Examination of Witnesses (Questions 820-839)
MR DYFRIG
JOHN, MR
GARY HOFFMAN,
MR JAMES
CROSBY, MR
MIKE FAIREY
AND SIR
FRED GOODWIN
18 MAY 2006
Q820 Chairman: Which banks take longer
to clear a cheque into a basic bank account than they do into
a standard current account, and how long do they take?
Mr Crosby: We do.
Q821 Chairman: Do what?
Mr Crosby: We take longer to clear—
Q822 Chairman: How much longer?
Mr Crosby: I think it is six versus
four.
Mr Fairey: We are the same.
Mr Hoffman: We have added a day
to do some checks.
Mr John: The same. We treat customers
exactly the same.
Q823 Chairman: Why do Barclays and
HBOS take longer?
Mr Crosby: We, very regrettably,
changed from it being the same, essentially, because we were suffering
very significant levels of fraud on the back of cheque clearance,
and, to be very straight about it, much larger levels of fraud
than any of our peers because we have got a much larger volume
of such accounts; with more than half the total social banking
universe we are going to have more than half the total fraud.
We found that by the device of changing from four to six it has
reduced fraud levels by 80% in those areas, and these are not
insignificant sums of money. We would not have done it otherwise.
We would love to be in a position to get back on the same footing,
and I think that the best opportunity for that will come as and
when the industry as a whole brings faster cheque clearing across
all accounts, because then we are talking about one or two days.
Mr Hoffman: This is a difficult
topic and—back to the discussion we had earlier about identification
and verification—by their very nature these types of accounts
are easy to open because we are flexible about the identity that
we take. That means that by their nature they are more susceptible
to fraud. We have not extended the clearing cycle per se
but what we have done is taken an extra day to look at the entries
on these accounts because we have had experience of fraud on them
just by their very nature. So it is back to the tension we were
talking about earlier on.
Q824 Chairman: It would be a good
aspiration if you could get to the same level as the other three
banks.
Mr Crosby: I do think it is going
to be a function of improving clearance systems generally. That
is a separate issue.
Q825 Chairman: On cheque clearing,
when are going to make progress on that as an industry, as a whole?
In terms of clearing cheques.
Sir Fred Goodwin: Again, I think
the payments system taskforce is actually making quite good progress
at the moment. That was in the last report I had from it on the
availability of other payment systems, not just based on cheques.
Q826 Chairman: What are we talking
about—2009?
Sir Fred Goodwin: I thought it
was sooner than that. There is an element of faster electronic
payments in that and that jumps over a number of the fraud issues—leaving
aside the fact that basic bank account cheques do lend themselves
to fraud, along with some of the other systems.
Mr Hoffman: The implementation
date for telephone and internet is currently scheduled for November
2007.
Q827 Jim Cousins: I wonder if I could
ask Mr Crosby what was the nature of this fraud? Were there systematic
patterns of fraud?
Mr Crosby: I am happy to write
to you with further details.
Q828 Chairman: Maybe you could write
to us as well.
Mr Crosby: It is, basically, to
do with the lack of detailed checking at the start that is necessary,
and the lack of governing of data. We are not saying, in any sense,
that people who want these products are necessarily more fraudulent
we are just presenting, inadvertently, an opportunity to fraudsters.
Q829 Jim Cousins: I would be interested
in your views about this because, of course, you are one of the
people who detected the tax credit difficulties, and I would be
interested in your views.
Mr Crosby: I shall definitely
write to you.
Q830 Peter Viggers: Anyone who is
complaining about the speedy transmission of banking in this country
obviously has not had a French bank account! I want to ask you
about something completely different, which is the fees charged
for unpaid direct debits. How do you determine the level of default
charges you impose on basic bank accounts for unpaid direct debits?
Let us start with Sir Fred.
Sir Fred Goodwin: Based on the
costs we incur and an estimate of the number of such items there
are likely to be over time. The charges are the same across all
of our accounts.
Q831 Peter Viggers: In that case,
how is Barclays able to halve its charge from £30 to £15?
Mr Hoffman: We just took a pragmatic
decision that because of the limited means of the typical cash
card account customer we would reduce the fee to £15. We
did the same for students because it is an entry level account,
too. It was just a pragmatic decision recognising that it would
increase the amount that we lose on these accounts.
Q832 Peter Viggers: You have costed
that and, presumably, it must cost the bank some amount of money.
Mr Hoffman: Of course.
Q833 Peter Viggers: You will appreciate
that consumer groups are quite interested in this area because
of the disproportionate amount that will fall on those on low
benefits. Have you examined how the level of default charges on
your basic bank accounts compares to benefit levels? Is that something
you take into account?
Sir Fred Goodwin: I think, in
common with a great many goods and services in the country, they
have an individual price and the impact they have is relative
to the wealth of the people paying them. In the same way as getting
on the bus is a particular price for a particular journey, then
the charging structure which applies across our industry is, by
and large, fixed. So the more well-off you are the smaller the
proportion of the charges to your net worth.
Q834 Peter Viggers: You will have
seen that consumer groups have suggested there should be a small
buffer zone of £10 or £20. Have you examined this? Have
you costed the possibility of implementing it?
