§ 3.5 p.m.
§ Dr. John Gilbert (Dudley)
Before I get into the main body of what I have to say about the Access credit card system and the abuses connected with its introduction, I congratulate the Under-Secretary of State for Trade and Industry who will be replying to the debate. I have known the hon. Gentleman for many years and I have a high regard for him. This is the first opportunity I have had of congratulating him publicly on his appointment. Although I shall have one or two fairly harsh things to say about the Government's inactivity during the last year and a half, none of it is a reflection on the hon. Gentleman but on his 855 predecessors in the office which he now holds.
May I make it clear that I welcome the introduction of a credit card system. I have more than one credit card myself and I find them extremely useful. I think that everybody must welcome any advance towards a society where the use of cash becomes less necessary and less frequent. There are, however, certain aspects of the introduction of the Access credit card system which have given rise to a considerable degree of public concern. I understand that so great is the public concern that The Times business section has received a greater volume of correspondence on this issue than it has on any other that it can remember.
My first concern about the Access card arrangements, as distinct from the Barclay card arrangements, is the cartel way in which it was introduced. The three banks, Lloyds, Midland and National Westminster, waited for Barclays to have the courage to go in and test the water to see whether a credit card scheme on a large scale could be run. When Barclays had taken the risk and made the heavy investment, they all came in together. They did not have the courage to stand on their own feet. Their argument was that the market could stand only one more card and that it would not be satisfactory if they were all to compete separately. That is just too bad. If the private enterprise system means anything, then those firms which make a fetish of advocating competition should be prepared to stand on their own two feet and compete one with another.
There are ominous implications in an arrangement where four of the biggest financial institutions of this country can group themselves together to provide jointly a service of this sort on the grounds that it is easier and more convenient for them to do. My concern is not of recent standing. As long ago as 15th April, 1971, I and my hon. Friend the Member for Walthamstow, West (Mr. Deakins) wrote a joint letter to the Secretary of State for Trade and Industry, asking him to refer to the Monopolies Commission the planned introduction of the Access credit card system. I received a reply dated 20th May, 1971 from the Under-Secretary of State to the Depart- 856 ment of Trade and Industry, which in part said:As regards a monopoly reference, I explained in the adjournment debate on 2nd December last the Government's general attitude to the possibility of referring the banking industry to the commission. In this particular case…—that is the coming Access credit card—it is likely that when the three banks introduce their new credit card either they or Barclays or both will have more than one-third of the market for this service.That is a self-evident statement if ever I read one. The letter continues:But the legislation does not allow us to base a monopoly reference now on a monopoly situation which may develop in the future.Well, so be it. No doubt technically that was a perfectly accurate statement of the legal position at that time. However, we now have the Access credit card in operation, and either that or Barclay card must clearly have more than one-third of the market for the service. I give notice to the hon. Gentleman that I shall be making a formal demand for a reference of this development to the Monopolies Commission.
One aspect of the introduction of Access which has given great public offence has been the way in which cards have been sent out unsolicited. They have been sent to people who have never asked for them. Some of the excuses put forward by spokesmen for the Access system have been disingenuous in the extreme. They have said that it is not a matter of giving people unsolicited service. They have merely been advised of existing services that they can make use of if they wish. But there is all the difference in the world between advising people that a bank offers overdraft facilities and advising an individual that an overdraft is available to him.
Some of the ways in which the Access people have been comporting themselves lay them open to the charge of displaying considerable arrogance. In one piece of their literature there is a yellow page headed "Conditions of Use". It begins:The Access Card must be signed by the person to whom it is issued. …Nothing is said there about whether or not it is wanted. It says:… ('the cardholder') immediately on receipt …857 Nowhere in the conditions of use is the recipient told what he should do with his credit card if he does not want it when it has been sent to him.
I wish to draw attention to Government negligence in this respect. In August of this year the Government issued a discussion paper which was circulated among interested parties setting out their proposals for implementing parts of the Crowther Report on Consumer Credit. Paragraph 4 of that memorandum is headed "Mass Mailing". It says:No credit card should be issued except in response to a request or application therefore.That is a Government document which was put out in August of this year. At the time that they circulated the document the Government knew very well that the Access system would be beginning this month. It is clear from the correspondence that I read that it had been common knowledge for more than 18 months. The Government must have known that this was the way that the Access people intended to distribute their cards. Right hon. and hon. Gentlemen opposite have done nothing about it. For the Government to say in answer to parliamentary Questions this week that they are contemplating legislation in this matter is the most blatant example that I have heard of delaying the shutting of the stable door until after the horse has bolted.
