We welcome the Committee's continued focus on ensuring that there is genuine competition and choice in the UK retail banking market.

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1 money Rt Hon Andrew Tyrie MP Chairman of the Treasury Select Committee Treasury Select Committee House of Commons, Committee Office 14 T othill Street London SWlH 9NB One Eagle Place Piccadilly SWlY 6AF 21 July 2016 Current account Dear Andrew, Thank you for your letter of 5 July. We welcome the Committee's continued focus on ensuring that there is genuine competition and choice in the UK retail banking market. Virgin Money is committed to offering simple, clear products to make it easier for our customers to manage their money. As a result, we took the decision to remove from sale in 2012 the current account product we inherited when we acquired Northern Rock in We continue to service those customers who hold one of these accounts. However, at the end of 2015, just 410 of these customers were in authorised overdraft and only 290 were in unauthorised overdraft. This reflects our policy of restricting overdraft usage by our customers. In place of this product, we launched in 2014 our Essential Current Account (ECA). This is a marketleading basic bank account, which does not have an associated overdraft facility and pays credit interest on balances up to 100,000. All customers holding a Northern Rock current account have the option of switching to the ECA. We feel that it would be helpful if your investigation into Personal Current Account (PCA) overdrafts were positioned in the context of a broader examination of free-if-in-credit (FIIC) banking, preferably before the Competition and Markets Authority (CMA) finalises its remedies. As we set out in our recent responses to the CMA we believe that the PCA market will not function effectively for consumers until there is transparent headline pricing for all consumers. We also feel that the CMA should have gone much further in addressing the competitive distortion arising from FIIC banking. Whilst the FIIC model serves some consumers extremely well, in particular those consumers who do not go overdrawn and/or do not have large positive credit balances, other consumers - particularly persistent overdraft users - are very poorly served. In effect these consumers end up subsidising free banking for others. We continue to believe that the FIIC model is only sustainable as a result of this cross subsidisatiof. (\.-< w,,~ (Como ~ ' Offlre - u,,,, erure.,-."="" """' '"" "'"" ~~ w~,a Moaey,,, - "'''""" m '""''"" sa~s,,i. "'"""" Authorised by the Prudential Regulation Authority and regulated by the F1nanc1al Conduct Authority and the Prudential Regulation Authority V~-1a

2 We welcome the CMA's proposal to require all PCA providers to introduce and publicise a monthly maximum charge (MMC) for the use of unarranged overdrafts. However, we remain concerned that the proposed MMC - whilst potentially affording some direct protection to the very highest unauthorised overdraft users who would see the level of their reduced - is likely to benefit only a small group of customers. This is because the MMC applies only to unarranged overdrafts and because the CMA has provisionally decided to allow banks to set their own individual MMC. As a result, we would expect the large incumbent banks to try to limit the potential loss of revenue from the MMC by setting high MMCs. We have therefore suggested that the CMA should consider: Imposing a regulatory cap on MMCs. This would be equivalent to the regulatory caps that have been imposed on credit card interchange fees and on mobile roaming ; and/or Prohibiting banks from increasing existing or introducing new to offset the impact of the cap on MMCs. This would be equivalent to the approach taken in the Interchange Fee Regulations which imposed regulatory caps on debit and credit card interchange fees. Our detailed answers to your six questions are set out in the attachment to this letter. As ever, we would be delighted to assist the Committee in any way that we can. hie ecutive Officer Virgin Money Virgin Money pie - Registered in England and Wales (Company No ) Registered Office - Jubilee House, Gosforth, Newcastle upon Tyne NE3 4PL Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. VM3442_10.13

