RADIO 4 MONEY PROGRAMME ON CHARGES - 18th Feb 2006

[BankFodder]

I think that it is about Stephen

Maybe we will get a mention

[ToriaD]

Just had a look at BBC website and they seem to have forgotten to include us in their useful links for this programme!

[richardc]

An email to the programme?

[BankFodder]

Yes - and also refer them to the McNamara soundfile in the library which destroys the bank rep's argument completely.

 

Maybe include the soundfile as an attachment as well.

[Dammam]

You mean the bank rep HAD an argument????

He came over extremely poorly didn't he? No wonder they are settling out of court if that's the basis of their defence - "we're nice to students".

[Falkirk1298]

Very interesting piece indeed. The guy from the bank was completely stumped by the chap from the Govan Law Centre and indeed the interviewer pointing out that the CEOs of RBOS and Barclays had admitted that their charges were designed to cover all their bad debt costs, not simply the costs caused by unauthorised overdrafts.

 

Will have a trawl through the Finance Select Committee website and see if I can find Goodwin's quote - it would be gold dust!

[Falkirk1298]

Ah, here we are. This is the relevant part but the whole thing's worth a read. I think Fred Goodwin may have provided us with some very useful ammunition.

 

This is from the House of Commons web site, the address is from the report of the Treasury Select Committee into credit cards, but as you can see, they digressed!

 

*******

 

http://www.publications.parliament.uk/pa/cm200405/cmselect/cmtreasy/274/4102607.htm

 

et seq

 

Q391 Chairman: On to the default charges. This was covered last week, as you know, and PricewaterhouseCoopers stated that "The charges are most commonly incurred by consumers on lower incomes who have exceeded their (usually low) credit limit". Now we have asked you to look at this situation and I think every one of you has said that you are not producing any information. MBNA has said it is commercially sensitive. Barclaycard has said it is a genuine estimate. Sir Fred, you have said it has gone to the OFT. What is your latest position on default charges and information available within the public domain?

 

Mr Geoghegan: I have shown already in our response that we show the figure of 0.2% of our personal banking profits came from all charges.

 

Q392 Chairman: What are your personal banking profits?

 

Mr Geoghegan: We do not declare our personal banking profits. We do not show that.

 

Q393 Chairman: So that information is pretty useless to us. 0.2% of nothing we know about!

 

Mr Geoghegan: It is miniscule. It reflects how small it is.

 

Q394 Chairman: 0.2% of nothing we know about—

 

Mr Geoghegan: It is small.

 

Q395 Chairman: You are not coming up with any information. Mr Varley, you do not have any information either?

 

Mr Varley: Chairman, as you know, we said in our submission that we are in extensive dialogue with the OFT on the point that you raise. In due course I know they will publish their conclusions. I would endorse the point that the information you are referring to is commercially sensitive.

 

Q396 Chairman: Sir Fred?

 

Sir Fred Goodwin: In trying to provide some insight into this in the past on the point of whether this is particularly affecting the people on lower incomes or not, I had our people look at the figures which were charged last year which are, indeed, a small proportion of our overall income. If you take as a cut off point £14,000, those below £14,000 who paid these fees would represent about a sixth of the total fees levied. £14,000, just for data reasons, was one of the figures we could get to quite quickly. It does not suggest to me that they are particularly skewed towards people from lower incomes, they are incurred quite well across the board. The bulk of the fees tend to relate to late payment rather than over the limit.

 

Q397 Chairman: PricewaterhouseCoopers said that. Mr Flynn?

 

Mr Flynn: Chairman, consistent with other points that you are hearing, we do not release information to our shareholders.