I know that the rules of order forbid me to call for legislation in the course of an Adjournment debate. But I say to the Government that they know that they need not have waited for legislation in this respect. The power of the Bank of England to influence the commercial banks is very considerable. As far as I know, no effort has been made by the Government to use their influence on the Bank of England to tell the commercial banks that conduct of this sort would not be tolerated. Now right hon. and hon. Gentlemen opposite are making pious noises when they know that there will be no further major credit card scheme introduced here and that the damage has already been done.
There is a further aspect of this Access system which I find the most scandalous of all. I draw the attention of the House to condition No. 8 of the Access scheme which reads: 858If the ACCESS card is lost or stolen the card-holder will notify the bank's ACCESS Department immediately—again there is that little touch of arrogance:the card-holder will notify—not "should notify" but "will notify". The condition goes on:and confirm in writing. The cardholder will be liable to the bank for any transaction effected by use of the card by any person before such notice is received as if he had used it personally.In other words, a person may have his card stolen and may be in total ignorance of that for an almost unlimited period. It is not unknown for ladies to be unable to find things in their handbags, for men suddenly to start using a different suit and to forget where they have left a card or a small item of that sort and not to be aware of the fact that the card is not mislaid but has been stolen.
The Access people say, "It does not matter; you have no rights whatever in this situation until the poor innocent cardholder has found out that his card has been stolen and notified us and we have received the notification."
§ Mr. Denis Howell (Birmingham, Small Heath)
It is my personal experience in the last ten days that a lady in an office with which I am associated left that office for a short time. When she came back it was obvious that someone had walked into the office and had been in her handbag. She thought that £5 had been taken. She was astonished to be rung up by her bank manager the next day and to be asked whether she had been cashing large numbers of cheques the previous day, each for £30. She said that she had not. There were 20 cheques in her cheque book. The cheque book and the credit card were taken and, astonishingly, not one of the 20 branches of the bank which had been visited by the thief had questioned the signature or the withdrawal of this money. My hon. Friend is on to an important point. If these credit cards are to be available in such large numbers, then much better security arrangements are needed and there ought to be a limitation on the liability of the credit card holder in circumstances such as those I have outlined.
§ Dr. Gilbert
I am obliged for that helpful interjection. I am not clear about 859 the legal position in that case but it might be a comfort and a reassurance to that woman to know that there is a clear distinction in law as between a signature forged on a credit card slip and one forged on a cheque. Where a fraudulent signature appears on a cheque a bank cannot escape liability no matter what sort of small print it writes into any contract. It has a clear legal responsibility for ensuring that the signature on a cheque purporting to draw funds from an account is a genuine signature.
Under these conditions the banks seek unilaterally to absolve themselves from any such obligations. Where there are circumstances such as my hon. Friend has described, when someone is drawing on a cheque with a false signature under cover of a credit card, I would hope that the more strenuous provisions of the law would protect the card holders. I would certainly welcome clarification from the Under-Secretary. One of the annoying things is the arrogance of the banks. They say, "You do not have to worry too much about condition No. 8 because we intend to enforce it only where there has been fraud." It is no business of the banks to determine whether there has been fraud. If there is any question of fraud it is for the courts to determine.
The banks are setting themselves up to be judge and jury in their own case. They will say whether there has been fraud; they will determine the amount of penalty to be exacted. The Government should pay immediate attention to condition No. 8. In other countries more advanced in these matters than this country there is legislation which limits the amount of liability which any card holder can suffer as a result of having a card stolen. In the United States it is, I believe, 50 dollars—about £20—which I would consider to be a reasonable amount.
I revert to the discussion paper which the Government published in August in which they envisaged precisely these circumstances. Paragraph 6 on the page from which I have already quoted states:Such liability"—that is, the liability of the borrower in the event of unauthorised use of his card—should be limited to £30''.860 The Government have done absolutely nothing about it. On the American experience, the credit card companies have the right to claim the 50 dollars only if they have supplied every holder of a card with a pre-stamped, pre-addressed cancellation notice that the holder can immediately put in the post to the card company with the minimum of delay and inconvenience to himself.
