Examination of Witnesses (Questions 360-379)
MR GERARD
LEMOS AND
MR SEYMOUR
FORTESCUE
14 MARCH 2006
Q360 Mr Todd: Did you explore what
the causes of the delay might be?
Mr Fortescue: It is usually to
do with identification problems, particularly if the documents
have to be sent to a central point; they then get sent back with
a letter which somebody, whose first language may not be English,
may have difficulty in understanding and they really have to start
again with the whole process. You can imagine the sort of delays
which result.
Q361 Mr Todd: Do you think the Code
should have an explicit limit on how long it should take to open
a basic account?
Mr Lemos: That is one of the things
we will argue for in the next review.
Q362 Mr Todd: Have you got an idea
of what that should be?
Mr Fortescue: I think that is
something we would want to talk to the industry about. I would
have thought 10 days should be the right order of magnitude.
Mr Lemos: Some do currently.
Mr Fortescue: Yes. There used
to be a problem with switching current accounts. People perceived
that it was extremely difficult and time-consuming to switch their
accounts. The Code says the bank that is losing the account must
provide information about direct debits and standing orders within
three working days. As a result of that, the switching problem
I think has largely gone away. It is not difficult to switch accounts.
There is a time limit on that process. We think there should also
be a time limit on the process for opening a basic bank account.
Q363 Mr Todd: We have talked about
the barriers to opening an account, what about the process of
actually running an account. Have you looked at whether there
appears to be discrimination against those who operate basic bank
accounts in encountering the services of a bank?
Mr Fortescue: The area where we
have perceived it to be a problem is in the length of time it
takes for a cheque to clear on a basic bank account compared to
regular current accounts. Six of the providers of basic bank accounts
require a day or two more for the cheque to clear—presumably
because there is a higher incidence of bounced cheques with basic
bank accounts. It is not a huge problem because the benefit credits
and the salary credits, which are the main source of funding for
the basic bank accounts, go through BACS and, therefore, arrive
as cleared funds. I think that is the area where we have perceived
there to be some apparent discrimination against basic bank account
holders.
Q364 Mr Todd: There does not seem
to be a logical reason why a basic bank account holder should
have a longer wait to clear a cheque, to be quite honest, bearing
in mind the very low-risk, low-opportunity (I accept that) nature
of the account itself?
Mr Fortescue: I would agree with
that.
Q365 Mr Todd: What steps are you
taking to make that message clear in the Code?
Mr Fortescue: The OFT has a group
looking at the whole cheque clearing process at the moment and
cheque clearing times. They are due to report during the summer
and we are really waiting to see what they are going to say.
Mr Lemos: It would certainly be
helpful if they looked at clearing times for basic bank accounts,
as well as other clearing issues.
Q366 Mr Todd: It would appear to
an objective observer that that is just another way of discouraging
people from operating basic bank accounts, that it is just a little
more difficult. Another example which was sent to us was there
appeared, in some cases, to be discrimination over even basic
things like access to a counter for ordinary transactions in a
bank.
Mr Fortescue: We have not come
across that.
Q367 Mr Todd: That appeared to be
the case. "HM Treasury is aware of recent moves by some of
the banks to restrict over-the-counter access to basic bank accounts".
I think there was another reference to encouraging people to go
at certain times, or something like that. Again that seems something
which would be unwelcome and illogical?
Mr Fortescue: We are certainly
aware that banks encourage people to use their cards in machines
rather than across the counter, but they do that for all their
customers.
Q368 Mr Todd: Yes. The tenor which
comes from this line of questioning is that very gently there
are attempts made to make clear to basic bank account holders
that they are somewhat second-class citizens among the bank's
customers, and their business is not entirely welcome. To be honest,
I would have thought that is neither ethically nor in business
terms sensible, since presumably at some point there may be a
desire to convert that bank account holder to a full account holder,
which I think my colleague will come on to and the means by which
that might be done. Should not the Code be absolutely explicit,
that all relevant services should be equally available to a basic
bank account holder? Obviously there are a large number of bank
services which are not available to them because there are restrictions
on the account.
Mr Fortescue: I think it might
be difficult to mandate that all banks should treat all their
customers in precisely the same way—there is some segmentation
in the market . . . [2]19
Q369 Mr Todd: Where those services are
relevant I think that that is right, is it not?