3 Virgin Money Response to Treasury Committee Questions on Current Account Charges 1. Background Virgin Money currently has just one Personal Current Account (PCA) on the market the Essential Current Account (ECA). Virgin Money also has a small closed book of Virgin Money Current Accounts (YMCA). acquired from Northern Rock in January These two current accounts are described below. We aspire to offer a broader range of current accounts in the future. including a digital current account. We hope that the remedies arising from the CMA's Retail Banking Market investigation will support this objective. 2. Virgin Money Essential Current Account In 2014 we launched our Essential Current Account (ECA). This is a market-leading basic bank account which, according to MoneySavingExpert.com is one of the top three Basic Bank Accounts (BBA) on the market. The ECA does not have an associated overdraft facility in order to help customers stay in control of their money. Neither does it charge for unpaid items. It pays interest on credit balances (currently 1% AER on balances up to 100,000), making it the best value BBA on the market or credit interest. Furthermore, we do not charge commission on overseas transactions. making it the best value BBA for overseas use. Our eligibility criteria are really simple. The account is available to any UK resident aged 18 or over, including undischarged bankrupts. This is another point of difference in the market. ECA customers enjoy all the benefits of being a Virgin Money customer, including free access to Virgin Money Lounges. 3. Virgin Money Current Account Virgin Money also has a small closed book of current accounts which it inherited when it acquired Northern Rock in Re-named the Virgin Money Current Account (YMCA). this product was closed to new business in We continue to service those customers who hold one of these accounts. At the end of 2015, we had 54,000 active users of the YMCA. Of these customers. only 410 were in authorised overdraft and only 290 were in unauthorised overdraft.

4 4. Responses to questions, The incurred by VMCA customers for overdrqft usage are as follows : Authorised overdraft usage Unauthorised overdraft usage Customers to which Customers who have an Customers who have apply authorised overdraft facility exceeded their authorised overdraft facility; or Customers who do not have an authorised overdraft facility Monthly fee (Only charged when overdraft is used) Interest charged (EAR*) on amount overdrawn (Calculated daily and payable monthly, one month in arrears) Unpaid item % 18.9% l O per unpaid item up to monthly cap of 70 (For customer~ with an authorised overdraft, this fee is paid instead of the l Ofee when they exceed their approved limit) (Applied only to the unauthorised portion of the overdraft) Authorised overdraft facilities on the VMCA are only available on request and are subject to an annual assessment of creditworthiness. The authorised overdraft facility, if granted, is limited to one third of the customer's regular credits into the account over the previous three months. There is a 30-day fee-free buffer of 20 for transactions that would otherwise take customers into authorised (or unauthorised) overdrafts. Virgin Money tries to limit use of unauthorised overdrafts. There are limited circumstances in which customers can enter an unauthorised overdraft. Typically these are where a customer: carries out a debit card transaction that is not fully authorised; or uses the 20 fee-free buffer and does not repay it within 30 days. Once a customer's balance goes below 0 or below their authorised overdraft limit (whichever is lower), we decline any further transactions (where authorisation is sought) and return electronic payments unpaid, to prevent unauthorised borrowing. 2

5 Action Virgin Money takes when a customer enters Into an unauthorised overdraft Virgin Money's processes are designed to encourage VMCA customers to move any unauthorised overdrawn balances back into credit, or back into an authorised overdraft limit (where applicable). These processes are summarised below. We seek to contact customers as soon as we become aware that their accounts are in unauthorised overdraft: Contact, in the first instance, is attempted by phone and is repeated every 7 days that the account remains in unauthorised overdraft; A 'first stage letter' is issued after the first attempt to make contact by phone. This letter sets out the associated with an unauthorised overdraft, requests immediate repayment of the unauthorised overdraft and asks the customer to get in touch if they need help. After 14 days, if the account remains in unauthorised overdraft, a 'second stage ietter' is issued to the customer. This reiterates the associated with an unauthorised overdraft, details how a customer can repay the unauthorised balance, gives the option of affordable repayments or help from third party debt advisors, and finally confirms the action we will take to recover the money owed, in line with the Consumer Credit Act We include a leaflet 'dealing with debt' with that letter. After 28 days, if the account remains in unauthorised overdraft, a 'final stage letter' is issued, detailing the ways the customer can repay the money owed, how to request an affordable repayment plan, and giving fair notice of any further action we will take to recover the authorised overdraft, in line with the Consumer Credit Act 1974, and how to seek help if needed. At the end of the charging period, the customer will receive a 'pre-notification of letter', confirming the relating to overdraft use and/or unpaid items in the period. Whenever we talk to a customer about an unauthorised overdraft, we offer support to those who are not able to repay any unauthorised borrowing, including offering a regular repayment plan (following an affordability assessment), and by providing contact details for a number of organisations that help customers manage their debts. We have a relationship with StepChange Debt Charity and refer to them any current account customers who say that they are struggling financially and would welcome help from them.