Article in Credit Today, April 2007
By Heather Greig-Smith View PDF version
As the Treasury select committee prepares to quiz institutions on the future of free banking, Heather Greig-Smith meets chairman John McFall It is the day before the Treasury select committee announces it will investigate the future of ‘free’ banking. In his office at Portcullis House inWestminster, committee chairman John McFall has many reports laid out on tables, extracts from which he refers to as he talks.
“Free banking? This is the spin of all spins – I think Downing Street will be going to the banks and asking how they do it,” he laughs. “Collectively, the banks make a profit of around £37bn and they’re calling this the end of free banking. Something doesn’t add up here.”
McFall often refers to people he has met in his research: the over-indebted constituent paying back his cheapest rate loans first; the post office in Liverpool where 40 per cent of people were paying to use an ATM instead of taking free withdrawals from the counter; and his own experience in being bombarded with PPI sales information by a bank.
As chairman of the influencial committee since 2001, the ex-school teacher and MP for West Dunbartonshire has called many banks to account. In November the committee produced three reports on financial inclusion and in December McFall negotiated the provision of 600 free cash machines in lower income areas.
The committee has been criticised in the past for its exacting approach, which has led to infamous revelations such as that of Barclays Bank chairman Matt Barrett, who said he advised his children not to use credit cards because they were too expensive.
McFall admits he is passionate and that it is his job to push negotiations but adds that his door is open if people want to talk to him. “If you’re going to take a public policy role you have an obligation to discuss things. I’m always available for people to come and see me.”
He gestures at the three squashy armchairs in front of a curved window overlooking Parliament Square. “I’ve had many people sitting here – the captains and luminaries of the industry. They wouldn’t want to let anyone know they are here, but I’ve had decent discussions with them.When you sit down and talk to them often you can find a common view.”
One bank chief executive privately told him it was right the committee was pushing for the next Banking Code Standards Board mystery shopping survey to be made public.Yet while some progress has been made on financial inclusion by the banks,McFall says it is erratic. “There are some that are good and some that are bad. There’s no doubt if you look at the mystery shopping that some banks have
regressed and other banks have progressed. That’s why publication is important.You can’t get meaningful progress without full information and disclosure.”
He is pleased that HBOS has recently completed a financial inclusion report – something he says all banks should do. Barclays is also praised for its work with credit unions in areas where an institution is needed but the bank doesn’t feel it can provide the service.
In discussions such as those on the provision of free cash machines, McFall says everybody is helpful to begin with but there are ‘red lines’ around areas they are not willing to go. “When you get to the red lines, a job like mine is to cajole and encourage people, maybe hassle, to try and get something done. I bring out my political skills as best I can in that.”
It does work:more than 350 of the machines have already been installed. “Believe it or not, we did get a unanimous deal.”
McFall says banks need to look forward and see people who are currently financially excluded as valuable future customers, a strategy he says has been successful in America. “They saw it as a loss leader for a few years but if they could get these people into the financial community they’d be making money out of them.”
He is unsympathetic about the media storm now whirling around penalty charges because he feels it could have been avoided. “A few years ago I asked the banks specifically about their penalty charges because to me they seemed all to be a rounded-up figure – £25, £30, £35.To a bank, they didn’t give us any information and our committee referred it to the OFT.”
He adds: “They’re in a bit of a jam because of that. If the banks and financial institutions would look ahead and be open and transparent then maybe we wouldn’t be in this situation. I think that’s an enduring lesson for them: look ahead.”
Despite his passion for financial inclusion, McFall would rather that tackling these issues was done voluntarily. “I certainly wouldn’t favour any legislation because it can be heavy handed and, second, it can be set in stone and that sets the barrier low.”
McFall disagrees that the country is facing a debt crisis, but says there is a real issue of financial education and financial capability that is not confined to one section of society. “In many cases even highly educated people find it hard to put a plan together to pay their debts off in a sensible way.”
McFall adds that it shouldn’t all be down to the banks to make sure individuals don’t get into horrendous debt. “Our attitude to credit and debt has changed. Deferred gratification has given way to instant gratification and that’s where some people get into real problems.”
