Examination of Witnesses (Questions 460-479)
MR JOHN
VARLEY, SIR
FRED GOODWIN,
MR SHANE
FLYNN AND
MR MICHAEL
GEOGHEGAN
26 OCTOBER 2004
Q460 John Mann: There are spectacular
cases where your systems have not worked as an organisation.
Mr Flynn: We are talking about,
in some cases, very tragic circumstances. The approach that we
need to take is one where we share information more widely, where
we have robust means to ensure that we are able to counsel people
correctly. The suggestion you make is generally a good suggestion.
My concern however is that if we took, for instance, triggers
on minimum pays there are individuals who during periods of time
will make minimum pays. They are no risk whatsoever. There are
people who are looking at promotional rates where through good
money management they will say, "All I am going to do is
make a minimum payment." We at MBNA would like to make sure
that we work on this topic because it is a complex one and one
where we do need to make progress. We just have to be cautious
about what triggers we might be talking about.
Q461 John Mann: When will this progress
be seen by the industry? When can we expect a result with your
working parties?
Sir Fred Goodwin: Some of the
results are coming through next year as a result of the working
parties. I think everyone will be sharing positive and negative
credit card data by the first quarter of next year. Loans will
be some time in the course of the early part of next year and
there are working parties ongoing about other elements.
Q462 John Mann: Which this Committee
would welcome, I am sure. Let us say a theoretical individual
had debts with all of you, mainly credit card debts and significant
ones, but they could get out of their problems because of the
equity they have on their house. If someone was able to sort out
with them a remortgage that consolidated all the debts with all
of you but with one of you as a bank by extending the mortgage—in
other words, a financially coherent solution to somebody who handled
their money badly but could get out of the problems, which would
be highly rational—who is going to trigger that happening?
Sir Fred Goodwin: I suspect each
of us would at some point be in touch as the customer triggered
by their behaviour a reason for concern about their ability to
repay. In our statements, we invite customers who are in difficulty
to get in touch with us. As part of that conversation, that leads
to a process by which we try to get more of an understanding about
the customer's financial position to see what repayments they
could afford, whether there is rescheduling and so on. I would
be surprised if anyone sitting here did not have some generically
similar process. If that process, viewed simply from our point
of view, does not start to get results, we would suggest to the
customer that they contact their Citizens' Advice Bureau or the
Money Advice Trust for further advice because again there is a
fairly well established process by which, when someone is referred
to the Citizens' Advice Bureau, there is a consolidated financial
statement prepared. They start to look at compromises with lenders
to bring about a solution. Whether it would involve a remortgage
or not would, I guess, depend on the individual.
Q463 John Mann: Would it not be better
if you had your own equivalent of the industry bank manager there
that you could refer people to?
Mr Varley: That is not precisely
what you are describing but in effect it is what you are describing.
We certainly find that experiences with our customers precisely
match what Sir Fred has talked about, where we will introduce
customers, if customers need it, to members of the money advice
sector. The very consolidated solution that you are describing
is being worked on and all the banks around this table and others
will conspire together to achieve that solution.
Q464 John Mann: I keep coming across
cases where that is not happening.
Mr Varley: I do know that there
are tragic cases where that has not happened. I acknowledge that.
John Mann: There are other cases that
you are not aware of that are not tragic where the same thing
is happening. Why do I keep coming across cases whereby people
are not being referred?
Q465 Chairman: On this issue, we are
looking for movement. We are coming from the basis of the tragic
cases that have been mentioned to us regularly. Our eyes and ears
are telling us things. I think it is important for you to take
that on. Sir Fred, you mention Citizens' Advice Bureaux but they
have written to us saying that credit cards are only 5% of total
consumer debt, including mortgages, but over 30% of all consumer
debt and growing faster than any other forms of consumer debt.
They say that even for those on lower incomes, the unwaged and
those living in social housing, they have had higher proportions
of credit card debt than debts to home collected lenders who are
traditionally associated with lending to people in low incomes.
In the summer recess I went to my own constituency's CAB and I
got a pile of cases on debt. One elderly lady in her seventies
on income support, £6,800, has debts of £23,304. Her
monthly expenditure is £479.48 and her monthly cash available
is £85. How do you pay £23,304 off that? That is what
our eyes and ears are telling us. That is why the issue of sharing
data is very important. I receive lots of letters every week from
people in this position. I received a letter from an individual
which was confidential telling us about his family and their tragic
circumstances. He said that the individual finished up with 14
credit cards, all spent to the maximum credit card limit. His
only asset was a house in joint names with his wife. Final debts
were £150,000 which included a secret bank loan secured on
the house. The question this individual was asking me was how
did these 14 lenders lend him money on cards without knowing he
had the means to repay? He goes on, "The family solicitor
and accountants say they have three or four people a week in this
situation." Surely the CAB people should be legally bound
to check what other cards and what credit limits apply? What we
are saying to you here is that there is a way to go yet. I summed
it up last week with Mr Crosby and others by saying that it needs
improvement. I hope we all agree on that. Everybody needs to share
full information regarding credit and accounts. Lenders need to
assess the ability of consumers to repay using full credit data.