There is yet a further point on the question of unlimited liability about which I should welcome clarification by the Minister. What happens if the card is mailed to a customer of the bank but never reaches him? Suppose that it falls into wrong hands. Somebody else gets it, sees the name, puts a fraudulent signature on it and starts to use it. Is the intended card holder liable? I know that there has been correspondence in the Press to the effect that there would be no liability on the genuine or should-be card holder in those circumstances because, he not having signed the card, there is no contract between him and the credit card company.
But we still have not finished with the question of unlimited liability. There is another trap in condition No. 11 of the Access credit card scheme. That condition deals with the issue of joint credit cards in a family. In other words, a husband or wife, whoever is the initial card holder, may, by applying to the card company, obtain a card for another member of the family. That is a sensible and admirable arrangement and no doubt many families will enter into it. However, the last sentence of condition No. 11 reads:At the written request of the cardholder such additional card will be cancelled immediately on its return to the Bank".Suppose that a married couple obtain a joint card and the marriage falls on unhappy times. I make no individious distinctions here, as I hope the advocates of Women's Lib will note. However, for the purposes of argument, if the original card is in the name of the husband and the husband asks for an additional card to be made out in the name of the wife, if the marriage breaks un and the husband sends a written request to the bank that the joint arrangement be cancelled, that request will not, according to condition No. 11, apply unless the wife surrenders the card herself voluntarily to the bank. 861 It is a preposterous state of affairs, but there it is, in black and yellow, in the condition in the Access scheme. I do not see how the English language can be interpreted in any other way. I would say to even the most happily married couples that they should beware of the dangers they might be letting themselves in for if their marriages were unfortunately to fall on difficult times.
The real answer to this question of the unlimited liability is that the banks should provide the insurance themselves. Heaven knows, they are going to make enough profits from this scheme. There is no reason whatever why they cannot insure themselves against any possible losses which might arise from fraud or other improper use. At the very least, if they do not do that, they should provide facilities to the card holders to insure themselves at some nominal extra annual fee. I cannot myself see why security arrangements cannot now be sufficiently advanced for a person's photograph to be inserted somewhere on the card so as to make difficulties of that sort much less frequently encountered.
The banks, as I say, are going to make some pretty substantial profits from this scheme. Apart from anything else, interest rates will be high enough, at least where the credit holder is foolish enough to have this instalment credit running in tandem, so to speak, with the basic credit card system itself. There is an interest-free period for purchases. The interest-free period will run to the twenty-fifth day of the subsequent month. Thereafter interest will be charged at 1½ per cent. per month, or, to be more accurate, as another piece of the literature saysat only 1½ per cent. per month".What a beguiling "only" that is: "only" 1½ per cent. Even a mediæval usurer would have blushed at describing 1½ per cent. a month as "only" at that rate.
What, however, is the actual rate to the user of the card under this instalment credit facility? How does one work it out? What is the actual cost at this nominal 1½ per cent. per month? The answer will depend on the repayments programme in which the user engages himself. One can set up various sets of circumstances according to how soon or how late after interest charged appears on the statement the holder pays off his 862 monthly instalments. The effective cost to him will vary according to when he makes payment.
I do not ask the House to take it from me, for I went to a leading merchant bank in the City to ask those bankers to make the calculations for me. They are quite interesting. Although we have a fair amount of time for this Adjournment debate today, and that is why I am spreading myself somewhat, I will not weary the House with all the assumptions which I have here, and which are specific and quite technical, as to how to determine the minimum and maximum degrees of extension of credit available under the scheme. I will willingly make them available to anybody who may seek to challenge the conclusions.
The result, as I am informed, after pages of calculation, is that the minimum rate of cost, on even an annual basis, to someone using this extended credit facility is 16.48 per cent., about 16½ per cent., per year. The maximum rate, assuming the least favourable combination of circumstances, is just over 19 per cent. per year. These figures apply only to instalment credit for the purchase of goods. If one draws cash on one's Access card the rates of interest are appreciably higher. Very roughly, again within the range between the most and the least favourable assumptions for the card holder, interest rates vary between about 18½ per cent. per annum, on the most favourable assumptions, and 21 per cent. per annum on the least favourable assumptions. These people have the gall to talk about "only 1½ per cent. per month".
