Examination of Witnesses (Questions 320-339)
MR JOHN
VARLEY, SIR
FRED GOODWIN,
MR SHANE
FLYNN AND
MR MICHAEL
GEOGHEGAN
26 OCTOBER 2004
Q320 Angela Eagle: It is your sales methods
for them that worry me rather than the fact that they are Affinity
cards.
Mr Flynn: I do not know about
the particular case that you are referring to but it is certainly
one of the ways that we market our Affinity cards.
Q321 Angela Eagle: Do you think this
is reasonable when somebody is out and they have a pile of shopping
and one of your sales people stops them on the way out of the
supermarket, asks them to look at a credit card or debit card
to prove their identity and wishes them to sign up for one of
your cards straight away before they leave, does not give them
leaflets to take away with them but has the hard sell on the way
out of the door?
Mr Flynn: Again, without knowing
exactly what happened but from the description you give me, I
hope that sales person was professional in the way they handled
themselves. If they are being very blunt to a prospective customer
and if they are anything other than professional, I would not
support that, nor would anyone at MBNA support it.
Q322 Angela Eagle: Do you outsource your
sales?
Mr Flynn: We do in some cases,
not in every case but in some cases, yes.
Q323 Angela Eagle: Some of it is direct
employees?
Mr Flynn: Some of it is done by
MBNA people and some of it is done by agents that work for us.
Q324 Angela Eagle: Do you not think that
if somebody asks to take away a leaflet they ought to be given
a leaflet to take away rather than pressured to sign up. In this
particular case they were told they could not take a leaflet and
that the sales person was the "walking, talking leaflet"
and they should sign up immediately.
Mr Flynn: Depending on what we
mean by "leaflet", they absolutely should supply the
prospective customer with terms and conditions, if that is what
the customer has asked for. We may not have leaflets available
so depending on what it is that is being sold to them, there may
not be a leaflet, that is not to say there may not be what is
described in our industry as a "take one" so they could
look at a picture.
Q325 Angela Eagle: This is an Affinity
credit card with people asking you to sign up to it on the spot
after they have checked your debit card?
Mr Flynn: Checked your debit card?
Q326 Angela Eagle: Yes, for your identity,
literally on the way out of the shop.
Mr Flynn: If one of our agents
engages from MBNA, they need to respond to the customer, be professional
and, if the customer requests information, asks for terms and
conditions, they need to supply it. We have had at least one situation
where that did not happen with one of the members of the Committee.
Q327 Angela Eagle: I suggest it is rather
more widespread than you are admitting?
Mr Flynn: I do not know of others.
Q328 Chairman: You did have a fundamental
reappraisal after a seller refused to give me an application form
when I was outside Old Trafford?
Mr Flynn: Yes we did.
Q329 Angela Eagle: It does not seem to
have made much difference?
Mr Flynn: If we could talk about
the particular incident, where it happened, when it happened,
I could follow up on it, but I do not know where this incident
took place. I do know about the one at Old Trafford.
Q330 Chairman: Mr Varley, I think it
is time you spoke up for yourself. On the illustrative scenarios
aspect, you and Lloyds TSB have put these on your literature and
your marketing material sent to me yesterday. As a Committee we
have been saying it is important that people know the minimum
repayment type. It seems to me this is a good standard for the
whole industry to adopt, what you have here because on a purchase
of £1,000—you have given this illustrative example
in your marketing material—it says here for a minimum repayment
each month it would take 20 years and four months, but for a payment
of £50 each month, it would take two years and one month
and for £100 each month, it would take 12 months. I think
those are the things that consumers are looking for. Why did you
do that? Did consumer research show you that was the right thing
to do? Is this a lead for the rest of the industry?
Mr Varley: Chairman, it is good
you like what we are doing here. I said earlier in answer to Ms
Eagle's point that our research with customers suggests that if
you put simple scenarios in summary boxes in the way that we have
done, and you express them in the way they think about managing
their money affairs, then that resonates with them and they find
it is helpful. For me, the illustration brings the health warning
alive. It is one thing to say, "beware of making minimum
repayments" which is a rather arid comment. It is quite another
to say now, look at the arithmetic and the duration consequences
of operating on minimum payment as opposed to £50 a month
or as opposed to £100 a month. The response we have had from
those customers who we have talked to about this has been very
positive.
