Examination of Witnesses (Questions 300-319)
MR JOHN
VARLEY, SIR
FRED GOODWIN,
MR SHANE
FLYNN AND
MR MICHAEL
GEOGHEGAN
26 OCTOBER 2004
Q300 Chairman: Thank you. Sir Fred?
Sir Fred Goodwin: Whilst it hardly
seems like a year since we were last here there has been quite
a lot going on during that time: business has continued to grow,
customer satisfaction has remained at a very high level, and importantly,
arrears performance has continued to improve within our business,
and I think in the industry more generally. On transparency we
have had the summary box on all of our marketing materials since
January 2004. As for the information in the summary box, a vast
majority of it was already on our statements and has been on our
statements for some time. We have introduced on to our statement,
both on the front of the statement and on the rear, advice surrounding
minimum repayments and the inadvisability of only making minimum
repayments for any sustained length of time and highlighting the
increased cost which would result. We have included also on our
statements an invitation to customers to contact us if they are
having difficulty in meeting the repayments which are indicated
on the statement. There has been quite a lot going on within the
industry. I am sure we will come on to it in questioning—about
data sharing and we have been participating in that. We have been
working to find a means of having the interest calculation, the
interest period, more clearly exposed on the statement and it
has been agreed now that will come on to the summary box. Finally,
a point to raise at this point, we have continued our relationship
with the credit counselling agencies and we have just recently
announced an extension of our support for the Money Advice Trust.
Q301 Chairman: Mr Geoghegan?
Mr Geoghegan: Thank you first
for inviting me to this Committee. It is the first time HSBC is
appearing. Up until recently we were a very small player in the
market but having bought HFC, we now have about 7% market share.
On our combined companies we are looking at and have done the
following, in March we introduced a summary box to meet APACS
guidelines, we highlight the APR and use the APACS calculation
model for doing that. That was highlighted in the Which?
magazine review quite recently. At the end of this week we are
going to introduce a summary box, the font size will be 15 and
not what the Committee said at 18. We have no objection to put
18 in but we have gone one step further, we have an independent
summary box, which is separate from the application, we believe
this gives you value to hold separately and take guidance from
it. We are moving to put a wealth warning on the card's statement
and after acquiring HFC we have brought them in line with HSBC,
in that interest is charged at the time of debit to the account,
not at the time of transaction. We are committed to introducing
positive data and we are moving towards that in the second quarter
of 2005. HFC already has positive data. We do not allow any marketing
of credit increases to students. They must apply direct to us
if they wish an increase otherwise we do not approach them.
Q302 Chairman: Okay. Mr Flynn?
Mr Flynn: Yes, Chairman, thank
you. I will start on the summary box as well and speak a little
bit about that to start. We had introduced our summary box before
we came in here last year, which was six months before the guidelines
from APACS. We have adopted an 18 point font size for APRs in
the summary box as well. We have repositioned our summary box
to the front of our terms and conditions. Also, we have put a
minimum payment warning on our statements which started this month.
I would pick up one of the points made by one of the other CEOs,
and that is that I think we have been very involved in data sharing
and talking about data sharing through APACS and with our colleagues.
Q303 Chairman: Okay, so we are all good
boys. Mr Geoghegan, just a question to you: I think it was agreed
with industry that by April 2004 summary boxes would be put on
marketing material, is that correct?
Mr Geoghegan: Yes.
Q304 Chairman: I have just had a communication
from your company in October and there is no summary box on the
marketing material. Can you explain that?
Mr Geoghegan: I am not aware of
why there is not. I am more than happy to look into it.
Q305 Chairman: I will let you look over
the coloured literature if you want?
Mr Geoghegan: Thank you very much.
Chairman: Okay. Good answer that. Angela,
and then we will come back to summary boxes.
Q306 Angela Eagle: I would like to congratulate
you all on having summary boxes which are readable, unlike Capital
One who put theirs in the small print and left us straining even
to see what it said, so well done for that. I want to ask you
though about minimum payments. Now the MBNA, Mr Flynn, has already
announced that there is a minimum payment warning on statements.
What about the rest of you, are you considering putting minimum
payment warnings on statements as APACS have suggested you do?
Mr Geoghegan: For HSBC, yes.
Q307 Angela Eagle: Are they there now?
Mr Geoghegan: No, we will introduce
them under a wealth warning which we should have in by the end
of the year, that will be covered.
Q308 Angela Eagle: Is there anything
else to this wealth warning or is it just the minimum payment
warning?
Mr Geoghegan: No, what we are
moving towards is that we can explain how long it will take for
a balance to be paid off. There has to be a guide, it is not an
exact science, it depends how people behave. Certainly it is an
indication that if you have only a minimum payment you are unlikely
to pay it in a short period of time.
Q309 Angela Eagle: Mr Varley?