My advice to any card holder is to use the card for obtaining the initial credit but in no circumstances to use the instalment credit facilities. Anyone who can will be well advised to get a bank loan or an overdraft at between 8 and 12 per cent. per annum rather than pay these extortionate rates. Publicity of this sort demonstrates the crying need for regulations to ensure truth in lending. The public should know in any credit extension facility what is the true rate of interest.
I come to an extraordinary anomaly in the Government's attitude to the credit card system. Only in the very recent past has the Chancellor of the Exchequer announced that he is demanding special 863 deposits from the banks with the objective, amongst other things, of reducing the lending base of banks and making it more difficult for them to extend personal loan and overdraft facilities. Yet, at the same time—according to the literature of the credit card company—he is turning a blind eye to the extension of £300 million worth of credit. In other words, the Government are cutting down the banks' ability to extend low-cost credit and at the same time turning a blind eye to the introduction of high-cost credit schemes to the tune of about £300 million.
I predict that the banks will make a massive return from the schemes, and that the gross returns will be far in excess of the rates of interest I have just quoted. Industrial companies have to publish separate figures for their trading by major items of activity. It is high time that the banks were compelled to publish separately the profits they make from credit card schemes.
Associated with the scheme has been some extremely offensive advertising. One advertisement on the Victoria tube station reminds me of a cartoon which appeared in the New Yorker a few years ago showing a young couple proudly holding up a baby and saying, "Three more payments and the baby is ours".
I hope that I have said enough to show the need for far greater public supervision over large financial institutions, and I hope for a satisfactory reply from the Minister.
§ 3.33 p.m.
§ The Under-Secretary of State for Trade and Industry (Mr. Peter Emery)
I congratulate the hon. Member for Dudley (Dr. Gilbert) on drawing the attention of the House—albeit on a Friday, which is never the best time for a well-attended House—to the launching, last month of the Access credit card. That this matter has caused considerable concern is evident from my post, and no doubt from the post of every hon. Member, from Questions that have been put down and from the considerable Press comment.
I also congratulate the hon. Gentleman on the way in which he put his case. He might have been much more emotive, but he has argued his case logically and sensibly, although I do not agree with all 864 that he has said. On some aspects I do agree with him, but he mentioned others that are not quite correct, and one on which he is entirely wrong. I will deal first with his last point while it is clear in our minds. The hon. Gentleman alleged that the Government were turning a blind eye and did not know what they were doing by not limiting the credit card facilities, on the one hand, when at this time they were putting a new and definite level of special deposits on the total of bank lending.
I have to make it clear that the money lent under credit card facilities will be part of the total banks' lending against which the special deposits will have to be made. In other words, this is not some separate amount. It is only another type of the banks' lending. Therefore, it is an overall package; and whether the banks lend it through credit cards, mortgages or their ordinary overdrafts on accounts, they all come together and there is no separation.
§ Dr. Gilbert
I am grateful to the Minister, and I take the qualification he is making. It is also true that as a result of this combination of circumstances there will be a reduction in the amount of funds available for low-cost loans, such as personal overdrafts and loans, and an expansion of this high-cost lending. These two will continue simultaneously under these arrangements.
§ Mr. Emery
I shall return to that point. What the hon. Gentleman is now propounding is quite contrary to the Crowther Committee's recommendations, in which it was made clear that one section of society should not be barred from any type of credit it may or may not want, and that it should be up to society to choose what credit it wants or uses rather than for it to be interfered with by anyone else.
Perhaps I could run over the background—particularly on consumer credit—which comes from Crowther. After all, a detailed and comprehensive study of the whole matter was carried out by the Crowther Committee. One of its basic criticisms of the present credit law was that, like Topsy, it had "just growed", and gone on growing, and that this had been done not in any rational way but in response to individual problems and 865 aspects of credit and lending as they arose.