He adds: “It’s not a case of banks being bad, customers being good, it’s a balance. But, for there to be responsible lending there has to be the fullest transparency.”
In this vein, he is keen on there being improvements to data sharing, saying reluctance over threat to competition is not a good enough argument against it. “If there’s a big risk then that risk has to be eliminated and I think data sharing is the way forward.There is still a distance to go in that.”
He has also asked the banks for a buffer zone for people who go overdrawn from their basic bank account, saying high charges can quickly sink consumers who only have a few hundred pounds to deposit.
In 2003, the committee investigated credit cards and was successful in changing some of what it said were the problems with the industry. It fought for the introduction of summary boxes on statements and a standardised warning against making only minimum repayments.
“Someone could have 40-50 credit cards on the go at any one time if they’re making only minimum repayments,” says McFall. “If they’re making minimum repayments, they’re under the radar.”
Another issue of concern for the committee was the lack of a single method of calculation of APRs, something that still hasn’t been completely resolved. McFall calls it an “absurd situation” – and says the same about the number of different ways interest is calculated.
“There are 10 or 11 different ways of calculating interest, which are largely unknown to the consumer. The organisations would say that’s a competitive issue, but how can it be a competitive issue if the customer doesn’t know about it?”
Again, he says financial institutions should be looking at this. “If more was done I think that would help counter some of the criticism that banks and credit cards come in for when we have these tragic cases and people build up dangerous levels of personal debt.”
The failure of the banks to respond fully is a recurring theme forMcFall, who cites payment protection insurance (PPI) as another example. “We highlighted serious concerns about PPI and they’re still live now.The industry is a wee bit slow at times to get its act together, particularly when it finds itself in a ‘default’ situation.”
McFall has had his own PPI experience, receiving eight letters from his bank when he took out a loan. “I put them all in one envelope and sent it back to them,” he chuckles.
It’s a busy time for theTreasury committee. When Credit Today meets McFall the budget is just around the corner and he is clear what he wants to see in it. “I want a 10-year plan for financial inclusion, not a year-by-year approach.” This reflects concerns about cash being diluted between departments and initiatives ending almost as soon as they’ve begun. Days later, economic secretary to the Treasury Ed Balls announces an extension of funding to 2011 but says he expects financial inclusion activity to be mainstreamed after that.
Also in the committee’s pipeline is an investigation into what to do with unclaimed assets: money lying in dormant bank accounts.McFall is also keeping an eye on many other aspects of the lending market. He says there needs to be further discussion with the FSA about the way it regulates advertising of financial products, and the recentmove towards credit card charges is something he is “alive to and working on”.
After the collapse of Farepak, the committee demanded an investigation into the hamper and voucher market, which is now nearing a conclusion.McFall clearly doesn’t like the business: “It doesn’t seem a good business model to me – you put your money away and someone else gets the interest”. But at the least he would like to see consumer savings ring-fenced.
McFall conducts the interview without the shield of a press officer and then escorts Credit Today through the panelled halls of Portcullis House to the tube entrance two floors below. He even hefts some of the photographer’s equipment through the revolving glass doors and has to get a policeman to let him back in afterwards. He may not say what the industry wants to hear, but McFall is very much in the real world and it might be wise to listen.
John McFall will take part in the debate on “over-indebtedness – is the credit industry at fault?” at the CreditToday conference on Thursday 17th May. For more information visit www.creditshow.co.ukJohn McFall: The CV
Education
Attended Paisley College of Technology
and Strathclyde University and holds a
BSc honours degree in chemistry and a
masters degree in business administration.
EmploymentBefore entering parliament McFall was
a school teacher in Dumbarton,
Kirkintilloch and Glasgow.
1987-2005 Elected MP for Dumbarton
1989-1991 Opposition whip
1992-1997 Opposition front bench
spokesman on Scottish affairs
1994 Appointed visiting professor at
Strathclyde University Business School,
also holds a similar position at Glasgow
University
1997 Government whip
1998 Appointed parliamentary under
secretary of state in the Northern Ireland
office
July 2001 Elected chairman of the
Treasury select committee, re-elected
October 2005
2005 Elected MP for Dunbartonshire West
Chairman of Strathleven Regeneration
Company and Clydebank Re-built
Married to Joan with four children