Examination of Witnesses (Questions 440-459)
MR JOHN
VARLEY, SIR
FRED GOODWIN,
MR SHANE
FLYNN AND
MR MICHAEL
GEOGHEGAN
26 OCTOBER 2004
Q440 John Mann: You have a copy?
Sir Fred Goodwin: Yes. I do not
think we are disagreeing with his interpretation of the facts
or the law. It is this issue of consent and getting it.
Q441 John Mann: What he is saying is
that the problems are not as extensive as some would appear to
suggest.
Mr Geoghegan: That might imply
that we do not want to share data. Quite the contrary. The whole
industry does want to share data. Our problem is making sure that
the data we share we are authorised to share. If you can help
us in any way in that regard we would be most grateful.
Q442 John Mann: Some of you want to share
data and have made that very clear but that was not the impression
last week from one of your competitors.
Sir Fred Goodwin: There is a series
of issues with data. After it has been shared, the question is
what data is shared and how it can be used thereafter. We are
not arguing against data sharing and we would like to overcome
the historical problem that relates to data protection that we
have just talked about and the marketing problem. The marketing
problem has been overcome in the last few months. A lot of work
has been going on in this area. Agreement has been reached to
start sharing loans data by the early part of next year so quite
a lot is moving on in this already.
Q443 John Mann: But there are laggards,
are there not? If we compare, for example, Sir Fred, your evidence
to us and that of your three competitors here, there is a very
distinct difference in tone, as we found last week.
Sir Fred Goodwin: That is why
I would not want you to think there is universal agreement as
to precisely what data gets shared and precisely how it gets used.
As to sharing more data and giving access to it, there seems to
be—
Q444 John Mann: Why are you against sharing
data?
Sir Fred Goodwin: I have not said
I am against it. What we are trying to understand is precisely
how it would be shared and for what purpose. There is quite a
lot of cost and expense associated with allowing, for example,
on line, real time data sharing amongst all providers of credit
in the UK. If that is the model people are going for, I can see
problems with that. If it is sharing data from certain asset classes
like loans, mortgages and so on, that is easier to bring about.
Q445 John Mann: I sent you all one commercial
suggestion—and I am sure there are many more than the one
I sent you—which showed a very easy way of data sharing
which was costed for the entire industry at between five and 10
million a year. That is using the same information that is sent
to customers. Where is the big problem other than the will to
do it?
Sir Fred Goodwin: I vaguely remember
the note that was sent but 5 to 10 million is not a number that
makes anything happen in our business, let alone in our industry.
We need to be very clear what we mean by data sharing. The data
to be available for any provider of credit, on their screen, real
time, is not something that can be brought about for 5 or 10 million.
If you want to bring about a system where people can post something
off and something comes back in some indeterminate time, maybe.
There is a lot of devil in the detail here.
Q446 John Mann: It does not necessarily
have to be real time, does it, in terms of being effective compared
to what you have at the moment? You could have a system that is
not real time but is very contemporary, just like I get a monthly
statement. Let us say, on the same basis that I get information
that is not real time, if you have that, you could avoid some
of the problems that you have had very straightforwardly. Am I
missing something?
Sir Fred Goodwin: Possibly what
has been missed is the fact that credit cards are about 5% or
so of total consumer credit. The default rate runs at between
2% and 3%. We already have a system with cards that produces a
very satisfactory outcome. In the wider sense, there are clearly
lots of issues within it and in relation to individuals but the
prospects for bringing dramatic improvement to that are relatively
limited. Other areas of consumer credit might well benefit. Individual
competitors might benefit from having that data available but
how you would make the data available to other people is a far
more complicated subject than one that could be addressed for
£5 million or £10 million. There is actual work being
done on the subject as we speak within APACS and that is where
a number of the changes in the last year have come about from.
Nobody is arguing against. I think it was Mr Daniels last week
who expressed some reservations on the subject. It seems to me
to be more about the detail of exactly what was meant rather than
the general principle.