This has resulted in a hotch-potch of law regulating consumer credit. The committee recommended that in future there should be a comprehensive code regulating all forms of credit. So, in looking at the credit card, we must bear in mind that this is merely another form of credit which may be available. It is a form which has been evolved to serve some of the needs of consumers better than existing forms. We have seen the development of different aspects of credit, from check-trading—which, after all, has been with us since the turn of the century—to the evolvement of hire purchase, conditional sales—in order to get round hire-purchase limitations imposed by different Governments—and new schemes of easily obtainable personal loans, the advertisements for which seem to require little if any collateral.
Secondly, the Crowther Committee drew up general guidelines for those responsible for policy on consumer credit. Among the committee's conclusions was set out as the first principle of social policy—this is what I referred to earlier—that the users of consumer credit should be treated as adults who were fully capable of managing their own financial affairs, and that it was not for us to believe that they were not. Further, there should be no restriction on their freedom of access to different forms of credit in order to protect the relatively small minority who get into difficulties.
The committee also found that consumers were not making such extensive or, indeed, excessive use of consumer credit as to outweigh the considerable benefits that they derive from its use. The question is: should this philosophy apply to credit cards? The Crowther Committee obviously saw that this would benefit part of the community. Credit cards are wanted, and are thought to be of benefit, so the Government must be careful not to hamper their proper development because of a few—nonetheless serious—criticisms of their introduction or some aspects of their operation.
The introduction of the Access card represents no new departure. The Barclay card has been in existence for six years. Similar marketing methods were used at its launch and it has 866 obviously provided a service valued by a large number of consumers. A second card must create competition.
There is a legalistic argument against a reference to the Monopolies Commission—who is to define the "market"? One can define it as those who are using the card, but the actual market is probably thought to be much bigger, and there is free entry into it. Therefore, the legal aspect of the reference is difficult.
If there is free access to the market and we may expect other cards, that totally demolishes the banks' argument that they have to go in with a joint card. I was merely using the Department's own criterion of 33⅓ per cent. Clearly, one of two schemes must have more than a third of the market.
§ Mr. Emery
Just one or two corrections. It is not the DTI's proportion but the legal aspect of the reference. I suppose that one could say that one person had a monopoly of the "market", but I do not think that we are right to use that term. These are the only ones in existence. I will certainly consider this proposal, but I do not believe that we are likely to take any action.
The Crowther Committee recommended a general code which would apply across the board to all forms of consumer credit. Among the protections recommended were the disclosure of the cost of the credit in percentage and cash terms in advertisements and in the agreements, controls against false or misleading advertisements, prescription of minimum information to be included in agreements, and provision for minimum rebate of charges for those who settle debts early. In principle, the Government are very much in favour of what Crowther has, overall, held.
The committee thought that these rules should apply no matter what form the consumer credit arrangement took. It obviously wanted credit cards covered. But, as the committee recognised, although a general framework is necessary, certain forms of credit require special rules over and above those generally needed in the consumer credit field as a whole. Obviously, such rules are needed for credit cards.
The main difference between credit granted on a credit card and other forms 867 of credit is that the credit card is no more than a small piece of plastic, which is a near-negotiable instrument which gives the holder immediate access to credit and can be easily lost or misused.
I come now to the matters about which the hon. Member for Dudley expressed concern.
§ Mr. Denis Howell
There is a point of importance to be raised before the hon. Gentleman moves on. He concedes the need for special rules and quotes Crowther in aid. When are the Government likely to introduce legislation to bring about the state of affairs for which the hon. Gentleman has expressed support?
§ Mr. Emery
The hon. Member is an old parliamentary hand, and he knows how these matters have to be arranged. Neither my right hon. Friend the Secretary of State nor I can be expected at this point to say exactly when legislation will come forward. We have made perfectly clear that legislation on consumer credit will be brought forward. I hope that it will come as soon as possible.
I turn now to the—
§ Mr. Emery
I am being absolutely honest with the hon. Gentleman. I have replied to his question quite fairly, and I shall not alter what I have said.
I come now to the principal matters of concern raised by the hon. Member for Dudley. I take, first, the method of issue. I was surprised that he did not mention that concern has been expressed about the possibility of breach of confidentiality through the disclosure of information about customers' accounts.
