Examination of Witnesses (Questions 380-399)
MR JOHN
VARLEY, SIR
FRED GOODWIN,
MR SHANE
FLYNN AND
MR MICHAEL
GEOGHEGAN
26 OCTOBER 2004
Q380 Mr Plaskitt: I want to buy £2,000
of goods over a year and then take a further year to pay for it
all.
Sir Fred Goodwin: I want to sit
down and understand how you are going to repay it. You need to
get the scenario tied down sufficiently clearly for any modelling
to be done. You need to understand are you going to repay equal
amounts each month or are you going to repay in a bullet repayment
at the end or not? We need to tie down the basic facts. You would
then need to get the summary box for the HSBC product which would
tell you when interest starts and how much it would be and our
product when interest starts, how much it would be and when interest
would end.
Q381 Mr Plaskitt: Is this an easy calculation?
Sir Fred Goodwin: It is not the
most straight forward calculation, no.
Q382 Mr Plaskitt: I think this is the
point, is it not. I think what has happened is you have all got
a lot better—and I compliment you for doing this—at
presenting the specifics and the terms and conditions of your
cards more clearly to the consumer. You have all come a long way
on that. The problem the consumer is left with—unfortunately
there still is a problem—is you have got much clearer information,
that is good, but then trying to compare it and read it side by
side to make the consumer choice about which is the best for me
is difficult because, as Mr Varley said—and you are a refreshing
change from Matt Barrett I must say—"because the industry
now offers a lot more choice it is a lot more complex"; absolutely
right. I have no problem with choice but do you see the problem
the consumer has got because you both now admitted, Mr Geoghegan
and Sir Fred, the calculation I would have to do as a consumer
in that circumstance is quite a tough calculation. I am left a
bit unclear as to how I should choose between your two both clearly
presented products but I have the difficulty of choosing which
is the best value for me.
Mr Geoghegan: Mr Plaskitt, that
comes back to the whole weakness in the scenario boxes because
there is so much of consumer behaviour involved. You said to me
it was £2,000 spent over a year and you would pay it back
over another year. It has so many different variances: will you
do it for one month and then leave it for three months, all the
various different things, are you going to take cash, are you
going to take a product? It has so many multiples and that is
why the scenario box has its weakness as well. We could come out
and show you a scenario box and then we would be rightly challenged
"Well that does not show the true picture" because there
are so many varied different pictures. It depends on consumer
behaviour.
Sir Fred Goodwin: Some things
are not inherently straight forward. If you want to compare the
cost of buying a Ford Mondeo versus a Vauxhall Vectra, that is
not a straight forward calculation to make. There are a number
of dimensions to it.
Q383 Mr Plaskitt: I think you are reinforcing
our point that competition is fine and the clarity of the terms
and conditions are good but it is still quite a bewildering choice
for a consumer to work out which of your cards offers the best
value. Anything which can help them with that might be a good
thing. I forget which one of you—I beg your pardon—has
produced an on screen calculator?
Mr Varley: We have.
Q384 Mr Plaskitt: Very good. It may be
that some device is necessary, and it might come from a third
party, not an individual card provider, to enable customers to
tap in the scenarios they are working on and compare your cards
side by side. Is that the way in the end that someone is going
to help the consumer through this rather bewildering array of
choice?
Sir Fred Goodwin: It might be
a possibility, yes.
Q385 Mr Plaskitt: It could happen, could
it not?
Sir Fred Goodwin: Yes.
Q386 Mr Fallon: I do not agree with some
of this questioning, and I would like to say how much I endorse
Mr Varley's approach which I find rather refreshing. It seems
to me, if I can put it to Sir Fred, there is a real danger here
that if we not only try and standardise the pricing but define
different types of repayment behaviour or design out the various
differences that we undermine the product innovation which the
industry has been rather successful at creating.
Sir Fred Goodwin: I would agree
with that, I think.
Q387 Mr Fallon: There is a danger if
you all start moving to implement standard scenarios that you
reduce types, you boil down to only one or two different types
of consumer behaviour whereas in fact there is a much more sophisticated
market at work here, is there not?
Sir Fred Goodwin: I think customer
behaviour evidence is that mainly customers do understand it but
I do not back off from what we said about the issue we just discussed
a moment ago. There is a trade-off when you have a complex product,
one of the features is it becomes complex, more complex to compare.
I find it hard to find ways around that.
Q388 Mr Fallon: There is a threat in
the end to competition here, is there not, Mr Geoghegan?