 

Q398 Chairman: The issue for all of you in the public domain is that people think you have something to hide here. None of you is producing that and people are saying "Well, what about their accounting practices?" or "Is that a genuine estimate at the end of the day?" or "Are you fleecing customers in this regard?" I really think it is a public relations' disaster for you if you do not move on this issue. You mentioned the issue of the OFT. The Chairman of the OFT, John Vickers, wrote to me on 4 October and I will read out what he said: "Turning to default charges, we have obtained information from card issuers on default charge revenue and costs incurred as a result of default. We have found that different card issuers use different accounting policies and bases for charging, some of which, on our preliminary analysis, are of questionable validity under the regulations on unfair terms in consumer contracts. We have now begun a series of meetings with major card issuers. In some cases we have made requests for more information. Besides clarifying the facts, we are considering points of law." Has the OFT been in communication with any of you?

 

Mr Varley: Yes.

 

Q399 Chairman: And possible dubious accounting practices on this issue?

 

Sir Fred Goodwin: Absolutely not.

 

Mr Varley: There has been no such suggestion. We are in the middle of our conversation with the OFT at the moment.

 

Q400 Chairman: Questionable validity? No question of your validity, of your accounting practices?

 

Sir Fred Goodwin: I would have thought, as a matter of basic fairness, we should wait until the outcome of that inquiry and I am surprised at Mr Vickers issuing statements of that nature in the middle of an inquiry.

 

Q401 Chairman: This is a general statement he is making to us. The fact is that there is no information coming from the industry on this situation.

 

Sir Fred Goodwin: It is all going to Mr Vickers.

 

Q402 Chairman: Has anyone taken a test case in law against you on these default charges? I read in the paper on Saturday some barrister saying that such charges are unlikely to be enforced with the courts. Penalty clauses are legally void unless they reflect a loss the party enforcing them has suffered and this is hardly cutting edge law. "None of the dozens of banks who issue UK cards lose out if people follow my advice not to pay them." We would not suggest that here but we are just asking for the legal position. Has anybody challenged you on this?

 

Mr Flynn: No.

 

Sir Fred Goodwin: These are not penalty charges either, which is the point of law I think.

 

Q403 Chairman: You do not think, even after the OFT have looked at this, that you could be reducing the revenues you get from default charges? Could you put that in the public domain at any time? Could you envisage it?

 

Sir Fred Goodwin: I think the important issue is that consumers know what the charges are. These could not be more transparent than they are at the moment. They know exactly what the charges are and exactly how they will be incurred. I do not know that consumers know the cost of a tin of beans in Tesco but they know what the price of a tin of beans is and I think that is the relevant fact.

 

Q404 Chairman: Consumers do not know how this has come about.

 

Sir Fred Goodwin: They do not know how much profit Tesco make on a tin of beans so I do not understand why—

 

Q405 Chairman: We have PricewaterhouseCoopers in their Precious Plastic report saying that they are most commonly incurred by consumers on lower incomes who usually have a lower credit limit so there is an opportunity for people on those incomes to be penalised more than others.

 

Mr Varley: I would agree with the remarks of Sir Fred on that. Our data suggests that there is no close correlation between income and the incidence of fee paying.

 

Q406 Chairman: It is an issue for you to look at. It would help yourselves as organisations if this information was put in the public domain because then there is nothing to hide. You have been very open. I take your statements at face value but I think it is an important issue publicly. Do you see where I am coming from?

 

Mr Varley: I do.

 

Angela Eagle: These charges are meant to reflect the costs that you all incur in collecting money late in order to be legal. Why, with all of your different organisations and different practices, are the charges pretty similar across the board? If you were cynical, you might think there was a cartel operating.

 

Q407 Norman Lamb: Could each of you clarify this: is it your position that the charges are simply to cover the costs incurred or are you quite openly saying, "This is a charge. We make a bit of money on it and we were open about it so what is the problem?"? Mr Geoghegan, are the charges simply to cover costs incurred?

 

Mr Geoghegan: Yes, that is the intent. We manage those costs and the income works very close to that.

 

Mr Varley: In our case, we do not recover the costs. In other words, the charge is insufficient to cover the administrative costs.