It has been suggested, as I say, that there may in that way have been a breach of confidentiality regarding the bank 868 account of an individual, since information was given to someone else. I understand that there was, in fact, no divulging of the details of a customer's account to the credit card company. The individual banks merely notified the Joint Credit Card Company—it is not the "Access Company"—of the names of the customers whom they wished to have a card and suggested a credit limit. The banks then sent the cards to their customers. If individuals are concerned about confidentiality, I suggest that they should, as the bank advertising suggests, see their friendly bank manager.
I do not want to get into argument about "solicited" or "unsolicited". The Access card was not sent out in the unsolicited way in which the Barclay card was sent, whether the recipients held a bank account or not. There may be the odd exception, but the company would claim, I think, that the card has been sent only to customers of one of the banks, and it argues that this is an extension of the credit facilities which the banks give.
The second issue arises on the distribution of cards. The unsolicited mailing of credit cards was a general issue examined by the Crowther Committee, and it pointed out, as I have said, some of the dangers inherent in the mass mailing of credit cards. I entirely agree that there are dangers. As the committee said,By mass mailing techniques, card issuers are putting into circulation large numbers of near negotiable instruments, already bearing the name of an individual".The committee did not make any direct recommendation on this aspect but merely drew attention to the problem. In our study of the report, we are, as has already been said in reply to Questions, taking account of the new opinion on this matter, and we are considering fully the evolvement of view since Crowther reported.
Thirdly, as the hon. Gentleman suggested, there is the liability of the person to whom a card has been addressed if the card is stolen or lost on the way to him. I can tell the hon. Gentleman that that person has no liability at all.
The fourth point concerned the liability of the card holder after he has accepted and signed the card, should it get lost or stolen. This point arose when the hon. Member for Birmingham, Small 869 Heath (Mr. Denis Howell) referred to the lady with whose office he was associated. It is the standard term of most, if not all, credit card contracts that if a card accepted by an individual is lost and comes into the hands of a third party the card holder will be responsible for the cost of the unauthorised purchases made prior to the date on which the issuer is notified.
The Government are looking fully into the possibility that it should define, by legislation if necessary, the maximum loss which the card holder should bear. I hope that after this statement the companies may themselves look into this and perhaps take action.
A fifth criticism has also been voiced at the interest to be charged—
§ Dr. Gilbert
May I intervene before the hon. Gentleman proceeds? I am grateful for his constructive remarks, but he has not addressed himself to what the credit card companies say now. They are already saying that they will not enforce this condition unless there is fraud. My point is that it does not lie in the mouths of the credit card companies to determine whether or not there is fraud. This can be dealt with only by some proceeding which has effect in courts of law.
§ Mr. Emery
I would have thought it obvious—I do not wish to give legal opinions here—that any person concerned about this matter ought to ensure that he is legally informed, because I believe that the situation of the customer is very much stronger than might be suggested by certain matters which have been circulated in the Press.
I now turn to the subject of the cancellation of the wife's card—which I think was the hon. Gentleman's "Woman's 870 Lib" point. I think this is a matter which must be for the bank's discretion as such. A lender puts his own money at risk and he must be allowed full discretion as to when and to whom he lends it. That defines the question of when he withdraws the credit facilities.
§ Dr. Gilbert
With respect, the whole point is that he is not able, under condition 11, to withdraw the credit facility.
§ Mr. Emery
I am not going to prolong this question and answer situation, or we shall never finish. I now turn to the question of interest. As the hon. Gentleman suggested, it is 1½ per cent. per month, which can work out at a maximum perhaps of 19.6 per cent on the basis of annual compounding—slightly more than the hon. Gentleman suggested. I agree with him that the use of the term "only 1½ per cent. per month" is not a very proper or fair representation. Of course, this must depend on the consumer's use of his account.
I will refer to someone who I am certain never expected to be mentioned—one of our police officers in the House—who suddenly realised that I must be replying to the debate and who said, "The credit card is an awfully good thing". I asked him why, and he said that he had looked into it. He had to pay up 25 days after he received his account; if he purchased immediately he received a nil account he would get an extension to about 50 or so days' credit. He said to me: "I think I shall use that". That is, indeed a difference of approach by a sensible and charming person who has obviously analysed the matter carefully. It demonstrates in some ways the different approaches to the matter.
