HSBC ID. Rt Hon Andrew Tyrie MP Chairman of the Treasury Committee House of Commons Committee Office 14 Tothill Street London SW1H 9NB.

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1 ID Antonio P S Simoes Chief Executive Officer pie Rt Hon Andrew Tyrie MP Chairman of the Treasury Committee House of Commons Committee Office 14 Tothill Street London SW1H 9NB 26 July 2016 Thank you for your letter, of 5 July 2016, enquiring about any overdraft charges associated with the and first direct current accounts. I am replying on behalf of both and first direct, as both brands operate under the same banking licence and there are only small variances in the specific customer overdraft propositions between the brands. M&S will be responding directly to your letter addressed to them. and first direct are focused on providing the very best products and services, offering both value and transparency to meet the needs of our customers. Both and first direct's overdrafts have a simple charging structure that we believe are amongst the most competitive in the market. We also send real time notifications to our customers so they can help avoid unwanted charges. In addition first direct's current account also provides an automatic 250 interest free overdraft. While not the focus of your letter, we are also working to reduce cost and complexity for our business customers. recently reduced its minimum arrangement and renewal fees for business overdrafts from 100 to 25 as part of a broader set of initiatives to support British SM Es. We agree with the Competition and Markets Authority (CMA) that overdrafts should be clear, transparent and provide prompts to customers so that they can take action as necessary. Our goal is to ensure the best outcomes possible for our customers and I set out some examples below: Each current account has a single interest rate for both authorised and unauthorised overdrafts, and where applicable, a single 5 per day fee for customers who enter an unauthorised overdraft. other fees are applied. Customers who enter into an unauthorised overdraft are notified by text message that they are about to incur a fee, and given the opportunity to avoid that fee if they transfer funds before the end of the day. They receive further text notifications that they have been charged, or that an item will not be paid unless funds are transferred. and first direct were the first banks to auto-enrol customers to receive text alerts and have observed a real customer benefit of introducing them, with 52% of and 74% of first direct customers who receive our alerts paying in covering funds and thus avoiding the fee. pie Level 42, 8 Canada Square, London El4 5HQ Tel: Registered in England number l Registered Office: 8 Canada Square, London E/4 5HQ Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prndential Regulation Authority

2 ID We continue to engage with the CMA on their review of retail banking, which has included a very detailed scrutiny of overdrafts. We believe the range of CMA proposals on overdrafts will help to i_ncrease competition and ultimately improve consumer outcomes. I wanted to take this opportunity to comment on recent media articles which appeared to conflate unauthorised overdrafts with payday loans. Unlike payday loans, unauthorised overdrafts constitute unplanned, unanticipated and emergency borrowing. When a customer enters into an unauthorised overdraft, our objective is to prompt them to bring themselves back within their arranged limit as quickly as possible. The combination of transparent daily fees and text message alerts is the most effective means by which to achieve this outcome. For ease of reference, please find below the answers to your questions in Q&A format. pie Level 42, 8 Canada Square, London El4 5HQ Tel: llegislered in England numher /./159. Regislered Office: 8 Canada Sq11are, London /./ 5HQ Aulhorised by lhe Prudential lleg11/a1io11 A111horily and regu/a,ed hy the Financial Conduct A111horityand the l'mden/ial Reg11/atio11 Aulhority

3 1. What is the daily charge for a customer using an authorised overdraft For authorised overdrafts /first direct customers only incur overdraft interest, we do not charge any set up or usage fees. The overdraft interest incurred is calculated based on the customer's balance at 11.45pm. Below is a table of our current account products with the overdraft interest rates and an example of charges incurred based on a customer utilising an authorised overdraft of 100 for 28 days. Premier Advance Pay Monthly Graduate Student Basic first direct l5 1 Interest 11.9% 17.9% 19.9% 19.9% 19.9% 0% N/A 15.9% Rate (EAR) minal Rate Interest Free Amount Cost of a 100 Authorised OD for 28 days 11.3% 16.58% 18.29% 18.29% 18.29% 0% N/A 14.85% First in lst year 1000 thereafter Entire Balance N/A First 250 N/A 2. Is there a cap on the charge incurred by a customer using an authorised overdraft? If so, what is the maximum charge that a customer can incur in any week, month or year? / first direct only charges debit interest on authorised overdrafts, which is calculated on the actual balance and as a result we do not apply a cap.

4 3. What is the daily charge incurred by a customer using an unauthorised overdraft? Below is a table of our current account products with the charges applicable to unauthorised overdraft usage. Daily Unauthorised Usage Fee Monthly Fee Cap Basic first direct Premier Advance Pay Graduate Student l5 1 Monthly Fees Fees 51 Fees N/A 51 N/A N/A 80 N/A N/A 80 Interest Rate 11.9% 17.9% 19.9% 19.9% 19.9% 0% N/A 15.9% (EAR) minal Rate 11.3% 16.58% 18.29% 18.29% 18.29% 0% N/A 14.85% Interest Free Amount Cost of a 100 Unauthorised OD for 28 days First in lst year 1000 thereafter 2 Entire Balance 2 N/A First N/A 80 1 The 5 daily fee will not be incurred if: Covering funds are paid in before ll.4spm, The account is in unauthorised overdraft by 10 or less, The account has been in unauthorised overdraft for more than 30 consecutive days. If the account is in unauthorised overdraft solely because an overdraft charge or interest has been deducted. 2 The interest free element covers debit balances within an authorised and unauthorised overdrafts

5 4. Is there a cap on the charge incurred by a customer using an unauthorised overdraft? If so, what is the maximum charge that a customer can incur in any week, month or year? Our current unauthorised overdraft pricing includes a maximum fee cap of 80 per month (this does not include overdraft interest). This is a central feature of our overdraft pricing, as it provides customers with certainty on the maximum amount they could be charged in any one period. In addition, we have further parameters within our pricing structure to ensure the best outcome for the customer. These parameters are as follows: We won't charge more in daily Unauthorised Usage Fees than the maximum amount an account has been in unauthorised overdraft during a charging month. We won't charge a daily Unauthorised Usage Fee if a customers' account has been in unauthorised overdraft for more than 30 consecutive days. We won't charge if an account is in unauthorised overdraft solely because an overdraft fee or interest has been deducted. 5. Are any other costs incurred by a customer for using an unauthorised overdraft? If so, what is the maximum charge that a customer can incur in any week, month, or year? There are no other costs incurred by a customer other than overdraft interest and the daily unauthorised overdraft usage fees detailed above. te our overdraft interest rate is the same for authorised and unauthorised overdrafts. We do not charge for our overdraft text alert service and while not linked to unauthorised overdraft usage we do not charge unpaid item fees. 6. What action does /first direct take - if - any - when a customer enters into an unauthorised overdraft? For accounts that we charge daily unauthorised overdraft usage fees we have auto-enrolled all of our customers for whom we have mobile telephone numbers (over 70 per cent, and we are actively seeking numbers for the rest) into our overdraft text alert service. We will send our customers an overdraft text alert to advise them they are entering an unauthorised overdraft and if they pay in covering funds before 11.45pm they will avoid a fee. If the customer takes no action we send them a second message the next day to inform them that they have been charged a 5 fee and that they can still pay in before in 11.45pm to avoid a further fee. We have observed a real customer benefit of introducing these alerts on an auto-enrol basis with 52% of and 74% of first direct customers, who receive our alerts, pay in covering funds and thus avoid the fee.