Examination of Witnesses (Questions 220-239)
MR ERIC
DANIELS, MR
JAMES CROSBY
AND MR
FERGUS BROWNLEE
19 OCTOBER 2004
Q220 Chairman: Right, but you would think
it reasonable, Mr Crosby, if these stipulations were put out?
Mr Crosby: Yes.
Q221 Chairman: What about you, Mr Brownlee?
Mr Brownlee: Yes.
Q222 Chairman: Good. So if I could sum
up, because I think it is important to sum up here, in terms of
credit sharing the system needs to be improved—absolutely
no doubt. All lenders need to share full information regarding
credit card accounts. Lenders need to assess ability of consumers
to repay using full credit data, and the government and industry
need to work together to tackle any legislative barriers to ensuring
that historic data is shared and, lastly, there need to be safeguards
put in to prevent predatory marketing. Would you agree?
Mr Crosby: Yes.
Mr Brownlee: Yes.
Q223 Chairman: So that is a way forward?
Do I get all your consents on that?
Mr Crosby: Yes.
Mr Brownlee: Yes.
Q224 Chairman: Mr Daniels?
Mr Daniels: I have some reservations.
I would like to make sure I have a chance to give it some thought
before giving you an unequivocal answer.
Chairman: As Meatloaf says, "two
out of three ain't bad", so we will move on!
Q225 Norman Lamb: Mr Crosby, presumably
when someone is getting themselves into difficulties with rising
debts, it is typically a mix of credit card debt, possibly store
card debt and also personal loans. Is that a typical situation
that you get?
Mr Crosby: Yes.
Q226 Norman Lamb: I was wondering how
robust you felt your own procedures were both for checking internally
as well as externally what we have just been talking about to
ensure that you lend responsibly? I had a particular tragic case
brought to my attention just yesterday of a 21-year old disabled
lad who took his own life when he was £15,000 in debt. Now,
there are all sorts of complex reasons and we cannot really speculate
but his father feels convinced that the size of the debt was part
of the pressure that he was under, and he feels passionate about
the importance of making sure that banks lend responsibly, particularly
to young people, and his family had used Halifax for all their
adult lives. Now, in this particular case he had been clearly
getting into all sorts of difficulties with a Halifax credit card,
and he was then given a personal loan by Halifax despite a clear
record of problems developing. From everything we have heard one
would have assumed that that sort of thing does not happen or
should not happen. How is it that that difficulty can occur and
how robust are your procedures to try to avoid that sort of thing
happening?
Mr Crosby: It sounds as though
it should not have happened in this instance—
Q227 Norman Lamb: I will send you the
details.
Mr Crosby: Please do and we will
look into it in greater detail and I will write to you in full
detail as soon as I have that, but clearly the argument about
sharing of data starts back inside your own organisation and things
will fall down. We should clearly not be making that sort of mistake.
[3]
Q228 Norman Lamb: So you apply the same
principles to considering increasing the credit limit on a card
to considering an entirely different sort of lending? A personal
loan or something?
Mr Crosby: We are looking for
all sorts of data about borrowers' ability to pay.
Q229 Norman Lamb: When you are extending
credit in this sort of situation, do you write to advise of the
risks of increasing the debt? What sort of counselling goes on
to ensure that the individual understands what they are getting
themselves into?
Mr Crosby: I think that would
depend on our understanding of the circumstances the customer
is in. It sounds as though here the circumstances that the customer
was in we did not understand properly for some reason, therefore
I cannot say how we communicated with them or whether it would
have been appropriate.
Q230 Norman Lamb: If I could move on
to the issue of marketing, Mr Brownlee, Matt Barratt of Barclays
was severely criticised when he came before us but he actually
gave some fairly candid and good advice that he would not have
advised his son to borrow long-term using his company's product,
credit card, and it was inappropriate. Would you, if you were
advising a youngster, advise them to make the minimum payments
on a credit card or would you advise them to try to pay off more
than that on a monthly basis?
Mr Brownlee: I would advise them
categorically—by a young person I am assuming you mean someone
close to the legal age which I think is 18, so an 18-21-year old,
shall we say—not to even consider getting into the product
unless they were perfectly capable of repaying in full every month.
Q231 Norman Lamb: And if you were asked,
and they had got into the product, would you be saying to them
"You ought to be trying to pay off more than the minimum
each month"?
