While the UK has a world class financial services sector, it is failing those customers who need it most. The Committee heard that more than 1.7m people in the UK do not have a bank account, and that 40% of the working age population had less than £100 in savings. Estimates suggest at least 600,000 older people are financially excluded, while 51% of 18 to 24 year olds regularly worry about money.
The report says the Government should show its commitment to addressing this issue by broadening the remit of the FCA to give priority to tackling financial exclusion, and working with the FCA to establish new rules requiring banks to have a duty of care towards their customers. This would strengthen the protection offered to customers and reduce the potential for unfair practices.
The Government should also appoint a Minister for Financial Inclusion and report annually to Parliament on progress made toward addressing financial exclusion.
The report highlights that regulation has proved to be effective in tackling abusive practices by pay day loan companies since the Government asked the FCA to cap interest rates. The Committee recommends that similar restrictions should be introduced for other forms of high cost credit. The Committee calls for urgent action to introduce new controls on ‘rent to own’ products and unarranged overdraft fees.
Better financial literacy is identified by the Committee as a key priority for reducing financial exclusion. To achieve this the report says financial education should be introduced to the English primary school curriculum and that Ofsted should assess the extent to which schools provide young people with the necessary financial knowledge and skills.
The Committee also considered the relationship between disability, mental health issues and financial exclusion. It calls on the Government, the FCA and the British Bankers Association to carry out a review of reasonable adjustments for disabled customers and to publish that review within 18 months. The Committee points out that banks are required by law to make reasonable adjustments when communicating with disabled customers but do not appear to be doing so.
The report also identifies the accelerating trend for banks to focus on online services at the expense of their branch network as potentially excluding older people and others who lack access to the internet - 53% of UK bank branches closed down between 1989 and 2016. The Post Office now has more physical outlets than all the high street banks combined, and can offer banking services for 99% of current account customers in the UK, although awareness of this service is very low at present. The Committee calls for the banks and Government to fund a major publicity campaign to address this, and to help the Post Office provide services to those customers who have lost their local bank branch.
The Committee also considered the impact of Universal Credit on financial exclusion and highlighted the six-week gap between claiming Universal Credit and receiving the first payment as a period during which people were at risk of taking on unaffordable debt or falling into arrears. To tackle this the Committee recommends the Government abolish the seven-day wait before a claimant becomes entitled to Universal Credit, and also that it should allow more flexibility about whether payments are made monthly or more frequently. This flexibility is already in place in Scotland and Northern Ireland.
Commenting, Baroness Tyler of Enfield, Chairman of the House of Lords Financial Exclusion Committee, said:
“The UK financial services sector is a world leader which makes it doubly unacceptable that it is failing those who need it most. Too many people still have no bank account or cannot get access to basic or fairly priced financial services. The ‘poverty premium’—where the poor pay more for a range of services from heating their home to accessing credit—contributes to a vicious circle driving people ever deeper into debt and distress.
“The Government have said they want the system to ‘work for everyone’. So do we. We hope they share our view that the current level of financial exclusion is unacceptable. The victims are often the most vulnerable in society – the elderly, the poor or those living with physical disabilities or mental health issues. Action must be taken to ensure the financial system in this country works for all.
“The Government and the FCA should introduce a duty of care for bank customers - currently some banks deliver on their social responsibilities, but too many don’t. It is time we required them to do so. Banks should also ensure they are offering, and properly promoting, basic bank accounts to those customers who need them.
“All too often, disabled customers are being failed by banks who are not adjusting their communications and procedures to serve them properly. We have heard of banks contacting deaf people by phone and sending written PIN numbers to blind people instead of using braille. Banks must review their own practices toward disabled customers to ensure they are making the reasonable adjustments already required of them by law. It is totally unacceptable that this situation persists, over twenty years after the introduction of the Disability Discrimination Act.”