Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 120 - 139)

TUESDAY 5 JUNE 2007

MS ANGELA KNIGHT CBE, MR PAUL CHISNALL, MR IAIN CORNISH AND MR ADRIAN COLES

  Q120  Mr Todd: Is there any particular reason why customers would be told that their account had actually been transferred or the value of their account had been transferred to the reclaimed fund?

  Mr Cornish: I think you would want to avoid that. There is no reason why you should have to tell them that. It would make no practical difference. They would be able to receive their money in exactly the same way as someone who has had an account that was not dormant.

  Q121  Mr Todd: Is effectively what is going to happen that you would maintain a shadow account but the value of the sum in it would be transferred to the reclaim fund and in all other senses the account would continue to exist as it had done; so any interest earned would be accrued to the account and you would maintain the records precisely as if it had been a normal account?

  Ms Knight: That is correct. Of course, the reason it has been transferred is because the financial institution cannot find the customer in the first instance, but the records will stay. If it is a bank, they will stay with the bank; if it is a building society, they will stay with the building society.

  Q122  Angela Eagle: I am wondering, Mrs Knight, about your issues on flexibility and defining dormancy. Is it not a recipe for complete uncertainty if you have flexibility? Is it not better to undertake a scheme such as this with a pretty firm definition of what dormancy is?

  Ms Knight: There are two choices. You are absolutely right. You can say, "Okay, an account will be dormant and be declared dormant if no transaction and no transaction only has taken place in 15 years", and if that is the case, then, as the Irish experience shows, they are transferring money to dormancy where they, the bank, know perfectly well who the individual was. The individual may have telephoned them, they may have come into a branch and had a chat, but because a transaction had not taken place, they still had to declare that account dormant, and that is not reasonable.

  Q123  Angela Eagle: Are you talking about a more flexible definition of dormancy?

  Ms Knight: Absolutely.

  Q124  Angela Eagle: By that do you mean more sophisticated rather than simple? If there is uncertainty as to what constitutes dormancy, that is going to throw the whole system into disarray; but if you have a more sophisticated definition of dormancy, say 15 years plus two attempts to contact, or something, surely that provides you with the certainty rather than this idea that dormancy can be defined by each financial institution to suit its own purposes?

  Ms Knight: We are not looking for something as open-ended as that. What we have said is that a financial institution should be permitted to take into account other forms of customer activity in determining whether an account is truly dormant, and examples of that we gave—correspondence, telephone calls, e-mails and, of course, as far as the building societies are concerned voting at an AGM. We can come up with a list, but I think that it is quite interesting to see what it is that some customers do; and that is that they will have an account and they do not actually touch that account, in the form of a transaction, for a long period of time. That does not mean that they do not know it is there; it does not mean that the bank does not know the name and the details of that individual.

  Q125  Angela Eagle: But surely that sort of individual would respond to your reunification process. If I had an account that I had not touched and the bank telephoned me or sent me a letter saying, "If you do not claim your account, it will go into dormancy and the Government will give the money to charity", I might do something about that.

  Ms Knight: Yes, but I am exactly fine about that. That is why we say we want that ability to have a definition which does not just say, "You must do a transaction." As long as there is a contact and the contact has been responded to, we think that that is fine, but that means that the account should not necessarily be pushed into dormancy.

  Mr Coles: But we will not be writing to customers telling them that their account is going into dormancy and the Government will somehow get hold of that money. The essential feature is that we will be reassuring customers that the money is always theirs.

  Mr Chisnall: But let us be clear, the Irish legislation is very inflexible. Unless there is a transaction on the account, at the 15-year point the money has to be transferred. So do you end up with correspondence that says, "We need you to come and put a pound into this ISA account, otherwise the money will be transferred." We are trying to avoid that situation because it is very clear that there are saving accounts that people have, but if you are confident that the customer is at a current address, that other accounts are being serviced from that address (the customer might be paying a mortgage from that address) and you have the confidence in that address that you are still sending an annual statement on that account, then I think you can be reasonably certain that the customer is aware of that money but, despite the fact that you have written to them saying, "We need you to come in and make a transaction on this account", the customer decides: "Why should I be obliged do that?" People have busy lives, they do not respond to correspondence in that way, and all we are suggesting is that, if we look at the basis of the Irish Act and want to take what we think is appropriate and want to deal with what we think perhaps could have been done better with the benefit of hindsight, then actually striking the legislation on a basis that permits institutions to take account of the knowledge that they have of their customer actually would be a sensible thing to do.