 

Sir Fred Goodwin: It is intended to cover the cost but it is interesting as you look across the world there are similarities in the levels of cost that are passed on to people. If you look in the United States and in Europe, the charges are broadly similar.

 

Mr Flynn: The charges are to cover costs, similar to what Mr Varley said.

 

Q408 Norman Lamb: Do you all disagree with Price Waterhouse Coopers when they say, "Issuers are becoming increasingly reliant on over-limit fees as a source of revenues"? They have just plucked this out of nowhere?

 

Sir Fred Goodwin: I would disagree. It has been some time since that was written but as a matter of fact the proportion of our income that the fees represent is shrinking rather than growing.

 

Q409 Norman Lamb: At MBNA you charge £25 for late payment or exceeding the credit limit or if a direct debit payment is not made. That compares with Nationwide on £15. Is it simply that they are more efficient or are you making money out of it?

 

Mr Flynn: I do not know what Nationwide's costs are but as I said earlier the default fee is to cover the costs incurred by us.

 

Sir Fred Goodwin: I think you will also find Nationwide have a fee of £15 that the rest do not have. I think you need to look at the suite of fees and charges before you come to conclusions.

 

Q410 Norman Lamb: Mr Varley, on some of your cards you are charging £24 for these penalty charges. You say it is not sufficient to cover the costs. What cost is incurred if I pay my minimum payment five days late? What costs do you incur as a result of that? You are getting interest from me.

 

Mr Varley: The way I would look at it is that we should not think of the concept as being unusual.

 

Q411 Norman Lamb: What costs do we incur when I make my payment five days late on my Barclaycard? What costs do you as an organisation incur?

 

Mr Varley: We have administrative costs of trying to recover the amount in question.

 

Q412 Norman Lamb: I have paid it five days late. What costs do you incur? I have incurred a £24 fee. What costs do you incur?

 

Mr Varley: We will start our recovery procedures one day over. In other words, there is an administrative cost.

 

Q413 Norman Lamb: There is a computer generated letter, is there, that goes out?

 

Mr Varley: You can imagine that because we are trying to protect shareholders' money and because we are trying to ensure that—

 

Q414 Norman Lamb: Could I ask you perhaps to drop us a note to say precisely what the costs are that are incurred by your organisation when someone makes a payment five days late because the £24 has been incurred. [2]

 

Mr Varley: I understand your point and I am happy to do that.

 

Q415 Norman Lamb: Will each of you do that? I would be very interested to understand more about where the costs are going when someone simply makes a late payment.

 

Mr Varley: My only point of reservation is precisely the conversation we are having with the OFT at the moment and therefore I hear you. I understand your request. I just need to look at whether there are any restrictions on me in giving you that information but, subject to that, I would be happy to do so.

 

Sir Fred Goodwin: The costs are going to pay for all the people we have who pursue debt, collect debt, speak to customers and chase payments. The way these charges are arrived at is by taking these total costs and making some assumptions about the volume that is going to come through to arrive at the individual charges.

 

Q416 Norman Lamb: I would just like to understand more about the costs that you incur, if you could clarify that.

 

Sir Fred Goodwin: In shorthand, it is the buildings full of telephone centres and collection and recovery costs.

 

Q417 Norman Lamb: If I am paying five days late, I am paying for the costs of someone who is being pursued to court, am I?

 

Sir Fred Goodwin: Self-evidently, it is the same charge for everyone. They are not individually costed to each individual customer. That simply is not feasible. There are assumptions made about levels of activity during the course of a year which is why we may or may not recover all of these costs, depending on the level of activity. If the phone does not ring, we still have the people sitting there waiting to answer it.

 

Q418 Norman Lamb: It is interesting that the OFT appears to be saying that the use of different accounting policies and bases for charging, ". . . some of which in our preliminary analysis are of questionable validity"—in other words I am being charged for paying five days late. I am helping to pay for the whole of your recovery operation which might involve people who never make their payments. Why should it be incurred by me?

