Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
62
Treatment of Customers
6.39 We consider below particular challenges that Barclays has faced in balancing the need
to treat customers and clients fairly with other (e.g., financial) objectives. These are
examples of conflicts that will arise from time to time in ordinary dealings with
customers. One relates to the retail bank, and the other to the investment bank.
Charges for Credit Cards and Overdrafts
6.40 The charges levied on customers for exceeding credit card limits and for
unauthorised overdrafts on their current accounts have led to customer complaints,
media campaigns, regulatory, OFT and government intervention, and legal battles
involving the UK’s largest banks.
6.41 At the heart of the problem is the sense that these charges are often high to enable
banks to recoup the costs of not charging for other services: credit card users mostly
pay no fees if they clear their outstanding balances promptly; and personal current
accounts are free if in credit, as is the use of ATMs. There is therefore potentially an
element of cross-subsidy involved with some charges, which raises challenging
fairness issues for the banks.
6.42 The first issue relates to credit card fees. The OFT, following a detailed review,
declared in 2006 that “credit card default charges have generally been set at a
significantly higher level than is legally fair”. The OFT estimated that this had
involved unlawful penalty charges in excess of £300 million a year and said that, if
default charges exceeded £12, it would “presume that they are unfair”. 103
Accordingly, card issuers reviewed their charges, and Barclaycard, along with other
issuers, reduced their charges to £12. Prior to 2006, Barclaycard had charged £20 to
£24 per month.
6.43 In addition, the UK Government reached agreement with the industry in January
2011 on changes which included paying off the most expensive debt first and
allowing customers to decline increases in their credit limit or even to reduce it.
6.44 As a major UK card issuer, the cost of making these changes for Barclaycard was
significant. Barclays also received customer complaints regarding credit card fees and
charges and prior to 2012, compensating some customers. In 2012, Barclays
calculated a cost-based justification of its £12 card default fee and does not expect to
have to meet fee complaints in future.
6.45 We have also considered the much publicised issue of UK current account charges.
In its report into the UK current account market (published in 2008), the OFT
concluded that “the … market is not working well for consumers. A combination of
complexity and lack of transparency means that consumers and competition are
focused almost exclusively on more visible fees, and not on the less visible elements
103 Office of Fair Trading (OFT), “Current credit card default charges unfair” (68/06), press release, 5 April
2006.