The Crowther Committee considered whether there should be statutory control of interest rates on credit and decided against it. I am sure that is right. However, I believe that the credit card companies should openly disclose in their advertising the true costs of borrowing so that the cardholder is able to realise fully the true cost of his borrowing.
§ Mr. Emery
Both on an annual basis and in the short term.
871 The sixth issue arises because retailers offer a discount on the cash price of the goods or services given to holders of bank credit cards. But the acceptance of credit cards does not necessarily involve increased costs or lower profits leading to higher prices. From the retailer's point of view it may well be that the discount is more than offset by additional custom, by the elimination of the risk of bad debts, by the reduction in the amount of cash handled and by the replacement of other credit arrangements which they may already have.
But here I wish to sound a warning. Holders of credit cards should watch out to see that they do not pay higher prices for their goods when using their credit card than they would by paying cash. I hope that people will bear that warning in mind. Many shops not accepting credit cards may be enabled to offer lower cash prices. Customers who wish to pay cash should be able to take advantage of it. There is a competitive situation here and the consumer has a very real choice.
In looking at the amount of credit that is likely to be released under the scheme the Crowther Committee said that consumers at the moment were not making such extensive use of credit as to outweigh the considerable benefits which they were enabled to derive from it.
I hope that I have covered most of the points which have been raised. Any credit provided by the banks under credit card schemes must be financed from within the total resources available. Those resources are subject to influence by the authorities through the new system of monetary control introduced last year. The extension of credit cards has not been associated with any relaxation in the monetary policy. It is for the banks to decide the particular form of their lending and the new credit card should be seen mainly as a change in the method of making finance available by the banks concerned. It will not necessarily lead to any long-term addition of bank lending or of the money supply. The new Access scheme represents a competitive response by the other major clearing banks to Barclaycard, which was introduced in 1966 when the Labour Government were in office. Obviously, all the 872 banks associated in the scheme recognised that there was considerable potential for a new credit card scheme and were anxious to enter this field. But they were presumably convinced that the retail market, the shops which had to make out the credit slips, would much prefer to have one rather than three banks entering it.
§ It being Four o'clock, the Motion for the Adjournment of the House lapsed, without Question put.
§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Murton.]
§ Mr. Emery
The American experience confirms that view.
The competition between Access and Barlclaycard is entirely in accordance with the aims of the new approach to monetary policy, which was intended to stimulate new developments in banking. The credit extended is likely mainly to support the purchase of consumer goods, which is appropriate to the Government's aim of sustaining a faster rate of economic growth and reducing unemployment, provided that the overall growth of money and credit is kept within acceptable limits, which the Government are determined to do. I have referred to the recent call for special deposits.
The individual credit limits on the Access cards—typically between £100 and £250, although some people may have been allowed up to £500 credit—are too low to permit the use of bank credit cards for speculative transactions, which had been alleged to be possible.
Therefore, although the Government consider that credit cards and their methods of marketing may give rise to concern, my speech has shown that credit cards if properly applied can be a beneficial addition to our credit system. My Department is looking at the weaknesses which the distribution has revealed—the unsolicited nature of the distribution, the problems covering fraud and negotiable instruments, and the limiting of the liability. In our framing of any new legislation on consumer credit these matters will be fully and properly considered, to the benefit of the consumer and not for the protection of the banks.
§ 4.3 p.m.
§ Mr. Howell
I have not risen to speak at all. I intervened in the speech of my hon. Friend the Member for Dudley (Dr. Gilbert), and I should not be making this speech now if the Minister had allowed me to intervene in the middle of his speech. As he did not, I shall say something about the subject now.
First, I join the Minister in congratulating my hon. Friend, who has done a signal service in raising the matter if there is one field in which there is a mystique and tremendous ignorance and a great need for consumer protection, it is the whole of credit, or, to give it an old-fashioned name, usury. We are here concerning ourselves with usury.
I was a little disappointed at the Minister's approach to the subject of interest rates. The hon. Gentleman skipped lightly over the question of interest rates of 16 per cent., 18 per cent. and 20 per cent.
§ Mr. Howell
Unlike the Minister, I am prepared to give way if he wishes to intervene. I think he did skip lightly over the question.
I was brought up on the story of Christ in the Temple, who apparently dealt with the money lenders 2,000 years ago much more expeditiously and effectively than the Government intend to deal with them today. We can only be sad about that.