I understand the government and yourselves need to work together
to tackle any legislative barriers to ensure that this historic
data is shared. Also, there need to be safeguards to prevent predatory
lending. Do you all agree with that statement?
Mr Flynn: Yes.
Q466 Mr Plaskitt: Can I ask each of you
succinctly to state what you think is the case for the unsolicited
issuing of credit card cheques?
Mr Varley: Customers tell us they
want them. Customers use them in the majority of cases in Barclaycard
for balance transfers. Balance transfers typically would be enabling
a customer to move from a higher rate of debt to a lower rate
of debt. The use of the credit card cheque does not increase the
limit, so I think it is important to stress that there is no credit
extension or growth as a result. It is a how tool rather than
a what tool if you understand what I am talking about. Those three
things would be the principal justifications, as I see it, for
using these instruments.
Q467 Mr Plaskitt: Sir Fred, what is the
case for unsolicited issuing of credit card cheques?
Sir Fred Goodwin: All of the above
plus the fact that somewhere in the order of just over 50% of
the people in Yellow Pages do not take credit cards, so it enables
customers to pay for goods or services which they could not otherwise
use the facility to pay for.
Q468 Mr Plaskitt: Mr Flynn, what is the
case for it?
Mr Flynn: I would agree with all
the points made. It is another opportunity for people to access
the credit line that they have. The point made by Sir Fred is
a particularly good one. There are other examples as well where
there is greater utility by using a credit card cheque.
Q469 Mr Plaskitt: Mr Geoghegan, what
is the case for the unsolicited issuing of credit card cheques?
Mr Geoghegan: All of the before.
A number of people do not have bank accounts and they use the
credit card as a cheque card.
Q470 Mr Plaskitt: The problem for me
with the answers you have given me is that you have all made arguments
for the existence of and the use of credit card cheques but you
have not answered the question why do you issue them unsolicited
and repeatedly, which is the specific question I am asking.
Mr Varley: I tried to do that
by my first answer, which was to say that customers tell us that
they like them. They like receiving them because they find them
useful. That is why we do it. Customers expect us, with the passage
of time, to increase the limits if they run their account in an
orderly way. They do not expect to ask us. Indeed, they tell us
that if they ask us they find it surprising that we have not already
understood that they are capable of borrowing more if they want
to. I would say exactly the same is true of the credit card cheque.
They see it as a sign of a growing relationship and they find
them useful.
Q471 Mr Plaskitt: If your customers want
them, why are you not happy to let them request them?
Mr Varley: It puts a burden on
the customer which the customer would rather not have. That is
the experience that I have, rather like with increasing limits.
If you ask me what customers complain about, they often complain
about our not initiating improvements in the service, as they
would see it, on their behalf because they know that other customers
receive these things and they are interested to receive them themselves.
Q472 Mr Plaskitt: Are you seriously trying
to suggest that the customers who want something are going to
be reticent about asking you for it?
Mr Varley: Sometimes, yes.
Q473 Mr Plaskitt: Do the rest of you
take the same line on this? I want to know whether you are prepared
to allow your customers to request these things or whether you
insist on going on pumping them at people even when they do not
use them.
Sir Fred Goodwin: I do not think
we pump them at people. I do not think there is anything wrong
with being proactive with customers. It does not affect the limit.
It just gives them another means of convenience to utilise that.
Q474 Mr Plaskitt: Why do you go on sending
them to customers who do not use them?
Sir Fred Goodwin: As a general
rule we would not do that but there are circumstances under which
a cheque would be issued when a new card was issued, for example.
Q475 Mr Plaskitt: But you all do this.
You all send out unsolicited credit card cheques to customers
who do not use them. Why do you go on doing it?
Sir Fred Goodwin: Because what
we find is that some customers will then use them when presented
with them again. The reality of life is that customers, when they
get mail, just throw it in the bin, based on the spur of the moment
and how they feel.
Q476 Mr Plaskitt: Is it not because you
are waiting for the opportunity to take opportunistic advantage?
Your hope is that the credit card cheques will arrive on the mat
the same day as the glossy brochure promoting the holiday and
you want consumers to put two and two together, make four and
pay six.
Sir Fred Goodwin: We are in the
business of offering credit and extending credit to creditworthy
people. We would want someone to come to us and we all compete
in trying to do that. We make no secret of the fact. The cheques
do not affect the amount of credit we give to people.
Q477 Mr Plaskitt: I know that.
Sir Fred Goodwin: It seems to
me it is giving customers another means to exercise that facility
as part of the commercial activity in which we are all engaged.
Q478 Mr Plaskitt: I think you are constantly
prodding the customer to say, "You may not have used up your
credit limit yet. Here is a cheque. We hope that it arrives on
the same day as a nice, glossy brochure so why not use it up?"
It is opportunistic advantage, is it not?
Sir Fred Goodwin: No. Every business
I know of advertises and tries to get customers to use its products
and buy its goods and services. I do not see why we should be
any different, as long as we do it responsibly.
Q479 Mr Plaskitt: You are prodding them
to use up this credit line.
Mr Varley: Marketing is prodding.
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