 

Sir Fred Goodwin: I think there is questionable validity in the results of the initial findings in an inquiry which is not yet completely promulgated in public.

 

Q419 Norman Lamb: Can I ask the three banks that run current accounts, on the issue of current accounts and charges for exceeding the overdraft limit: in the case of Barclays, you charge £25 per day up to £70 in a month. Your interest rate shoots up to 27.5% if I exceed my overdraft limit, perhaps by a very small amount. In the case of the Royal Bank of Scotland, it is £28 plus £30 for each further paid item up to a maximum of £90. Your interest rate is at 29.8%. I am not sure of yours.

 

Mr Geoghegan: I think you know. It is the same as the overdraft rate.

 

Q420 Norman Lamb: You do not increase your interest rate?

 

Mr Geoghegan: No.

 

Q421 Norman Lamb: What is the justification in you two increasing your interest rate and charging up to £90 a month for perhaps a small excess over the overdraft limit?

 

Mr Varley: On your small excess point, we have a buffer of £25 to protect customers against the very incident you refer to. In other words, if by mistake they go over limit we create a buffer to ensure that they are protected against that. There are two other points I would make. It is axiomatic that the terms and conditions that govern these issues have to be transparent and I believe in our case they are transparent. I think it is also axiomatic that customers understand that Barclays is expected to keep its side of the bargain and they are expected to keep theirs. I think customers understand that well.

 

Q422 Norman Lamb: Where do you disclose those charges to customers?

 

Mr Varley: In written terms and conditions, on the internet and in the branch.

 

Q423 Norman Lamb: Do you have a summary box?

 

Mr Varley: In a telephone centre. No, we do not have a summary box as such.

 

Q424 Norman Lamb: Would you consider that?

 

Mr Varley: Yes.

 

Q425 Norman Lamb: We are moving towards greater transparency on credit cards. You all sign up to the idea of exactly the same principles applying to credit cards?

 

Mr Varley: It is a fair challenge. The reservation I would have is we should not assume that precisely the same summary box should apply to every product in the financial services industry. It would be wrong to do that.

 

Q426 Norman Lamb: But it is clarity, is it not?

 

Mr Varley: The principle of clarity and transparency is something that we all honour. In our case in any event, we are looking at whether we should use summary box structures for other products. There is another thing that customers can do. Again, I think it is part of understanding their part of the bargain. They can create with us the capacity for an authorised overdraft. That comes at no cost to them. What they are doing thereby is saying, "I may go overdrawn. I need to agree with my bank up front what happens if I do" and that seems to me to be part of the grown up relationship that we have. It is a relationship based on a contract that says each side has to keep its part of the bargain.

 

Q427 Norman Lamb: Can I put to you an example given by the Consumers' Association? They write, "One of our members, a Barclays customer, realised he was about to go overdrawn and immediately transferred an amount out of his Halifax savings account. However, these funds did not clear for three days." This is an issue in itself which there has been quite a lot of criticism of. "As a result, he became overdrawn for a sum of £318 for three days, with the bank billing him £75 for charges." Is that fair?

 

Mr Varley: If the facts of the case—I do not know the specific case—are in accordance with our terms and conditions, then I believe it is fair, yes.

 

Q428 Norman Lamb: Given that it has taken you that time to clear—?

 

Mr Varley: Understand that there is a community of interest between us, the provider, and the customer. If in exceptional circumstances—I think the one you are describing is exceptional—if the customer is in difficulty, we are available to work on rescheduling. That is absolutely in his interests and in ours. We have dedicated teams of experts who are available at the end of a telephone or in a branch to do exactly that, to help customers who get into difficulty.

 

Q429 Norman Lamb: Is it possible for you to clear sums quicker than is currently the case?

