Peter McNamara

From Consumer Wiki

Transcript Of Interview With Peter McNamara, former head of personal banking at Lloyds TSB, now Chairman of the cash machine provider MoneyBox. BBC Radio -Sept 2004.


MB:

The Consumers Association says that banks charge their customers £3,000,000,000 pounds for unauthorised overdrafts last year. The head of money research at Which magazine, Ashley Sharp, says the penalties imposed by the banks are excessive.

AS:

I guess they would say they are making them because when people go into unauthorised overdrafts they incur costs and I am sure that is right, but whether they incur these kinds of costs seems highly unlikely. Not all the banks charge quite as much as the more expensive ones so clearly some banks can manage this more cheaply.

MB:

Well Peter McNamara knows a thing or two about unauthorised overdrafts because he’s the former head of personal banking at Lloyds TSB now Chairman of the cash machine provider MoneyBox and he joins me now. Is £3,000,000,000 pounds excessive ?

PM:

Well it’s a very interesting background really. What happened was, once upon a time, when people went overdrawn the banks if you like used to tell them off by charging them a higher rate of interest and, more expensively for the consumer now, putting a charge on each transaction that goes through the account. Now, the justification of that, as was outlined, was that a lot of work had to suddenly take place to assess whether the person was good for the money and whether the bank was going to pay the cheque in those days. Well, when free banking became pretty much universal for everybody who was in credit, the banks kept those fees and indeed tended to increase them to subsidise the cost of that free banking activity, because most people who don't go overdrawn or only go overdrawn within limits that they’ve agreed with their bank really doesn't make very much money for the banks.

MB:

The Consumers Association say these charges are excessive, but the banks can quite reasonably say the customers know the score, they are given an overdraft limit and if they go over it they know what the penalties will be.

PM:

Well of course there is an element of truth in that one. It is having said that, pretty expensive if you do go overdrawn because you get caught with both the interest charge and the unit charge for every transaction that goes through your bank account. So the big advice to any consumer is to make sure you agree the overdraft or find a lower cost personal loan for your borrowing or some other mechanism for doing it. The big plus from the banks point of view is that it enables them to maintain this principle of free banking for a large number of people who remain in credit all the time and don't do much borrowing.

MB:

There are a large number who do get overdrawn and have unauthorised overdrafts which says one in four bank customers went overdrawn without permission last year. That's a huge number, does that say something about the British character and our attitude to debt and borrowing ?

PM:

Well yes, traditionally in the UK people have always taken short-term borrowings in terms of overdrafts and if you haven't agreed it, it is very expensive. It's a peculiar English trait. It doesn't really happen in the States to anything like this extent and so overdraft borrowing …….

MB interrupts:

It’s illegal in the States, isn’t it?

PM:

Well not…(pause), pretty much closer, to issue a cheque without having the money in your account can be a theft offence in the United States. So the UK principle of overdrafts has given consumers a high degree of flexibility. The penalty is, if you haven't agreed it beforehand, it can be very expensive.

MB:

And if these charges do come down as the Consumers Association wants, would that mean actually that free banking, so called, might come to an end?

PM:

It must put it at greater risk and there is a big social question arising from that because, in effect, were you to be charged for every transaction that goes through your current account and then have those transactions offset by the value of the balances that you keep, this would be much more favourable to richer people and would mean a possible end to free banking for those in the community who are not as well off.

MB:

Thank you Peter McNamara.