The Under-Secretary of State was right to remind us of other forms of credit apart from credit cards, which I use and find to be of great convenience when properly used. Credit cards enable one to buy goods and to be able to pay for them expeditiously. If one does so within 25 days one avoids the necessity of incurring inflated interest charges. When credit cards are used in that way they can be of very great convenience to the public.
874 But there is no doubt that one of the intentions of the credit card promoters is to encourage people to buy things that they would not ordinarily buy, and possibly to buy beyond the limit of their normal capacity to repay. It is in that situation that we run into difficulties. In the promotional literature which was sent not to the public but to the shopkeepers, virtue was made out of that situation. The literature said:What Access offers you can be summed up in two words: more business. … It also means (and experience with credit cards shows this) that the Access shopper will spend more. He will buy, for example, a more expensive suit. Or perhaps a new shirt and tie to go with the suit that he has just bought.There is no doubt that part of the psychology of these cards is an attempt to get the customer or the client to buy beyond what is his reasonable means. As the Under-Secretary of State was saying, if one adds to that proposition the fact, for example, of hire-purchase payments, there is a mystique. There is a growing expectation of consumer legislation and protection in the whole area of usury or credit. Such legislation is very much overdue.
I hope that when the Government introduce their legislation they will have in mind the administrative costs of this sort of scheme. I admit that it is difficult to make a judgment as to what the right sort of interest repayments should be if one does not know the cost of administrating the scheme. I hope that when the Government come to think about their legislation they will make it mandatory upon the banks and other organisations that operate these schemes to tell us the cost of administrating them as distinct from the rate of the interest charges. We shall have a great deal more knowledge about the subject if that happens.
When the hon. Gentleman refused to give way, having spoken sympathetically about the need for legislation on this matter, the good will which his sympathetic words had generated in our breasts was immediately dissipated. No Chancellor of the Exchequer has ever more closely guarded the Budget secrets than the hon. Gentleman apparently intends to guard the secret of when we shall have this legislation. I am prepared to believe that it is a complicated matter—unlike the present Bill which is going 875 through Parliament—and that parliamentary draftsmen cannot be expected to draft the legislation overnight. The Government may change their minds on economic policy and the draftsmen will have to make allowances for that sort of thing, but the Government should be able to tell us approximately when we can expect this legislation.
It is not as if the Queen's Speech is overburdened with legislation so that there will be no time for a Bill on this subject to come before the House. Not a bit of it; the situation is quite the opposite. It is clear that in the coming Session we shall have plenty of time in which to enact legislation of this kind. The Minister ought to be able to tell us whether we may expect the legislation this Session, which has 12 months to go, next Session, or even in the next Parliament. For the reasons that my hon. Friend and I have suggested in respect of stolen credit cards and cheque books, there is an urgent need to protect consumers from exploitation and certainly to limit their liability in cases like the very unfortunate incidents to which I have drawn attention.
§ Dr. Gilbert
It would be perfectly easy for the Government to draw up legislation of this kind. There are no serious technical obstacles, and it exists in other countries.
§ Mr. Howell
My hon. Friend is quite right. The United States has legislation to deal with situations of this sort. However, I hope that we are reasonable men on this side of the House. We know that the banks, chambers of commerce, industry, I hope the trade unions and possibly the Co-operative movement have to be consulted—
§ Mr. Howell
That is true. But the advent of this latest credit card is post-Crowther. For that reason there has been a multiplication of the difficulties since the Crowther Report was published.
It is outrageous that the Minister is not prepared to tell us when protective legislation will be introduced. The hon. Gentleman will not even give the House an idea of the Government's thinking about imposing a proper limitation on the liability of those who are unfortunate 876 enough to lose their credit cards. We have not been given a whisper about what the Government think should be the proper rate of interest to cardholders.
I am satisfied that this will not be the last time on which we refer to this matter. We shall be pressing the Minister in other ways to be a little more clear and logical about the Government's approach than he has felt himself able to be today. I am sure that it was not because he had no wish to be more helpful. His attitude was that he wanted to be helpful. He made it clear that he recognised the danger and that the Government intended to act. That makes it even more mysterious why he was not able to be more clear-cut in his advice to my hon. Friend the Member for Dudley.