 

Mr Varley: In the case of Barclays, five years ago we introduced something which we call instant banking. For the overwhelming majority of our personal customers, that means that they can get value on cheques before we get value. They present their cheques and we will allow them to draw against those cheques on the same day—in other words, before we have got value through the system. For most of our personal customers, the issue that you refer to does not arise.

 

Q430 Norman Lamb: But it does arise with some of them.

 

Mr Varley: It is very rare. We have tried to put in place a structure that enables the overwhelming majority of customers to be able to clear against uncleared cheques immediately.

 

Q431 Norman Lamb: Are any of you planning to increase charges? I was asking questions to Lloyds last week and they did not mention that they were just about to increase their charges for exceeding the overdraft limit. Are any increased charges on the way?

 

Sir Fred Goodwin: I would not be about to reveal that in public and certainly not in front of these guys. I do not think there is anything I am sitting on top of in the context of—

 

Q432 John Mann: Mr Flynn, some of your competitors are very concerned that if you all shared full data you would use it for predatory marketing. What safeguards would need to be in place to prevent that happening?

[gothicf0rm]

he says no one has ever challenged the banks on this. when was this committee meeting held and who is the name of the chair?

[Guest stephen]

has the radio 4 program been put in the lib forum?

[Falkirk1298]

he says no one has ever challenged the banks on this. when was this committee meeting held and who is the name of the chair?

 

Follow the link at the top of the article, it will give you all the information you need.

[BankFodder]

Stephen, hi. I emailed a soundfile to Dave and so I expect that it will go into the library soon.

 

I'll send you one directly now.

 

BF

[Dammam]

I think he skirted around the issue and really meant that it hadn't been challenged in a court of law. Although this is true, it obviously isn't true withing the fuller context of the question and certainly went against the spirit of the select committees' questioning.

Perhaps you could write to the chair of the select committee explaining that the banks have been settling out of court rather than having their charges challenged in law?

[BankFodder]

By the way, the programme was entirely about the initiative by Govan Law Centre to encourage scottish students to recover their charges from banks in Scotland.

 

Maybe someone can supply a newslink for this story.

[Guest stephen]

Cheers, Least i know how there going to try to defend there cost in court

 

Nice one BBA, forearmed is forewarned.

[Falkirk1298]

By the way, the programme was entirely about the initiative by Govan Law Centre to encourage scottish students to recover their charges from banks in Scotland.

 

Maybe someone can supply a newslink for this story.

 

http://news.bbc.co.uk/1/hi/scotland/4722288.stm

[Russe11]

Sir Fred Goodwin: Self-evidently, it is the same charge for everyone. They are not individually costed to each individual customer. That simply is not feasible. There are assumptions made about levels of activity during the course of a year which is why we may or may not recover all of these costs, depending on the level of activity. If the phone does not ring, we still have the people sitting there waiting to answer it.

 

 

 

Love it

[Russe11]

Sir Fred Goodwin: Self-evidently, it is the same charge for everyone. They are not individually costed to each individual customer. That simply is not feasible. There are assumptions made about levels of activity during the course of a year which is why we may or may not recover all of these costs, depending on the level of activity. If the phone does not ring, we still have the people sitting there waiting to answer it.

 

 

 

Love it

[gothicf0rm]

all we need to do is find one person who sued the bank before he did that performance infront of mps and he misled parliament

[gothicf0rm]

all we need to do is find one person who sued the bank before he did that performance infront of mps and he misled parliament

[Dammam]

In the radio interview, the Bank representative said that a large amount of work is done when someone surpasses their overdraft. They apparently have a team looking at spending patterns etc in order to decide whether to pay or bounce.

 

All very reassuring, but if this is the case why have so many of my cheques and DD's been bounced 1 or 2 days before my REGULAR payday which would have more than cleared the deficit?

My latest charges of £120!!!!!! account for 3 bounced DDs on the SAME DAY that money to cover them was paid into the bank and 1 DAY before my pay went in. So over 30% of my weekly wage has been taken because this 'trend & spending pattern team' felt that bouncing the payments was the preferred route to take.