Mr Varley: We have introduced
scenarios to our summary boxes, as you know, and they are intended
to demonstrate in a simple way the economic impact of paying off
a minimum balance. The example we give is a borrowing of a thousand
pounds, how long will it take you if you are paying that off on
a minimum payment basis only, how long if you operate on a £50
per month payment, how long on a £100 per month payment.
I think that is the way customers think about things. We have
used scenarios. We have included, also, obviously, on our statements
a forward looking calculation of the interest cost consequences
in the next month of making a minimum payment only this month.
Those two things I think are helpful to customers.
Q310 Angela Eagle: OFT research shows
that 20% of customers do make the minimum payment or probably
are going to make the minimum payment and no more. Sir Fred?
Sir Fred Goodwin: We have a message
on the front of the statement highlighting that it will become
considerably more expensive if they only make minimum repayments
and there is also a longer explanation on the back of the statement.
That is already in place.
Q311 Angela Eagle: Mr Flynn?
Mr Flynn: As I mentioned, we have
a statement which has gone out on our statements starting this
month about the minimum payment. Also, we have the calculator
there to say the estimate of the minimum payment for next month
if you make no further transactions.
Q312 Angela Eagle: The rest of you, apart
from Barclays, have dismissed this scenario approach but it seems
to me using the minimum payment in that way, as Barclays have
suggested, is giving more of a warning than a sentence about "it
may cost you more if you only make the minimum payments".
Somebody seeing, for example, that it takes them 18 years to pay
off a £1,000 loan might be given a bit more of a jolt than
the statement that is appearing, for example, in Mr Flynn's literature
at the moment, do you not think? Scenarios would be a better way
of doing it.
Sir Fred Goodwin: I think this
opens up the scenario issue. I think the statement we have on
our statement is a very bold statement, I do not think anyone
would be under any illusions that it is not a brilliant idea to
continue just to pay the minimum amount. We have always said that
we feel the scenarios are more likely to be confusing than helpful
because unless you can find a scenario which directly corresponds
to your personal circumstances they are of limited benefit, and
also unless the scenarios line up across the whole of the industry
it is very difficult to make comparisons across it. Having had
the debate, as it were, we now seem to be going down the path
with the DTI's recommendations of non scenario. I think it would
be confusing to start reintroducing scenarios into the debates.
Q313 Angela Eagle: You think the Barclaycard
scenario is confusing?
Mr Varley: I hope not.
Sir Fred Goodwin: No, I do not
think it is particularly confusing but I wonder why it is that
of all the scenarios you would even pick that out. I am not here
to argue with Barclaycard, I think the important point here is
that we draw customers' attention to the fact that it is not a
particularly prudent strategy to only seek to repay the minimum
repayment over a sustained period. I think it would be very clear
for somebody reading Barclaycard's scenario or from reading our
message that is the case.
Q314 Angela Eagle: Now the Banking Code
requires lenders to provide a clear warning on monthly statements
to notify consumers when any introductory rate that they may have
gained when they got the credit card is about to expire. A recent
look across the piece found that over a third of lenders were
not meeting this requirement. Do you all meet the requirement?
Mr Flynn: Yes. We have had a statement
since the beginning of the year 2004 which goes out between 30
and 60 days before the promotional rate ends.
Q315 Angela Eagle: Sir Fred?
Sir Fred Goodwin: We notify people
two statements before the end of the period.
Q316 Angela Eagle: Mr Varley?
Mr Varley: Yes. We are trying
to go further in our piloting at the moment of looking at ways
in which we can, for example, notify customers if they are getting
close to their limit. I think there are ways and technology helps
all of us on this table innovate in a way which helps alert customers
to the fact that something is about to change in the way in which
they manage their financial affairs.
Q317 Angela Eagle: Mr Geoghegan?
Mr Geoghegan: Yes, we do as well
and going on from what my colleague was saying, we look very carefully
at accounts if they are coming up towards the limit and help those
people who are having difficulty meeting those payments.
Q318 Angela Eagle: Do all of you sell
Affinity cards and do you sell them in supermarkets as people
are about to leave by offering them cards—say the World
Wildlife Fund or any other Affinity card—which they are
asked to sign up to straight away? This was an issue we came across
and particularly criticised the store card providers for doing
and now it appears that all major credit card companies are selling
in that kind of way. Mr Flynn, MBNA have been doing it in Safeway?
Mr Flynn: Absolutely, yes.
Q319 Angela Eagle: Do you think this
is a reasonable way of getting people to sign up to cards when
they do not take leaflets away? They are asked to sign up straight
away on the way out of a shop with only a perfunctory chat to
one of your sales people?
Mr Flynn: Obviously we do issue
Affinity cards and we do issue the WWF cards, that is one of the
Affinity cards that we have. We have got several hundred Affinity
relationships.
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