Mr Geoghegan: I think competition
is vital. A card should not be a luxury, it should be available
to everyone and there should be features which are attractive
to people and not so attractive to others. Competition is important.
Q389 Mr Fallon: It is a mistake to allow
some hard cases or the fact that some consumers may be confused
to end up with the product that is becoming standardised and virtually
nationalised in the way it is presented, is it not?
Mr Geoghegan: I do not think it
is helpful for the consumer to be confused. I believe the summary
boxes are very detailed and give a lot of information on how you
behave and use your funds. If you are a person who takes a lot
of cash advances you can work out what that is going to be and
if you use your card for just purchases that has a different format.
When you move all different ingredients then they get quite complex.
Q390 Mr Fallon: If we elevate the summary
box to some kind of religious status is there not a real danger
here that we just tempt the consumers into thinking that price
is the same as value?
Mr Geoghegan: I cannot agree with
that, no I do not agree with that. I believe the summary boxes
if they are well displayed and shown to the consumer, I think
the consumer can make that choice. There is so much choice out
there. He is always seeing what the competitors are offering and
making decisions based on that competition.
Q391 Chairman: On to the default charges.
This was covered last week, as you know, and PricewaterhouseCoopers
stated that "The charges are most commonly incurred by consumers
on lower incomes who have exceeded their (usually low) credit
limit". Now we have asked you to look at this situation and
I think every one of you has said that you are not producing any
information. MBNA has said it is commercially sensitive. Barclaycard
has said it is a genuine estimate. Sir Fred, you have said it
has gone to the OFT. What is your latest position on default charges
and information available within the public domain?
Mr Geoghegan: I have shown already
in our response that we show the figure of 0.2% of our personal
banking profits came from all charges.
Q392 Chairman: What are your personal
banking profits?
Mr Geoghegan: We do not declare
our personal banking profits. We do not show that.
Q393 Chairman: So that information is
pretty useless to us. 0.2% of nothing we know about!
Mr Geoghegan: It is miniscule.
It reflects how small it is.
Q394 Chairman: 0.2% of nothing we know
about—
Mr Geoghegan: It is small.
Q395 Chairman: You are not coming up
with any information. Mr Varley, you do not have any information
either?
Mr Varley: Chairman, as you know,
we said in our submission that we are in extensive dialogue with
the OFT on the point that you raise. In due course I know they
will publish their conclusions. I would endorse the point that
the information you are referring to is commercially sensitive.
Q396 Chairman: Sir Fred?
Sir Fred Goodwin: In trying to
provide some insight into this in the past on the point of whether
this is particularly affecting the people on lower incomes or
not, I had our people look at the figures which were charged last
year which are, indeed, a small proportion of our overall income.
If you take as a cut off point £14,000, those below £14,000
who paid these fees would represent about a sixth of the total
fees levied. £14,000, just for data reasons, was one of the
figures we could get to quite quickly. It does not suggest to
me that they are particularly skewed towards people from lower
incomes, they are incurred quite well across the board. The bulk
of the fees tend to relate to late payment rather than over the
limit.
Q397 Chairman: PricewaterhouseCoopers
said that. Mr Flynn?
Mr Flynn: Chairman, consistent
with other points that you are hearing, we do not release information
to our shareholders.
Q398 Chairman: The issue for all of you
in the public domain is that people think you have something to
hide here. None of you is producing that and people are saying
"Well, what about their accounting practices?" or "Is
that a genuine estimate at the end of the day?" or "Are
you fleecing customers in this regard?" I really think it
is a public relations' disaster for you if you do not move on
this issue. You mentioned the issue of the OFT. The Chairman of
the OFT, John Vickers, wrote to me on 4 October and I will read
out what he said: "Turning to default charges, we have obtained
information from card issuers on default charge revenue and costs
incurred as a result of default. We have found that different
card issuers use different accounting policies and bases for charging,
some of which, on our preliminary analysis, are of questionable
validity under the regulations on unfair terms in consumer contracts.
We have now begun a series of meetings with major card issuers.
In some cases we have made requests for more information. Besides
clarifying the facts, we are considering points of law."
Has the OFT been in communication with any of you?
Mr Varley: Yes.
Q399 Chairman: And possible dubious accounting
practices on this issue?
Sir Fred Goodwin: Absolutely not.
Mr Varley: There has been no such
suggestion. We are in the middle of our conversation with the
OFT at the moment.
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