is any of this suitable to attach to
allocation Questionnaire
Oral Evidence
Taken before the Treasury Committee
on Tuesday 14 March 2006
Members present
Mr John McFall, in the Chair
Lorely Burt
Angela Eagle
Mr David Gauke
Mr Andrew Love
Mr Brooks Newmark
Mr Mark Todd
________________
Memoranda submitted by the
Banking Code Standards Board
Examination of Witnesses
Witnesses: Mr Gerard Lemos, Chairman and Mr Seymour Fortescue, Chief Executive, the
Banking Code Standards Board, gave evidence.
Q328 Chairman: Gentlemen, good morning and welcome to this inquiry into financial inclusion. Would you introduce yourselves for the record?
Mr Lemos: Gerard Lemos, Chairman of the
Banking Code Standards Board.
Mr Fortescue: Seymour Fortescue, Chief Executive of the Banking Code Standards Board.
Q329 Chairman: Good morning and welcome again. For the benefit of new members of our Committee, could you briefly give us some background information about the Banking Code Standards Board and the Banking Code? We have had quite a long and fruitful relationship, but there are other members of the Committee who would like to be filled in.
Mr Fortescue: Chairman, there has been a Banking Code in existence since 1991; the present one is the seventh. The Banking Code Standards Board itself has been in existence since 1999, so we are about six and a half years' old. The Banking Code covers current accounts, savings, personal loans, credit cards, ATMs and sets minimum standards which banks, building societies, credit card issuers in the UK must meet. The Code is widely regarded as a strong Code of Practice and we believe that we monitor and enforce it rigorously. Virtually the whole industry now subscribes. I am pleased to tell you that Marks & Spencer joined only a day or two ago, so we now have all major banks, building societies and credit card issuers. We are funded by the industry but independent of it, in the sense that seven of our ten directors represent the public
interest, and only three represent the industry.
Q330 Chairman: What parts of the industry do those three represent?
Mr Fortescue: They are the chief executives of the three major trade associations - the British Bankers' Association, the Building Societies' Association and APACS.
Q370 Mr Newmark: My question is to do with default charges. Last year you said that regarding penalty charges on credit chards, "If I were still a poacher I'd have a real job defending these charges. They do not appear to be related to the costs, they frequently hit those least able to pay them and they generate great resentment". What is your view on the level of default charges payable by users of basic bank accounts when there is insufficient money to pay standing orders and direct debits?
Mr Fortescue: This is a concern to us - certainly to the independent directors. Perhaps I should make clear that I was speaking, as I think The Guardian article mentions, in a personal capacity. For people who are new to banking, who may not understand the system very well, if a
direct debit for their gas bill comes in at a rather higher figure than they were expecting or a day or two earlier than they were expecting or their benefits are delayed and they get charged up to £30 or even more for a failed
direct debit that blows the household budget for the week; so this is a serious concern to us. The theory is that we are not an economic regulator; we should not set prices. Our role is to ensure transparency so people can make informed decisions. The weakness in that argument is that the information about those charges is hidden somewhere in the terms and conditions which people probably do not read properly when they open the account, and at the time the charge is applied they are in no position to shop around or go with another supplier. I think we would like to see two changes at the time of the next review: one, the independent directors would argue for a summary box (and this Committee has been very positive about summary boxes for credit cards). We think summary boxes should be there for current accounts as well, so the key features of the product would be pulled out in a standard format so people would be made aware that there was a penalty charge. That would be the first thing. The second thing would be that there should be pre-notification. For other account charges the Code says that they should be pre-notified, generally on the customer's statement 14 days before they are applied so that people can be aware of them, argue about them if necessary and avoid the situation of having charges on charges. We think that the pre-notification should apply to penalty charges as well, as indeed it does for some banks but we think that should be universal.
Q371 Mr Newmark: Circling back to what you said a bit earlier, you do not really see an expanded role for the Banking Code in the area of penalty charges. I get the sense you think the market should be setting that?
Mr Fortescue: I should also say that the OFT is on the case. In fact in this morning's Financial Times it mentions that the OFT is likely to cap charges on credit cards in the rumoured figures of £10 or £15 for a credit card default charge, and clearly this is a read-across from this into charges on basic bank accounts.
Q372 Chairman: That is a good aspect to bring to your attention because it was this Committee which referred this issue to the OFT and then referred it to the Competition Commission. This is an example of industry coming before us when we asked them about penalty charges and saying, "We don't make any extra money out of this"; and we asked, "How much do you make out of it?" and they unanimously decide not to give us that information. As a result we referred it to the OFT and we now see the result of that. It is just an example, Mr Fortescue, for you in your role to say to the banks, "Look you should be thinking in a forward way in this issue so that we do not need to go through these laborious routes", because at the end of the day we find ourselves in this position. Related to Angela's question about the review in 2008, if they were seen to be taking this offensive approach then things would be a lot easier and there would be no need to get into this situation.
Mr Lemos: Could I say one more thing in relation to your last question. There is a provision in the Code relating to customers in financial difficulties already, which says that they should be left with enough funds for their basic requirements.
Q373 Mr Newmark: I understand that. I think the point Mr Fortescue was making hits the nail on the head - it is those, where for some reason it is an extra cold winter and their fuel charge is suddenly a lot larger, who slightly go over and they are hit with a £38 or £26 charge. We are really focussing on the people who are on the lowest rung of society. That is really where our concern lies. For those people the £26 or £28 is a meaningful amount to them. That is where our concern lies. For those who just have two bank accounts there is this issue of off-set. I know that consumer groups have expressed concern that banks are beginning to offset one account for another, so if one goes overdrawn they effectively log onto another account to pay off debts. The problem arises sometimes even when a repayment plan has been agreed with the help of an impartial debt adviser. Would such action breach the Banking Code's requirement to treat customers in financial difficulty positively and sympathetically?
Mr Fortescue: The Guidance on this point says that banks should leave the customer with sufficient money for day-to-day expenses, taking into account individual circumstances. We are aware of instances where that has not happened; where the bank has grabbed all the money when it is paid in after the salary date. We have got a very good liaison with a lot of money advisers and Citizens' Advice Bureaus who have frequently told us of this. We have taken them up with the bank concerned and been able to rectify the situation.
davesuecpl v Woolwich 
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