Mr Brownlee: Yes.
Q232 Norman Lamb: Why is it, then, that
your marketing material, and I have received one of these myself,
talks about spending up to "200 a month" and the Sunday
Telegraph came upon a case of an 18 year old who had received
this, and it describes what the product can be spent on—£40
of petrol, cinema tickets £20, clothes £100, other £40—total
£200 a month. "Your minimum monthly payment could be
as low as £6—that is only £1.50 a week".
No health warning. Nothing. That is contrary to the advice that
you have just given us.
Mr Brownlee: Well, as I was explaining
earlier when Mr Heathcoat-Amory made the point about datashare,
at the marketing stage we have electoral roll data. We know an
individual is in the household, is over 18 years of age—we
believe, and we—
Q233 Norman Lamb: Let me stop you there.
You said earlier you would always advise someone to pay more than
the minimum. This amounts, as far as I can see, to a positive
encouragement to pay the minimum and someone who might on the
face of it have good credit rating is being encouraged to believe
that what it actually costs is £1.50 a week, and yet if they
carried on spending at that rate their debt at the end of the
year would be £2,131?
Mr Brownlee: Yes, as stated on
there. Again, I have to bring you back to the process. The process
is we do not have enough information at marketing stage. The protection
is in place. In that particular case that was reported, I think,
about 10 days, two weeks ago, in the newspapers, that 18 year
old boy would have, if he had submitted an application against
that, been refused, so no credit would have gone to that individual.
Q234 Norman Lamb: Why is it that on this
marketing material you do not say clearly that you should be paying
off, if you can afford it, more than the minimum? This is encouraging
someone. I appreciate it is the marketing stage—
Mr Brownlee: I understand.
Q235 Norman Lamb: —but it is encouraging
someone to believe they can be borrowing at £200 a month
and just paying £1.50 a week. That is irresponsible, is it
not?
Mr Brownlee: I do not believe
so.
Q236 Norman Lamb: Why do you not have
a health warning on this?
Mr Brownlee: If I may come back
to the point made in the first 15/20 minutes of the meeting to
the Chairman, when the particular wording is agreed in terms of
the warning statement that should be on documentation in terms
of minimum repayments, that will be put on. I fully support that
and I would agree on that piece of paper that would be a useful
place to put this, but I do come back to the point and it is very
important, and you have acknowledged it is only the marketing
information that is the ultimate safeguard whilst we have a limitation
on the amount of information available to us at the marketing
stage.
Q237 Norman Lamb: Mr Crosby and Mr Daniels,
do you go along with this? Do you think this is responsible, or
would you be trying to put people off making the minimum repayments?
Throughout all of our inquiry we heard all of the dangers of making
minimum repayments and how debt can simply accumulate as they
make more and more purchases, and yet here is a document which
positively encourages at the marketing stage someone to take out
a card and spend 200 quid a month at the cost of £1.50 a
week. Is that responsible, as far as you are concerned?
Mr Crosby: We do put the minimum
payment warning in our literature here and also in the statements
where we simply say that we do not recommend paying only the minimum
payment, and that only making the minimum payment maximises the
interest you are paying.
Mr Daniels: We do the same.
Q238 Norman Lamb: Finally, if I could
just return to something I meant to put to you, Mr Crosby, about
the case I referred to, after this lad's death his father notified
the Halifax of the death and took in the death certificate. The
debt collectors that you instruct have continued to send threatening
letters and the interest has continued to accumulate. Now, clearly
this is a cock-up internally but how confident are you that this
is very much the exception, because for a family grieving in those
circumstances it is not what you want.
Mr Crosby: It is very far from
what you want and not only will we look at that case but I will
ensure that we look at our performance in the wider area.
Norman Lamb: Thank you.
Chairman: May I just say that Jim is
looking at financial inclusion, and we are undertaking an inquiry
into financial inclusion in the new year but this is a start on
that basis, so we will probably be in touch with you on that.
Q239 Mr Cousins: Mr Brownlee, in your
evidence to the Committee you have declared an absolutely explicit
policy of encouraging financial inclusion by extending your products.
You describe it as "across the full credit spectrum including
to those excluded from mainstream banking." That is clearly
part of your mission, but how do you go about it? You have talked
about marketing to people on the electoral roll. What areas do
you choose? How do you go about it?
Mr Brownlee: We do not exclude
people; we take the full population.
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