Mr John: We actually operate so
we know how much it costs. It does cost, obviously, quite a lot
of money, as does the fact that we do not charge for returned
standing orders or returned direct debits. We see it as a totality
in the package that we offer. I come back to what I said earlier,
that I think it is about how you want to position this in a competitive
environment, and we think that this offers some competitive advantages;
other competitors will do otherwise, but we see this as being
one of the reasons why I feel that we have made good progress.
Q835 Peter Viggers: Now HSBC and
Lloyd's TSB operate a "Three strikes and you're out"
rule and reserve the right to close the account after three failed
payments. Would you just explain how that works in practice, please?
Mr John: Indeed. Basically if
you have three returned direct debits or standing orders we would
have a conversation with the individual and see what the fundamental
problem is. If we believe that there is really—if I use
the word "abuse" I do not mean it in a threatening sort
of way, but I think people have a responsibility to look after
the funds they have available, and if I add on to it the 10 pound
buffer zone which we also give them, so there is a little bit
of leeway there, then we have a conversation with them and we
ask them to close their account.[2]
36
Mr Fairey: Our process is very
similar. In practicality we have closed very few but we do operate
very similarly to HSBC. We have two accounts at the moment, one
is for people just receiving basic benefits and the other for
people on benefits but other forms of payment. We are merging,
as we progress through this year, those accounts together such
that we will have one offer which will provide a 10 pound buffer
zone, and we also have a one excess free so we do not charge for
the first excess.
Q836 Chairman: Maybe I could add
to that and follow on from the buffer zone, and ask a question
concerning the Bank's right of set-off. We have had information
from the Citizens' Advice Bureau on that and we are aware that
the Banking Code is silent about the right of set-off. The consumer
groups have expressed concern about this right of set-off from
basic bank accounts in appropriating money from accounts to pay
for other debt, sometimes even when a repayment plan has been
agreed with the help of an impartial debt adviser. Can you tell
us what your Bank's policy is on this?
Mr Hoffman: We would encourage
customers to talk to us as soon as possible if they are into difficulties
and we would come to an arrangement, and if they have a repayment
plan in place then we would not exercise our right of set-off.
We would stick to the arrangement and allow them to continue run
the Cashcard account to pay for basics, for example.
Sir Fred Goodwin: I was a bit
surprised by this one, Chairman, on the basis that the right to
set-off itself is statutory but typically for basic banking customers
you tend not to have other accounts with proceeds in them to set
off, and certainly any time we agree a repayment plan with someone
we adhere to it, so we were trying to find out a bit more about
this.
Q837 Chairman: It is the Citizens'
Advice information to us and they say that "cases reveal
that banks are removing income to satisfy outstanding debts and
this is because the customer may have to make repayments to other
creditors who have greater priority, such as paying for rent,
mortgage, council tax or fuel", but we will go back to Citizens'
Advice and exchange information on that. Could I turn to a particularly
Scottish issue and that is bank arrestment, because Citizens'
Advice Scotland have contacted us on that and they say that this
is the most commonly used type of diligence in Scotland, I think
155,000 were carried out in 2003, whereas in England the equivalent,
which is a third party debt order, are hardly ever used, only
about 6,000 were used in the past year, and they mentioned to
us that this could affect people on receipt of housing benefit
where arrestment risks eviction; disability benefits where arrestment
may prevent paying a carer, and childcare elements of tax credits
where arrestment can jeopardise childcare and therefore employment.
Could you give us your comments on that?
Sir Fred Goodwin: There is discussion
going on just now with the Scottish Executive, but the bulk of
arrestments are not served by the banks. The banks have to give
effect to the arrestment but the arrestments are served by other
creditors. So it is not very high up our list of priorities. The
account is there as far as we are concerned so the arrestments
are coming in from other people like council tax and so on.
Q838 Chairman: But the point Citizens'
Advice Scotland make is that there is a reluctance to look at
solutions, and we are not saying it is the banks here but overall
there is a reluctance to look at solutions, and they are saying
that this leaves vulnerable groups at risk of eviction or job
loss.
Mr Crosby: I think it is something
we are happy to work with the Scottish Executive on to resolve
but, quite frankly, from the point of view of banks it is relatively
rare that we would do it, and in my experience it tends to be
better off customers who have quite large balances. I am not trying
to run away from responsibility for this but it is initiated largely
from outside the bank industry and I think we do play our part
in resolving it, because that is a large number and it is only
a tiny proportion of that that we would be associated directly
with.
Q839 Chairman: They make reference
to the new Bankrupcty and Diligence proposal in Scotland where
there is a protected minimum balance of £370, but whilst
agreeing this is a significant improvement in protection, where
benefits exceed £370 the money could be arrested, and there
is an issue there.
Sir Fred Goodwin: This is a long-running
saga. There are other differences between how arrestments at a
very administrative level are processed in England versus Scotland,
and this has been running for many years with the Scottish Executive,
so it is not for the want of engagement.
Chairman: But it is an issue that still
has to be attended to. It still affects vulnerable consumers.
2 36 Note from Witness: If a standing order
or direct debit is returned unpaid, the customer is reminded that
overdrafts are not allowed on BBAs and that their account will
be closed if the situation reoccurs. The same happens if a second
item is returned unpaid. If a third item is returned unpaid, and
the previous two returns occurred within the last 16 months, the
customer is notified of our intention to close the account. If
the 16 month time frame elapses then the process will start again. Back
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