Matt Barrett has asked me to write about those matters on which he promised to come back to you following the oral evidence he gave to the Committee on 16 October 2003.

  Before doing that, I should like to make the following points in the firm belief that the credit card industry is a real British success story. UK consumers, UK retailers and the UK economy have all benefited from the most competitive and advanced card market in Europe. Cards have also helped the UK lead the growth in e-commerce and the development of the internet as a market place. Consumer spending has driven the UK economy over the last few years creating both economic growth and jobs to the benefit of all.

  I would also like to provide you with a further explanation of some of the issues which were discussed at the 16 October hearing. These are:

—  Transparency
—  Barclaycard's 0% "Forever" campaign.
—  Interest rates and typical APRs
—  Interest rate calculations
—  Barclaycard's profitability
—  Monument products and risk-based pricing
—  Responsible lending

1.  Transparency

  Barclaycard, along with Nationwide, has worked with APACS to create the Summary Box, which will provide consumers with a clear, comparable summary of the costs of using a credit card. We launched ours last month, six months earlier than the deadline. We are pushing the industry through APACS to go further in places, such as providing examples on agreed borrowing scenarios.

  We are including new wording on all our marketing material and application forms, including more information on how payments are allocated, and are committed to increasing the print size of our terms and conditions, all to ensure greater clarity. Also, we have included in our "Clear as Crystal" leaflet more information on the allocation of payments. Copies of our new marketing material are enclosed to show you how far we are taking our commitment to transparency. If you have any feedback on these please let me know.

2.  BARCLAYCARD'S 0% "FOREVER" CAMPAIGN

  In connection with our "Forever" campaign, you will be aware from my phone call and the press last week that we have been working with the OFT over the course of the last couple of weeks to withdraw our marketing material, as the OFT are of the view that the "Forever" marketing material for the offer is misleading. Whilst we believe we have not broken the law, and the OFT accepts that this is our view, we have taken action to make our marketing material clearer as it is not our intention to mislead our customers. We have agreed with the OFT to stop using the word "Forever" and to provide a clearer explanation of how the offer works in the marketing material. In particular, we have been working with the OFT to make clear to customers the consequences of the allocation of payments term. The "Forever" material will shortly be replaced with new marketing material (copies enclosed)[22] that, we hope, will allay the OFT's concerns, whilst continuing to provide consumers with our offer. To be clear, the OFT has not criticised the terms of our offer, which will continue, but the way it was marketed to date.

  We are committed to leading the industry on transparency and it is important to demonstrate that we take notice of the views of the OFT and yourselves, and act upon them.

3.  Interest rates and typical APRs

  Consumers have real choice when choosing a credit card. Competition is fierce. We are constantly striving to find new innovative competitive offers. Contrary to some Members' views, all our research indicates that rates are just one part of the proposition and consumers choose cards for a variety of reasons. For example, Barclaycard's customers obtain a range of benefits such as price promise, free extended warranty, Nectar points, fraud guarantee and purchase protection as well as no annual fee. Brand consideration is also very important. Customers may choose their card on the basis of their personal perception of the benefits it brings.

  Rates have reduced and continue to do so. As Matt Barrett told your Committee our typical APR rate today is 14.9%. This means that at least 50% of customers taking up this offer now receive a standard rate of 14.9% APR or lower, and have done so for several months. A significant proportion of our customers do not pay any interest at all because they repay in full each month, and these customers benefit from an interest free period of up to 56 days.

  In setting rates in such a competitive market place, we are very conscious that, if customers are unhappy with what they obtain from Barclaycard, they can move to another credit card provider or decide to borrow in another way. After all, our competition is not confined to other credit cards.

4.  Interest rate calculations

  I acknowledge that differences in the way interest is calculated can affect the amount of interest paid, to varying extents, depending on customer usage of the card. I believe that transparency around this is important although, of course, there is a balance between saying too much (and confusing the consumer) and not saying enough to be clear.Like the OFT, we are opposed to any standardisation that restricts scope for competition. We are interested in the OFT's thoughts around creating benchmarks, and will be exploring their ideas with them and within the industry.

5.  Monument and Risk-Based Pricing

  It is a myth that low-income sectors of society necessarily represent a higher risk to lenders. Often those on modest incomes are more careful in how they manage their money. Risk-based pricing reflects how customers manage their financial affairs, not how wealthy they are.

  Risk-based pricing, introduced three years ago, allows us to be inclusive. This supports the Government's financial inclusion agenda as it gives us the opportunity to offer more people credit than if we had one standard rate.

  Matt Barrett promised to clarify the situation regarding our Monument card, which, in common with the rest of Barclaycard, uses risk-based pricing. You will appreciate that it is not possible to assess the risk until an application is received so we can only let the customer know the rate when providing them with a card. The rate is notified to the customer who can then choose whether to borrow at that rate or not at all.

  The underlying principle of transparency is that the price for using a product is clear before any charges are incurred. In view of the concerns raised by your Committee, I am able to confirm that we are looking to improve the Monument marketing material to ensure that risk-based pricing is clearer. This will include the implementation of a summary box and clarity and print size of the terms and conditions.

  Risk-based pricing allows us to offer credit to consumers who we would otherwise decline. We believe it is preferable for consumers to borrow in this way from reputable lenders, like Barclaycard, with a record of responsible lending, rather than be turned aside by us or another credit card company as uneconomic to serve, or be forced into the hands of loan sharks.

6.  Responsible lending

  It is never in our interests to lend to customers who can not afford to repay. We have a lot of experience in this field and have developed sophisticated risk management techniques to ensure that our customers do not over extend themselves. For example, we are very careful when increasing credit limits to ensure that a customer meets our lending criteria and any attempt to restrict the lifting of credit limits would meet resistance from the majority of our customers who welcome the flexibility this provides. No one enjoys finding themselves without sufficient funds at the head of a queue in a supermarket or at the time of a personal emergency.

  There is a difference between irresponsible lending and irresponsible borrowing. As evidence of our approach to responsible lending, Barclaycard turns down 4 out of 10 applications for credit. Less than 2% of our customers make only the minimum payment every month. Also, a very small proportion (around 2%) of our customers get into long term financial difficulties, usually as result of a change in their personal circumstances, and we are always sympathetic in such cases. The vast majority do not have problems in this area and I can confirm that we have taken account of possible interest rate rises into our lending policies.

Conclusion

  I hope I have clarified all the outstanding points following Matt Barrett's appearance on 16 October, but if not please do let me know.

  I confirm that we are committed to working with you, the DTI, OFT and the consumer groups to try and improve the situation even further.

  Finally, I think it is important that any recommendations made by your Committee do not compromise the competitive nature of the market or the choice available to consumers. Credit cards are a UK success story in that they provide benefits to the economy, consumers and retailers alike. There is an important balance to be struck in protecting consumers whilst, at the same time, ensuring that they have choice and that financial services providers operate in a competitive market place.

26 November 2003