Examination of Witnesses (Questions 380-399)
MR GERARD
LEMOS AND
MR SEYMOUR
FORTESCUE
14 MARCH 2006
Q380 Chairman: You mentioned that
independent directors would like to have a summary box. There
are seven independent directors out of ten, are there not, so
what is the problem?
Mr Lemos: There is not a problem
potentially.
Q381 Chairman: You could just make
that decision?
Mr Lemos: We can certainly put
it to the banks that it should be included in the Code—the
banks' own the code as it is part of the self-regulatory regime.
Q382 Chairman: You could do that.
That is the view of the Banking Code Standards Board?
Mr Lemos: Yes.
Chairman: That would be helpful.
Q383 Mr Love: I notice in the Banking
Code you give a description of the features of the basic bank
account. Do you consider it to be part of your remit to encourage
any change in the design of a basic bank account to more suit
the customer rather than the bank?
Mr Fortescue: Citizens Advice
has argued for a number of changes to be made to basic bank accounts
and we would certainly agree with a number of them. Some of their
suggestions are things which we have already covered, like credit
scoring, length of time to open, set-off and charges for direct
debits and standing orders. I think one thing which might be helpful
is a buffer zone of £10. Three banks already offer that.
It means you do not get the situation of a direct debt being bounced
merely because it is going to take the account a few pence overdrawn.
Q384 Mr Love: Let me come on to the
specific issues in a second, but let me just ask you, do you do
any work on the use that is made of the basic bank account when
it is opened by the customer, because a lot of the evidence we
received from the organisations you have mentioned—the CAB
and National Consumer Council—was that because of the features
of the account many of the people who had opened a bank account
had not actually used it as efficiently as they should have done.
Is that something you take on board, and would you change the
design, based on the fact that people are not using them as much
as they should?
Mr Fortescue: The British Bankers'
Association have recently conducted some quantitative research
using Millward Brown which suggests a high degree of satisfaction
on the part of basic bank account holders. I think the idea that
we should conduct some of our own research on basic bank accounts
and what happens after they have been opened is a very good one.
I think that is something we should consider in the next year.
We do have quite a useful market research budget and it is a very
sensible way of spending it, I think.
Mr Lemos: Our principle concern
up until now, as the Committee knows and has supported, is making
sure that people can open them without difficulty. I entirely
agree with Seymour that this might be an appropriate thing to
look into.
Q385 Mr Love: I think we have dealt
with default charges in quite some detail so I will not go back
over that. I was somewhat surprised by your comments in relation
to over-the-counter and being able to access banks over-the-counter;
because almost all of the evidence we have had from the other
organisations—NCC and CAB—says that this is regular
practice by the banks. Why is that not showing up in your mystery
shopping surveys?
Mr Fortescue: Our mystery shopping
surveys are about opening an account rather than how it might
work afterwards.
Mr Lemos: That is why we need
to do some more work.
Q386 Mr Love: It does seem to me
that is an area you do need to look into because of all the evidence
we are getting back. Let me go on finally to the point you made
about a buffer, because this has been made very strongly to us.
Many people do not use the account because they are scared of
going overdrawn with the large default charges that arise from
that. A small amount of money which would be relatively easy for
the banks to introduce—£10 has been mentioned, and
£20 to us, but whichever figure it is—is that not something
you should be pursuing with the banks?
Mr Fortescue: Yes, we will.
Q387 Mr Love: You can tell this Committee
that that is something which will be promoted by the Standards
Board? I know you mentioned that three banks had taken it up,
but you will be promoting that with all of the banks in the future,
will you?
Mr Fortescue: Yes. I think we
have seen some quite useful individual initiatives by banks. I
mentioned that Barclays' mandate that the literature should be
available in all their branches. They have said that the ID issue
should be resolved in branches. I think they have a buffer zone
as well. In relation to the problem of failed direct debts and
the charges, three banks have a rule saying, "Three strikes
and you're out. We let you have two bounced direct debits without
charge, but we will warn you and on the third occasion I'm afraid
you have to close the account". That may be a more sensible
way of dealing with it than punitive charges.