Mr Fortescue: It is not an issue
which we have come up against, but we will certainly look into
it and consider whether a change to the Code might be required.
Mr Lemos: In principle I think
that is right. Where it is relevant people should receive the
same treatment.
Q370 Mr Newmark: My question is to
do with default charges. Last year you said that regarding penalty
charges on credit chards, "If I were still a poacher I'd
have a real job defending these charges. They do not appear to
be related to the costs, they frequently hit those least able
to pay them and they generate great resentment". What is
your view on the level of default charges payable by users of
basic bank accounts when there is insufficient money to pay standing
orders and direct debits?
Mr Fortescue: This is a concern
to us—certainly to the independent directors. Perhaps I
should make clear that I was speaking, as I think The Guardian
article mentions, in a personal capacity. For people who are new
to banking, who may not understand the system very well, if a
direct debit for their gas bill comes in at a rather higher figure
than they were expecting or a day or two earlier than they were
expecting or their benefits are delayed, they get charged up to
£30 or even more for a failed direct debit that blows the
household budget for the week; so this is a serious concern to
us. The theory is that we are not an economic regulator; we should
not set prices. Our role is to ensure transparency so people can
make informed decisions. The weakness in that argument is that
the information about those charges is hidden somewhere in the
terms and conditions which people probably do not read properly
when they open the account, and at the time the charge is applied
they are in no position to shop around or go with another supplier.
I think we would like to see two changes at the time of the next
review: one, the independent directors would argue for a summary
box (and this Committee has been very positive about summary boxes
for credit cards). We think summary boxes should be there for
current accounts as well, so the key features of the product would
be pulled out in a standard format so people would be made aware
that there was a penalty charge. That would be the first thing.
The second thing would be that there should be pre-notification.
For other account charges the Code says that they should be pre-notified,
generally on the customer's statement 14 days before they are
applied so that people can be aware of them, argue about them
if necessary and avoid the situation of having charges on charges.
We think that the pre-notification should apply to penalty charges
as well, as indeed it does for some banks, but we think that should
be universal.
Q371 Mr Newmark: Circling back to
what you said a bit earlier, you do not really see an expanded
role for the Banking Code in the area of penalty charges. I get
the sense you think the market should be setting that?
Mr Fortescue: I should also say
that the OFT is on the case. In fact in this morning's Financial
Times it mentions that the OFT is likely to cap charges on
credit cards at a rumoured figure of £10 or £15 for
a credit card default charge, and clearly there is a read-across
from this into charges on basic bank accounts.
Q372 Chairman: That is a good aspect
to bring to your attention because it was this Committee which
referred this issue to the OFT and then referred it to the Competition
Commission. This is an example of industry coming before us when
we asked them about penalty charges and saying, "We don't
make any extra money out of this"; and we asked, "How
much do you make out of it?" and they unanimously decide
not to give us that information. As a result we referred it to
the OFT and we now see the result of that. It is just an example,
Mr Fortescue, for you in your role to say to the banks, "Look
you should be thinking in a forward way in this issue so that
we do not need to go through these laborious routes", because
at the end of the day we find ourselves in this position. Related
to Angela's question about the review in 2008, if they were seen
to be taking this offensive approach then things would be a lot
easier and there would be no need to get into this situation.
Mr Lemos: Could I say one more
thing in relation to your last question. There is a provision
in the Code relating to customers in financial difficulties already,
which says that they should be left with enough funds for their
basic requirements.
Q373 Mr Newmark: I understand that.
I think the point Mr Fortescue was making hits the nail on the
head—it is those, where for some reason for example, a cold
winter and their fuel charge is suddenly a lot larger, who slightly
go over and they are hit with a £38 or £26 charge. We
are really focussing on the people who are on the lowest rung
of society. That is really where our concern lies. For those people
the £26 or £38 is a meaningful amount to them. That
is where our concern lies. For those who just have two bank accounts
there is this issue of off-set. I know that consumer groups have
expressed concern that banks are beginning to offset one account
for another, so if one goes overdrawn they effectively log onto
another account to pay off debts. The problem arises sometimes
even when a repayment plan has been agreed with the help of an
impartial debt adviser. Would such action breach the Banking Code's
requirement to treat customers in financial difficulty positively
and sympathetically?