Chairman: He was coming from the point
of view of America but Mr Flynn is very robust in his communications,
given 16 years of experience in America.
Q447 John Mann: Everyone has been robust
apart from yourselves and Lloyds TSB. Let me quote HBOS: "We
see no reason why there cannot be full data sharing in the credit
card sector." That is pretty unequivocal.
Sir Fred Goodwin: There is full
data sharing in the credit card sector, amongst all the people
sitting here. There will be full sharing by the early part of
next year. There are a lot of credit card providers in the UK
who have not been here to see you. People sitting here have been
sharing positive and negative data on credit cards for years.
Q448 Chairman: I would not like to give
the wrong impression here because this is how the debate started
last week. I asked James Crosby, at the end, saying that full
information has not been shared and there are quite a number of
issues we want to look at. "If you have someone who has a
large number of cards and is making the minimum payment on each
card, it is hard for the industry—very hard; almost impossible—to
test what financial stress they are under." That is correct.
That is still the same situation so the fact is what we are saying
to the industry is, in these tragic cases, it would be good if
the industry did full data sharing so that you could test the
financial stress.
Sir Fred Goodwin: The definition
is very important. Full data sharing on credit cards by and large
happens for all the people that you have speaking. There is more
that could be shared.
Chairman: There is a big omission.
Q449 John Mann: Mr Varley, what is your
perspective?
Mr Varley: You heard me say, in
my opening remarks, that the general position of course is that,
from the point of view both of consumer and provider, the more
data that is available the better. The lending will be better;
the risk calibration will be better; the calculation of an individual's
ability to pay will be better. We should not assume that data
sharing is a panacea but in the area of minimum payments and cash
withdrawals, which is what the Chairman was just referring to,
the sharing of that data across the industry would be helpful.
Q450 John Mann: Should there be triggers
for action?
Mr Varley: The Chairman made the
remark earlier about wanting to see movement generally. I feel—Sir
Fred's remarks indicate this—that there is quite good momentum
in the industry for increasing data sharing. I believe there has
been quite a lot over the course of the last year. I think you
will see more in the coming year. The fact that there is an industry-wide
agreement during 2005 for all positive and negative data to be
shared strikes me as a real sign of progress.
Q451 John Mann: There is a minority of
customers who clearly do not handle their finances well, be it
deliberately or accidentally. Should there be triggers—and,
if so, what should those triggers be—and should they be
for the individual company or should they be agreed by the industry?
Mr Varley: My suggestion would
be that it should be company by company but there are triggers.
I think you would find that for each of us. Let me give you an
example. In our case, if a customer is regularly repaying the
minimum, we certainly will not extend limits. There is a clear
trigger there. There is cause and effect. In other words, the
triggers are driven by our obligation to be prudent lenders.
Q452 John Mann: If it is not shared across
the industry you could have a situation where someone is paying
the minimum to you and someone with a different trigger for one
of your competitors and things spiral out of control. It would
seem fairly straightforward to have some triggers that should
raise a question mark in the way in which the bank manager, in
traditional days, would call someone in and have a word and see
if things were all right. Should there not be that concept within
the industry?
Mr Flynn: The approach that we
take to lending is that there are three criteria we look at: ability,
stability and willingness. In looking at each individual customer,
those are the three questions a lender needs to look at. We also
have a risk detection function which is populated with people
who are lenders so they understand the lending philosophy. They
have lent themselves. Those people, armed with the right type
of information, will more often than not be able to make the right
decision for that individual customer. Whether it be that we have,
from the information that is internal to MBNA, an indication that
there is risk, we will look across the bureau to get more information.
We need to have as much information as is possible to ensure that
we can say, "Okay. We are seeing this behaviour with us.
We are seeing that behaviour with some other cards and we are
or are not seeing other indications that might show stress."