Q331 Chairman: I think I would like to
get to the bottom of it because on the one hand we have been told
by some people "the industry confuses me". Sir Fred's
letter to us said that you have drawn the conclusion that they
are more likely to confuse rather than help, and I know the DTI
have expressed doubts also but as a Committee, we have been kicking
and pushing the DTI and they have still got to the view of the
Consumer Credit Act from the mid 1970s. I would not hold the DTI
up as a benchmark here for movement in the industry, you need
a lot of improvement in that. As well as that MBNA, Mr Flynn,
you said in your statement that it would not be helpful to have
these scenarios. If people are told that it is going to take 20
years to pay off, I think that is the best way for them to say,
"Oh, I had better get my finances in order" rather than
just a statement about minimum repayment, and I looked at your
statement, Sir Fred, and it seems the absolute minimum there.
I think the average consumer would just glance over that but,
as portrayed in the Barclaycard, HBOS and Lloyds, examples it
tells people exactly what the situation is. It would be good if
we could get industry movement on this.
Sir Fred Goodwin: I think the
flip side of that is it could quite easily create the impression
with the consumer that they have got 20 years to repay the balance.
I would not suggest that anyone has got 20 years to repay. They
should think about repaying the minimum balance as it says here.
Q332 Chairman: Minimum payment, if you
pay £50 it comes down, if you pay £100. I think the
ordinary rational consumer would understand if I put a few bob
extra in here every month, then the debt would not be around my
neck for so long.
Sir Fred Goodwin: I think all
of our customers would pretty readily understand that. I do not
think there is anyone making a minimum repayment that does not
understand that. The warning notice that goes on the accounts,
I think, is crystal clear. Only making minimum repayments is not
something you should think of doing. I think the notice is clear.
Nobody is arguing about highlighting this feature to customers
at all. It is important that they understand it. We have something
on the face of every statement which I guess is when most people
come to think about what repayment they are going to make, and
it is explained further on the reverse of the statement. Nobody
is arguing about the basic principle. I think to many people a
scenario is a lesson because the minute they see tables of figures
and explanations it becomes less attractive to them to read.
Q333 Chairman: If I look at your statement
here, I have got it in front of me, it is in relatively small
print—I will put my glasses on for it—"only ever
making the minimum repayment will significantly increase the time
taken to clear your balance and cost you more", and "if
you are unable to pay the minimum payment, please contact us as
soon as possible". I think there is a world of difference
between that and what Barclaycard and the rest of them have.
Sir Fred Goodwin: They certainly
look different. The objective here is to draw customers' attention
to the facts, and customers' attention has been drawn to the facts.
I think showing someone a model that says "If you repay this,
it will take you 20 years" it somehow creates the impression
of 18 years or 20 years, you have got that and you can seriously
say . . .
Q334 Chairman: I do not accept that Sir
Fred, I think that is a bit of slick salesmanship to be honest
with you. You have got it here, alongside your money transfer
service. What I would ask you to do is go back and look at these
issues for the sake of the customer and the sake of the consumer
because it is a hallmark what Lloyds TSB and HBOS have put on
and I would like to let the rest of the industry to be as upfront
and honest with consumers on this issue. Mr Flynn, you do not
like it either, can you give us some movement on it?
Mr Flynn: I take the point you
are making but in the last year under the auspices of APACS we
did meet and spent some time looking at scenarios. While I accept
the point you make about DTI, when we looked at this, we could
not see it would work. My personal feeling is that if you give
the statement on the minimum payment for the following month and
the estimate on interest, those two combined give people a good
feel for what they would pay.
Q335 Chairman: When you say it would
not work, it is obvious from Barclaycard it does work and for
others. Would you commit yourself to discuss within the industry
with Barclaycard and others to see if we can get this on the face
of every monthly statement?
Mr Flynn: Well, I will take it
away and examine it.
Q336 Chairman: Would you take it away
Sir Fred?
Sir Fred Goodwin: Absolutely.
I would not want you to think we have not discussed it already.
Q337 Chairman: Mr Geoghegan?
Mr Geoghegan: Yes we are prepared
to look at it.
Q338 Mr Beard: On the annual percentage
rate, the Committee found there were two methods of calculating
it, when we looked at this last year. Since then, one of the points
of progress has been an agreement in the industry to a basic way
of commonly calculating this. Can we take it you are all happy
with the guidance you have had from the OFT and the DTI and you
are all ready to produce this agreed calculation APR by the end
of next week?
Mr Flynn: Yes.
Mr Varley: Yes.
Sir Fred Goodwin: Yes.
Mr Geoghegan: Yes.
Q339 Mr Beard: What do you believe is
the implication of the APR to the average consumer? Is the implication
that if you have got a higher APR, you are going to be paying
more for the services you give, if you have got a lower APR, you
are going to be paying less, is that a fair assumption if you
are an average consumer?
Sir Fred Goodwin: I think it is
a reasonable assumption but there is an element of the calculation
which it does not cover.
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