in a box, because we think that the box is
most appropriate at the time of purchase.
Chairman: I do not think anybody could
have put it in a more articulate way than Mr Crosby when he said
it "keeps it fresh in the mind of the customer" when
they are making purchases.
Q15 Mr Plaskitt: I am going to come back
to you, Mr Brownlee, on problems with your summary box. In you
submission to this Committee, you said, " . . . we provide
our customers with simple, easy to read . . . materials".
Do you remember saying that?
Mr Brownlee: Yes.
Q16 Mr Plaskitt: If you look at the section
of your summary box which deals with allocation of payments, it
goes like this: "We will apply payments we receive to your
account in the following order: 1) Any cash handling fees; 2)
Any interest; 3) Any other fees; 4) Any Payment Protection insurance;
5) Transferred balances (with the exception of those stated in
6 and 7 below); 6) Any transactions described on your statement
as special balance transfers, special purchases or special cash
withdrawals; 7) Any other balances that are transferred after
the end of the initial period, if at the time of the balance transfer
your agreement has a separate interest rate for the life of balances
transferred within the initial period (and initial period is stated
in your terms and conditions), and/or purchases and then cash
withdrawals." Is that simple and easy to read?
Mr Brownlee: I think it is very
easy to read. I think it is as simple as it can be, given that
we are looking after the customers' interests in terms of the
way in which we allocate payments—which is entirely consistent
with what happens in the rest of the industry.
Q17 Mr Plaskitt: But it is not, because
why does yours come out like that and yet the summary boxes used
by the others here are extremely simple and do not have any lengthy
explanations like that. Others have managed to comply with the
standard that APACS sought when they say "succinct descriptions
of the order in which payments will be allocated to the account".
Many other banks have done it. I have read that several times
and still cannot figure it out, so how do you describe that as
simple and easy to read?
Mr Brownlee: I believe it is very
succinct.
Q18 Mr Plaskitt: Do you?
Mr Brownlee: Yes, I do, because—
Chairman: Perhaps, James, we will maybe
go on from that.
Mr Plaskitt: I think we will look at
some other examples.
Q19 Chairman: I looked at Mr Crosby's
statement on the summary box: "If you do not pay off your
balance in full, we will allocate your payments to balances with
a 0% interest rate before balances with higher interest rates."
There is quite a difference.
Mr Brownlee: It is quite a difference.
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