Mr Fortescue: The Guidance on
this point says that banks should leave the customer with sufficient
money for day-to-day expenses, taking into account individual
circumstances. We are aware of instances where that has not happened;
where the bank has grabbed all the money when it is paid in after
the salary date. We have got a very good liaison with a lot of
money advisers and Citizens' Advice Bureaux who have frequently
told us of this. We have taken them up with the bank concerned
and been able to rectify the situation.
Q374 Mr Newmark: Is this generally
minutiae writing where you need a magnifying glass? Is this generally
made clear to customers upfront, that you do have the ability
to effectively seize the assets from one account to another, or
not?
Mr Fortescue: There is something
in the terms and conditions about the right of set-off which people
will not generally understand.
Q375 Mr Newmark: I find a number
of people find it irritating that they have to show the same set
of identification to the same person and the same bank opening
two sets of bank accounts because they are told that, "This
bank account is different from this one and, therefore, you are
required, for money laundering requirements, to show us the same
ID to open a separate bank account". Therefore the impression
from the consumer's standpoint is that these are two distinct
bank accounts. Banks make that very clear in trying to open up
the bank accounts, but, what I am not sure is made clear is that
this right of off-set is anywhere other than in the teeny-weeny
writing at the back of some large document. Is that made clear
upfront?
Mr Lemos: It goes to our general
concern that customers have the right to know what is going on.
There are some things which are more significant than others in
all the terms and conditions. I think a fundamental principle
on which the Banking Code operates is that people do have a right
to know. As Seymour has already said, one of the things which
we think has been successful is the summary box on credit cards.
I think there would be a question if there were to be a summary
box on current accounts about what would be covered and what would
be the important requirements.
Q376 Mr Newmark: On this issue do
you think there should be some sort of change in the Banking Code
in this area, or not?
Mr Lemos: So far as the independent
directors are concerned, I think we have already said that we
would like to see a summary box on a current account and then
there would have to be a discussion about what was most important
and so on.
Q377 Mr Newmark: Making it very clear
upfront to customers opening two back accounts this right of offset?
Mr Fortescue: For customers in
financial difficulties basic bank accounts are an extremely good
product, because there is a discipline in them that they are not
allowed to go overdrawn. I know a lot of money advisers will encourage
people in financial difficulties to open a basic bank account
and keep that as a means of keeping their head above water whilst
dealing with any other problems via monthly transfer.
Mr Lemos: If we are talking about
a customer in financial difficulty who is at risk of off-set the
key thing is that they have independent money advice, independent
debt advice, and if a payment plan has been agreed and is being
maintained. Appropriation in the way you have described should
not occur. Those are the requirements as they currently stand.
We would stand by those and ensure that they were complied with.
Q378 Mr Newmark: Citizens Advice
are concerned that banks are taking the opportunity to upgrade
basic bank accounts to conventional accounts with full banking
facilities where this is not necessarily in the individual's best
interests. They have called for the Banking Code to include guidance
on how basic bank accounts should be upgraded and detail the safeguards
that should be put in place. Is there any need for further guidance
in this area, in your view?
Mr Fortescue: I think it would
be quite difficult to be prescriptive in that area—the precise
circumstances when somebody's account should be upgraded. Clearly
in tackling financial inclusion it is an evolutionary process.
You start with a basic bank account; if that works okay and people
use it sensibly then there is no reason why they should not have
access to affordable credit, saving schemes and a credit card
in due course; but I think that has to be a step-by-step process.
I think it would be rather difficult to prescribe how that should
be done.
Q379 Mr Newmark: Other than necessarily
wrapping it in a "know your customer rule", is this
in the best interest of the customer? You cannot be prescriptive,
but in terms of banking practices or best code of practice in
the behaviour that one has towards one's customer there should
be the "know your client rule" effectively where perhaps
that should come up?
Mr Fortescue: The thing which
has concerned us is that the scenarios we have written for the
mystery shopping have been very much about people who have no
need for credit and they just want a simple account into which
their benefits will be paid and they can perhaps use them for
their utility bills and so on. We have been concerned in the past,
but the situation has clearly improved recently, that people were
being sold products (including credit) which they had no need
for.
2 19 Note from Witness: The BCSB believe it
is reasonable that banks should have some freedom to segment their
market according to customer profitability. Back
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