Banking Crisis - Treasury Contents


Memorandum from APACS

1.  INTRODUCTION

  THIS RESPONSE IS PROVIDED ON BEHALF OF APACS' CARD PAYMENTS GROUP (CPG). CPG IS THE INDUSTRY ASSOCIATION OF FINANCIAL INSTITUTIONS WHO ACT AS CARD ISSUERS AND/OR ACQUIRERS IN THE UK CARD PAYMENTS MARKET. IT IS RESPONSIBLE FOR FORMULATING AND IMPLEMENTING POLICY ON NON-COMPETITIVE ASPECTS OF CARD PAYMENTS. CPG MEMBERS ACCOUNT FOR THE MAJORITY OF DEBIT AND CREDIT CARDS ISSUED IN THE UK, ISSUING IN EXCESS OF 67M CREDIT CARDS AND 71 MILLION DEBIT CARDS, AND COVERS THE WHOLE OF THE PLASTIC TRANSACTIONS ACQUIRING MARKET.

  CPG IS THE AUTHORITATIVE VOICE ON CREDIT CARD MATTERS AND HAS A UNIQUE MANDATE TO AGREE ISSUES RELATING TO CREDIT CARD POLICY, INCLUDING LEADING THE INDUSTRY'S RECENT DISCUSSIONS WITH BERR IN RELATION TO THE CREDIT CARD SUMMIT. WE WELCOME THE OPPORTUNITY TO PROVIDE COMMENT TO THE TREASURY COMMITTEE IN RESPECT OF THIS INQUIRY.

2.  EXECUTIVE SUMMARY

  APACS and its members believe that recent years have seen significant improvements in the areas of transparency and responsible lending, which have played an important role in ensuring that customers better understand credit cards, including how products work and how they can get help should they come across financial difficulties.

  The consistent aim has been to raise standards across the industry via self-regulation, in the form of best practice guidelines and/or additions to the UK's Banking Code, the industry's voluntary code that sets standards of good banking practice.

  We believe that such strong improvements in the interests of customers are key factors to be considered within a review of the "Banking Crisis", as they will undoubtedly have led to tangible improvements around a customer's ability to borrow responsibility, in parallel with the lenders commitment to lend responsibly.

3.  TRANSPARENCY—THE CREDIT CARD INDUSTRY'S COMMITMENT

  This was a core focus of the Treasury Select Committee in 2003-04, with a strong message that there was a need to significantly improve the levels of transparency in the credit card industry. Today sees a continuation of this robust debate with a broad range of stakeholders, including consumer groups, politicians and parts of the media.

  Examples of the industry's commitment to improving transparency, over and above any regulatory/legislative requirements, include:

    —  Summary Boxes—helping consumers to make informed borrowing decisions and to compare products, enabling at-a-glance information such as APRs, interest-free periods, minimum repayments and charges. Summary Boxes now also cover credit card cheques and pre-paid cards.

    —  Health Warnings—key information for customers, such as on credit card statements, explaining the impact of only making the minimum repayment on a regular basis.

    —  Best Practice Guidelines—developed for the industry, with guidelines covering areas such as "credit limit increases" and the provision of "credit card cheques" and are encompassed in the Banking Code.

4.  RESPONSIBLE LENDING—DEVELOPMENTS IN DATA SHARING

  The credit card industry has a long established commitment to responsible lending. The core message will always be that it is in nobody's interests to lend money to customers who cannot afford to repay.

  Data sharing has, for many years, been at the heart of the credit industry's commitment to responsible lending. APACS and its members have championed improved data sharing in the credit card industry. It is also imperative that such data is used effectively.

  Examples of such initiatives include:

    —  Sharing Positive Data for Credit Card and Loan Portfolios—this commitment was made following extensive discussion across the APACS/BBA membership, with all such data being shared by the end of 2005, to the extent allowable under UK law.

    —  Credit Card Behavioural Data Sharing—a very significant initiative, relating to sharing additional data such as details of minimum payments and cash advances, in order to help identify and assist customers showing the early signs of financial difficulties—a number of APACS members commenced sharing such data in December 2008.

    —  Non-consensual Data Sharing—active industry engagement in BERR's Expert Group, examining the case for the sharing of such data relating to accounts opened before the existence of standard Data Protection Act notification/consent clauses.

    —  The industry remains fully committed to engaging with Government around other data sources which may add value for lenders and consumers, including student loans, council tax payments and utilities.

    —  Early Stress Management—aligned to commitments made in the revised Banking Code ("early intervention"), work is ongoing to improve how the industry can identify and help customers showing the early signs of getting into financial difficulties.

    —  Data Sharing Governance—underpinning all of these data sharing initiatives is the industry's ongoing commitment to a strong governance model, so that data is shared and used appropriately.

5.  CONSUMER HELP & GUIDANCE

  This is an area where there has been a considerable amount of activity in recent years, with a broad spectrum of proactive and customer focussed work, such as:

    —  Aligned to the Banking Code, the industry is committed to treating customers in financial difficulties sympathetically and positively, also informing them of sources of free independent money advice.

    —  APACS has developed www.choosingandusing.com to help customers understand how credit cards work. Includes downloadable guides such as "choosing a credit card", "understanding your credit card statement" and "checking your credit record". A "ready reckoner" also enables rapid estimates of repayment timeframes and interest costs.

    —  At an industry-level, APACS has worked closely with various stakeholders, including the FSA, the Personal Finance Education Group and the Government's Basic Skills Agency, to ensure credit cards are suitably covered in work on financial education and capability. This important work of engaging with stakeholders will continue in 2009.

    —  Substantial support provided to free debt advice services by APACS members, including the Money Advice Trust, Consumer Credit Counselling Service and Payplan.

    —  Financial Fringe—APACS continues to work with other personal finance trade associations and parliamentarians under the banner of the "Financial Fringe", where deliverables in 2008 included an advice pack for MPs to use in their surgeries.

    —  The industry believes it has been vitally important to play a role in the work of the Government's Over-indebtedness Taskforce and supports the strong progress made against the Government's seven key strategic objectives. Going forward, the industry will continue to engage with Government around such matters in the broader context of the recently announced Lending Panel and its work-streams.

6.  ENGAGING WITH BERR—THE CREDIT CARD SUMMIT

  APACS has welcomed the recent opportunities to engage with Government in respect of the Credit Card Summit held on 26 November 2008. This presented the industry with some challenges around key areas identified by BERR and positive outcomes were delivered in very tight timeframes.

  Two core areas of change were agreed:

    —  Risk-based re-pricing: an agreed "Statement of Principles", providing additional customer choice and transparency around such decisions. These were implemented with effect from 1 January 2009.

  It is important to highlight that APRs will not necessarily fall in line with falling base rates. This is because of the way that credit card lending works, where the risk of lending has not fallen and may have actually increased. A credit card APR is not actually an interest rate; it represents the total cost of credit being granted. An APR will include all credit card fees and charges, as well as the costs of operating an open-ended line of credit, along with the costs of bad debt and fraud. Base rates are only one factor in the level of an APR.

    —  "Breathing Space": an immediate commitment across the industry to provide some forbearance for customers who come across financial difficulties, allowing them time to engage with not-for-profit debt advice agencies in order to agree an appropriate way forward.

January 2009





 
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