Q388 Lorely Burt: I would like to
pick up one of your comments in this report by Millward Brown.
I think if you were to do some mystery shopper exercise on the
actual conducting of the bank account and customer satisfaction
once they have actually managed to encounter all the barriers
to opening it up, you might get a slightly more balanced view
than this motherhood and apple pie, everything-is-absolutely-wonderful
picture which seems to come through. Members of the Committee
have only seen that last thing last night so it would not be fair
to comment any further on it, but I would welcome any research
in that area you would like to conduct?
Mr Fortescue: That was quantitative
research; and I think qualitative might well be more helpful to
try and get a better understanding of what people like and dislike.
Mr Lemos: And reasons for not
using the account.
Q389 Lorely Burt: Absolutely. That
should be very helpful to the industry as a whole as well as people.
I am supposed to be talking to you about access to cash withdrawals,
particularly the cash machines. The previous Committee did a report
into cash machine charges and recommended that the charging cash
machine operators should be brought under the Banking Code. You
seem to have so far rejected this as a course of action and I
would like to ask why?
Mr Lemos: We have not rejected
it as a course of action. What we have been keen to achieve is
that customers are properly informed about ATM charges before
they commit to making a withdrawal. This is covered by LINK's
rule and LINK has powers that we do not have, notably to switch
the machines off. After much discussion we did do some mystery
shopping of our own in this area and it did seem, firstly, that
machines that charged were largely compliant and LINK itself has
done some research in this area and we will continue to monitor
that. I will certainly give the Committee that assurance. If it
came to light that LINK's rules were not being enforced and that
there really was a problem with the disclosure of these charges
then I certainly have not ruled out as chairman the possibility
that the independent operators would be encouraged to join the
Code. It has not been rejected but I think our desire, and the
Committee's desire, is to get the most effective way of ensuring
that people know what has happened.
Q390 Lorely Burt: Mr Lemos, in your
letter to our Chairman in January you did actually say "
. . . there was a wide variation in compliance with the LINK rules
. . . [and] 13.2% of charging ATMs were noncompliant with one
or more of their rules". The principal enforcement that seems
to be being applied at the moment is a fine of £100 per non-compliant
machine. £100 hardly seems like very much of a big deal in
comparison with the money they are making out of the confusion
they are causing by not being compliant. What would you say to
that?
Mr Lemos: I think as we continue
to look at this and continue to research it, if those numbers
do not come down then that would suggest that the disincentive
of the fine is not working and we would come back to the Committee's
previous recommendation that they should join the Banking Code.
I certainly want to reassure the Committee that we have not ruled
that out; but if it can be achieved through LINK's rules and their
greater powers then I guess everybody will welcome that. If it
cannot then we will certainly look again at the possibility that
they should join the Code. I certainly do not want to rule that
out.
Mr Fortescue: The largest ATM
deployer outside the banks is Hanco which is a subsidiary of the
Royal Bank of Scotland. I can tell the Committee that Hanco have
decided to come into the Code under the RBS umbrella, so they
will be compliant with the Banking Code.
Chairman: That was one of our recommendations
for subsidiaries.
Q391 Lorely Burt: Good. I hope you
make your mind up about doing something sooner rather than later
because I think there is a lot of confusion out there. Can I just
ask you about the conditions concerning the closing of cash machines?
The Banking Code requires banks to notify customers when closing
the last branch within a one mile radius in urban area and four
miles in rural areas. Do you think the Code should include similar
requirements on banks when removing or selling the last free cash
machine within a specified distance?
Mr Lemos: I have got a lot of
sympathy with the problem. The difficulty is: who are the customers
to be notified of the cash machine? I think we have to think of
a practical way of achieving that. The requirement on branch closures
would not quite achieve that because how do you contact the customers.
If there is a practical way that can be suggested then we are
certainly happy to consider that and put it forward for the next
review of the Code. It is a question of what would be effective.