It says in very small print on the web page -

 

"The start of the day is when we start processing. This is before any Lloyds TSB branches open."

 

I've found that all the bouncing activity takes place at midnight and it seems totally unfair that the banks should take action without giving the customer the opportunity on the same day of putting cash into the account straight away.

To ignore the fact that money to cover the debits has been going in regularly for many years previously is blatant profiteering if there is indeed a team looking closely at the account trends.

The time at which this process takes place and the manner in which it happens suggests EXTREMELY strongly to me that this 'team' consists of a computer running an automated system - surely not?

 

 

Since July 2002 (all the records I have at the moment) I have paid £3336 in charges for bouncing payments and exceeding the od limit. On the interest calculating spreadsheet, I am also due £600.29 at 8% apr for this period. I have excluded the £130.28 in overdraft interest charges which seem reasonable to my untrained eye.

I'm still looking through the figures, but at the moment it appears to me that 90%+ of all the bounced payments occur 1 to 2 days before my pay has gone into the account. Bad planning on my part certainly, but worthy of the equivalent of around 26% of my wage going out in bank charges over 2 & a half years?

I think not. I look at the figures above and I still can't believe them. No wonder it has been a struggle with tax, bank charges and council tax - I don't know how I've kept afloat.

[Dammam]

In the radio interview, the Bank representative said that a large amount of work is done when someone surpasses their overdraft. They apparently have a team looking at spending patterns etc in order to decide whether to pay or bounce.

 

All very reassuring, but if this is the case why have so many of my cheques and DD's been bounced 1 or 2 days before my REGULAR payday which would have more than cleared the deficit?

My latest charges of £120!!!!!! account for 3 bounced DDs on the SAME DAY that money to cover them was paid into the bank and 1 DAY before my pay went in. So over 30% of my weekly wage has been taken because this 'trend & spending pattern team' felt that bouncing the payments was the preferred route to take.

It says in very small print on the web page -

 

"The start of the day is when we start processing. This is before any Lloyds TSB branches open."

 

I've found that all the bouncing activity takes place at midnight and it seems totally unfair that the banks should take action without giving the customer the opportunity on the same day of putting cash into the account straight away.

To ignore the fact that money to cover the debits has been going in regularly for many years previously is blatant profiteering if there is indeed a team looking closely at the account trends.

The time at which this process takes place and the manner in which it happens suggests EXTREMELY strongly to me that this 'team' consists of a computer running an automated system - surely not?

 

 

Since July 2002 (all the records I have at the moment) I have paid £3336 in charges for bouncing payments and exceeding the od limit. On the interest calculating spreadsheet, I am also due £600.29 at 8% apr for this period. I have excluded the £130.28 in overdraft interest charges which seem reasonable to my untrained eye.

I'm still looking through the figures, but at the moment it appears to me that 90%+ of all the bounced payments occur 1 to 2 days before my pay has gone into the account. Bad planning on my part certainly, but worthy of the equivalent of around 26% of my wage going out in bank charges over 2 & a half years?

I think not. I look at the figures above and I still can't believe them. No wonder it has been a struggle with tax, bank charges and council tax - I don't know how I've kept afloat.

[Dammam]

In the radio interview, the Bank representative said that a large amount of work is done when someone surpasses their overdraft.

 

Incidently, according to PwC - over 80% of these charges are caused by insufficient funds - not over-limit charges.

 

Sorry, I'm having a thick day - I don't understand what you mean???

[Dammam]

In the radio interview, the Bank representative said that a large amount of work is done when someone surpasses their overdraft.

 

Incidently, according to PwC - over 80% of these charges are caused by insufficient funds - not over-limit charges.

 

Sorry, I'm having a thick day - I don't understand what you mean???

[BankFodder]

Bouncers

[BankFodder]

Bouncers