At that point, a good lender is going to be able to pick up a
telephone to a customer and speak to that customer before the
customer gets themselves into a difficult situation. Oftentimes
what happens in this business is that a customer will get themselves
into a very, very serious financial situation. Stresses are very
high. They are receiving a lot of telephone calls. Whatever it
might be, the stress is mounting and they find it very difficult
to bring themselves to pick up the phone and ask for help. What
we hope we can do is, armed with the right information, pick up
the telephone and talk to that person about options while they
have options available to them.
Q453 John Mann: If we took that scenario
and someone had multiple cards across you all, should not the
industry be directing people to independent debt counselling that
allows people to get out of the problems they are in and potentially
recovers you your money? Should not the industry be providing
that service as an industry?
Mr Geoghegan: There is the Money
Advice Trust that certainly all our colleagues subscribe to. As
some other people on the panel this morning have said, it is in
our interests as an industry to see people who are getting into
difficulties and contact them first. That is what we aspire to
do.
Q454 John Mann: Why do we keep reading
about so many cases where this has not happened? It is left, in
essence, to the consumer themselves, is it not? There is not a
trigger for action across the industry that says, "You have
so many cards" or, "You have such a level of debt to
your income that we, as an industry, need to get someone to sort
this out." It can happen but it need not happen.
Mr Geoghegan: I have already said
we are in favour and we do share data in regard to our card portfolios.
Unfortunately, we do not have the whole marque and there are others
who do not share that data. I encourage and I hope the Committee
encourages people to share that data and make sure that people
talk to their customers when they can. The key is, if we have
the data, that card would not be offered when it is not appropriate
to offer it.
Q455 John Mann: What would be, in your
view, a suitable debt to income ratio for the average customer?
Mr Geoghegan: It is more to do
with the cash flow of a person rather than the debt they carry.
I do not have a set ratio, in regard to people and personal debt,
of what they would need to take on. It depends on their circumstances.
Q456 John Mann: Would you regard that
as being a multi-competitor debt or would you just be looking
at your own situation?
Mr Geoghegan: Clearly, if we have
all the information, we will see the cash flow of that person.
Is it capable of paying that debt? If it is the case that they
are going to have difficulty repaying that debt, it is not in
our interest to lend to them in the first place.
Q457 John Mann: How do you stop them
falling out of the system where you do not know all the information
from everyone else?
Mr Geoghegan: That is my point.
If we did have the information—and HSBC is in favour of
sharing data and information—then we would have all the
information and those cards would not be issued.
Sir Fred Goodwin: Once the cards
are issued, it is another matter. We may be confusing two separate
subjects here. There is the decision you make at the point of
issuing the facility to a customer and then there is the ongoing
monitoring. Where most of the problems arise is due to a change
in the customer's circumstances that occurs at some point during
the life of the agreement. At that point, I do not know that it
is feasible that any individual lender can be monitoring all the
customer's financial exposures and their associated financial
affairs to allow them to understand the wider customer's position.
You do tend to focus in on managing the balances you have with
the customer and looking very carefully at the customer's behaviour
for any signs that the customer might be having difficulty, at
which point we would proactively contact the customer. The one
sign you can see is that letting things drift on longer never
works. If you can pick up a sign and act on it early, that is
a beneficial thing to do. That can lead to customers being referred
to external agencies for counselling.
Q458 John Mann: You made the point absolutely
superbly for having an industry based trigger into debt counselling
and independent debt counselling for that small minority of customers
who are in problems with several of you. Is that not the point?
At the moment, for the industry to do that for that tiny minority—I
am sure you would agree every consumer is valuable as an individual—who
for whatever reason get into problems it would not cost you a
great deal to have triggers into independent debt counselling.
Sir Fred Goodwin: We have triggers
in terms of our own customers but it is very difficult to understand—
Q459 John Mann: It is not always working,
is it?
Sir Fred Goodwin: I think it is.
The numbers of customers who are having difficulty repaying their
debt is at an all time low. If you look at the level of customers
who are being referred to these agencies, the proportion of people
who have credit card debts is—
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