1. New Markets - New Opportunities?

2. MONEY ADVICE SCOTLAND ANNUAL CONFERENCE Changes in Credit Card Practices Paul McCarron 23 June 2011

3. Background The Government’s Credit Card Summit (November 2008) The Consumer White Paper (July 2009) Credit & Store Cards Consultation (October 2009)

4. BIS Credit & Store Cards Consultation Four main issues: The Allocation of Payments The level of Minimum Payments Unsolicited Credit Limit Increases The Re-pricing of Existing Debt Other issues: Unsolicited Credit Card Cheques ‘At Risk’ Customers Automated Regular Payments Annual Credit Card Statements

5. The industry’s response evidence, evidence, evidence – avoid assertion & supposition an industry that is not in denial analysis of 44m accounts (Argus) economic impact analysis (Oxera) consumer research (GfK) 230 page response and 600 pages of appendices 15 March 2010 joint statement – a proportionate outcome

6. Criticism & Rationale – Allocation of Payments Critics say: it’s confusing - customers don’t understand that different parts of the balance attract different rates of interest …. and many didn’t know the order in which they were paid off The industry view: it allowed card issuers to provide a range of promotional offers it’s part of the ‘deal’, i.e. a 0% period required a certain AoP The outcome: industry agreed to a full reversal to a ‘high to low’ model

7. Criticism & Rationale – Minimum Payments Critics say: minimum payment levels are too low, meaning that customers may take significantly longer to pay off a debt and they’re paying a lot more interest The industry view: provides flexibility to pay the minimum when it suits a customer negative amortisation already prevented under the Lending Code The outcome: industry has agreed to contact frequent low/minimum payers a new calculation for new accounts (and potentially ‘back book’)

8. Criticism & Rationale – Unsolicited Credit Limit increases Critics say: customers may be ‘enticed’ into spending more they need to have more control over their own credit limit The industry view: current practice is underpinned by a ‘low & grow’ model allows limits to be increased incrementally over time strong existing protections (Lending Code/Best Practice commitments) The outcome: better communications and 30 days notice customers can reject the increase, opt-out of future increases and reduce their limit at any time …… and in easier ways, such as on-line

9. Criticism & Rationale – Re-pricing of Existing Debt Critics say: rate increases not adequately explained not clear what cardholders can do to influence changes The industry view: an essential tool for managing ‘open-ended’ & flexible credit products customers’ circumstances (and risk) change over time (up & down) industry had delivered a set of principles (with opt-out) in Jan 2009 The Outcome: better communications and a new 60 day ‘rejection’ period previous principles voluntarily extended to general re-pricing a ‘re-pricing explained’ fact-sheet (Plain English approved)

10. So, in short, how do customers benefit? The most expensive debt on your credit card will always be paid off first Paying the minimum payment on new accounts will reduce your balance You’ll have more control over increases to your credit limit You’ll receive clearer communications if your interest rate is to be increased Additionally: If you frequently pay the minimum, or close to it, you may be contacted You will not be sent credit card cheques unless you request them You’ll start to see annual credit card statements from early 2012 There will be more flexibility to choose the regular amount you wish to pay

11. Other more generic changes for ‘lending’ Stronger requirements for responsible credit assessment More support for customers in (or approaching) difficulties Breathing space carefully extended to (structured) self-help Credit searches – indicative quotations explained Limit reductions – contact details must be provided

12. Working with debt advice agencies Extensive collaborative work has been undertaken to seek to help those in (or at risk of) financial difficulties: What are now the ‘common denominators’? ‘At risk’ customers: - who should be excluded from ‘UCLI’s? - which minimum/low payers should be contacted? Joint consumer leaflet with Citizens Advice An ongoing positive and focussed dialogue is essential

13. The Lending Code – ‘codifying’ the changes Implementing the agreed changes was addressed as follows …… Decision taken to build the changes into the Code via an interim Addendum, pending the revised Code (31 March) Extensive dialogue with members & the Lending Standards Board ensured that the changes were ‘live’ in January Now being incorporated into the revised Code, working through BCAP, and where a strong working relationship with the Lending Standards Board has been essential

14. Changes in Credit Card Practices Any questions please?