Q392 Lorely Burt: If it was a specific
bank which was closing a free machine then presumably the bank
could write to their own customers within a specified radius,
in the same way that if they were closing a branch they could
write to those customers?
Mr Lemos: That is a possibility.
Q393 Lorely Burt: Perhaps that is
something you might wish to recommend.
Mr Fortescue: If it is the last
free ATM in a town it would obviously be used by a lot of non-customers
and the ability to notify them is the issue, I think.
Q394 Lorely Burt: Yes, but at least
if you were notifying that actual bank's customers then somebody
would know about it and people would be alerted and perhaps would
want to start campaigning to retain that. Finally, could I just
ask about credit checking? The Financial Times reported
that you wanted to improve the guidance that accompanies the Banking
Code in an effort to improve the way banks sell loans and credit
cards to customers and how they assess their creditworthiness.
What problems did your investigations uncover and what changes
have you proposed as a result to the Banking Code?
Mr Fortescue: This is the practice
of some banks automatically doing a credit check with a credit
reference agency. It is not necessary to do that. It is quite
legitimate to make the CRA check to identify where somebody lives
and who they are, but that need not leave a footprint, as it is
called, on somebody's credit record. The more footprints you leave
the more difficult it is going to be for somebody to get credit
when they need it in the future.
Q395 Lorely Burt: I was thinking
more along the lines of practices like not cancelling the existing
credit cards for customers who are taking out loans to consolidate
existing debts and things like that?
Mr Lemos: We started this negotiation—and
I know the Committee has already expressed concern about the speed
of making changes so I can offer you quite a lot of reassurance
on this subject—but we started these discussions out of
the research we have been doing in October with the banks. I can
tell you (and it was agreed last week and has not been announced
yet) that the Code is to be amended and it will take into account
the point you have just made about consolidation loans. That has
been agreed with the banks very recently within the last week
or so, and our recommendations have been accepted and the Guidance
will be amended.
Q396 Lorely Burt: Will there be other
things as well? Another one was granting loans to individuals
based on joint incomes?
Mr Lemos: That will be covered
too.
Q397 Lorely Burt: Excellent, that
is very good news. Thank you very much.
Mr Lemos: That is a good outcome
and we are pleased with that.
Q398 Chairman: There are a couple
of tidying-up questions particularly on the access to cash withdrawals.
Can LINK learn from yourselves in terms of openness and transparency?
For example, LINK enforcement arrangements you have mentioned
yourselves do not seem to come up to scratch, and they also decide
issues behind closed doors where they do not give any information;
whereas you as a Banking Code subject yourselves to an independent
review by Elaine Kempson (and I know she is leaving), but it is
an open and transparent process, including consumer groups. Given
the remark you made about customers having the right to know what
is going on, what advice do you have for us in that area of enforcement
and also disclosure of decision-making?
Mr Lemos: My view on that, Chairman,
is that I have been involved with the Banking Code for a long
time really more or less since the Banking Code Standards Board
started—I was one of its founding directors—and the
thing which has made the most difference to the success of the
Banking Code and why it still exists I suspect is exactly the
point that you make—that we do have compliance and enforcement
powers and we do use them and people know we do, particularly
the banks. That would be my general view. The arrangements—and
I think having the independent review was a great improvement
and the transparency that surrounds that and the fact that all
the submissions are published and all the responses to the submissions
are published and so on all seems to me an excellent development,
and I was a member of the Julius Committee that recommended some
of those things—that surround LINK I think are rather different
and perhaps Seymour knows more about them than I do. Those are
contractual arrangements of membership, so whether or not they
could follow the same approach . . .
Q399 Chairman: Let me make it simple.
On the issue of transparency for example—and I have mentioned
this before—if you go into a petrol station, you can decide
what petrol station to go into because it gives the price of petrol
per litre. If you go to a cash machine, you do not have that transparency
and, if there is a queue, you have to wait until you get up to
the machine, stick your card in and then find out what the situation
is. Given you say that customers have a right to know what is
going on, surely that goes against the issue of transparency.
Mr Lemos: There is a case for
signage on the machine before the customers put their card in.
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