  Q126  Angela Eagle: What benefits are there to banks as institutions and other financial institutions which collect savings deposits to having dormant accounts? They just use the money and make profits on it without really incurring any costs. Is that the case?

  Mr Cornish: We are a building society, so any profit that we make is ultimately to the benefit of our existing members. But, I think, getting that in some sort of context, we have a £17 billion balance sheet. We are talking about a maximum of £12 million of dormant money. We make, at the very most, 1% on that, so we are not making huge amounts of profits for our money on anything which is currently defined as dormant.

  Q127  Angela Eagle: And for non-mutual commercial—

  Ms Knight: The amounts are, in effect, immaterial in the scheme of things, the numbers of the banks, but perhaps there is a point worth making that, of course, one of the reasons why we have been looking at some aspects of this legislation is because there does need to be a legal release from the accounting standards for this money. So, that is one of the reasons why we do need some sort of legal change to the banking standard which makes banks show what the amount of money is and is a separate identifiable pot to be transferred across, but in terms of the totality it is actually a very small amount.

  Q128  Angela Eagle: What percentage in general of the commercial banks' profits or turnover are these sums likely to be?

  Mr Chisnall: Very, very small.

  Q129  Angela Eagle: One, two?

  Ms Knight: No, much less than that.

  Q130  Chairman: It would be quite handy for a rainy day though.

  Ms Knight: It would be quite handy for a rainy day no doubt for those who are receiving the money in terms of good causes, but, indeed, particularly for the individuals who find their lost account, Chairman.

  Q131  Chairman: Mr Cornish, you say you are looking at 1%. That is not a very good deal, is it, a 1% return on your 12 million? It is not a very good investment, is it?

  Mr Cornish: That would be the maximum amount of profit we would make. The amount of interest paid to the customers concerned would be higher than that.

  Q132  Chairman: Have you been doing anything for that 1% profit up to now?

  Mr Cornish: Essentially, the nature of a building society or the nature of any mutual is that any profits that are made are, in some shape or form, returned to the membership, either in the form of better interest rates or stronger reserves.

  Q133  John Thurso: Have you any idea of the average size of the account that we might be talking about, or is that a meaningless figure?

  Mr Coles: The National Consumer Council Commission on Unclaimed Assets market research that was in their evidence suggests that over half of all lost accounts or inactive accounts have less than £10 in them and a further quarter have £49 or less, and that seems to corroborate the sort of information that building societies are giving us.

  Mr Cornish: Our own figures are 75% of accounts have less than £10 and 95% have less than £100.

  Ms Knight: We do not have the specific answer, we just know that the overwhelming majority are likely to be less than £100.

  Q134  John Thurso: So what we are talking—

  Ms Knight: Large numbers of small.

  Q135  John Thurso: In the totality of the big number we are actually talking about a vast number of very small accounts?

  Ms Knight: Correct.

  Mr Coles: And a very small number of larger accounts.

  Q136  John Thurso: Thank you.

  Ms Knight: Intuitively, of course, that is correct, that it is small amounts of money which people say, "Oh well", they will walk away from.

  Q137  John Thurso: I have got one myself actually.

  Ms Knight: I think we are all looking!

  Mr Mudie: That explains the 12 million straightaway.

  Chairman: You have not declared an interest here!

  Q138  John Thurso: In January the BSA said, "We will be contacting customers to make sure that they have not lost touch with their savings. This will involve us writing to millions of people in a way never done before." Can you confirm that that is in fact taking place and that your members intend to write to all local customers prior to their accounts being transferred?

  Mr Coles: It depends whether or not the building society has already received a response, any sort of communication, saying, "Not known at this address" or, "Gone away", and for fraud prevention reasons you would not keep sending confidential information about accounts to those sorts of addresses. Then, on those that do not come into that category, you take different approaches. For accounts with less than £10 in you do not try as hard as you would with an account with, say, £25,000 in. It is not always universally welcomed when you do contact people. We have had an example with one building society recently. They were delighted to have found a customer with whom they had had no contact for many, many years who had £27,000 in the account. When the secretary of the society rang the individual up she was extremely annoyed that the building society had used a private detective to track her down and could not understand why the building society needed to know where she was. She knew where the building society was and that was all that was important. So, it is not universally welcomed, the tracking activity that building societies undertake, but we will be doing our best to get into contact with every lost account holder, even if it causes annoyance to some customers.

  Q139  John Thurso: I am slightly taken aback by the idea that somebody does not want to know where their £27,000 is?

  Mr Coles: They knew where it was. The building society did not know where she was. Their efforts to track her down caused considerable annoyance to her.


 
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