Banks: Vulnerable Customers

Lord Ashton of Hyde Excerpts

Monday 21st December 2015 Lords Chamber

[Lord Ashton of Hyde (Con)]

My Lords, I thank all noble Lords who have spoken today and I especially thank the noble Baroness, Lady Hayter, for securing the debate and giving me this opportunity to explain how the Government try to ensure that retail banks treat their vulnerable customers fairly.

I have to say that I agree with nearly everything that all noble Lords have said. I, too, have had personal experience of these issues, including the power of attorney issue—my mother died last year of Alzheimer’s, so there were other issues that I will not bore noble Lords with. Interestingly, my father was a director of Barclays Bank for 20 years and worked for them all his life—some time ago, I hasten to add, before the latest troubles occurred. In those days, there was a greatly different approach to individual customers. That is something that banks need to think about. They certainly knew their customers a lot better than they do now. Incidentally, my father was a director of both Barclays and Barclaycard.

The Government are determined that banks, and the wider financial services sector, should work for everyone, at every stage of their lives. We want to improve access to financial services for all—I will come back to the remarks made on that by the noble Baroness, Lady Janke—including the elderly, the vulnerable and rural communities.

The UK does have in place a strong regulatory framework to protect customers. In 2012, the Financial Conduct Authority was set up to regulate the conduct of all financial services firms. The FCA requires banks and building societies to provide a prompt, efficient and fair service to all their customers, and that includes the vulnerable. The FCA is, of course, accountable to Parliament, and its annual report sets out progress on its operational objectives. The handbook requires firms to identify particularly vulnerable customers and to deal with such customers appropriately. The first of its three operational objectives is to secure an appropriate degree of protection for customers.

The FCA also engages actively with the industry to ensure that firms consider the needs of their vulnerable customers. As many noble Lords have mentioned, earlier this year the FCA published an occasional paper on Consumer Vulnerability and a Practitioners’ Pack to help industry create and implement appropriate strategies to address the needs of vulnerable customers. This work captured findings from a number of third sector organisations. What was shocking to me in that report was the sheer scale of consumer vulnerability in the UK, particularly in literacy and numeracy. However, it also highlighted the success of partnerships between retail banks and charities such as the Alzheimer’s Society. These partnerships have helped banks and building societies, and in particular front-line staff, to better understand the needs of customers. The clear message from the FCA research is that we can all become vulnerable.

Many commentators, including the Financial Services Consumer Panel, of which the noble Baroness was a distinguished vice-chairman, think that firms can still do more. Since the FCA research was published, the British Bankers’ Association has set up the financial services vulnerability task force, in September. This will look at how institutions can improve the experience of customers who may be in vulnerable circumstances. The FCA is involved in this work, alongside a number of charities and financial services trade groups.

The objectives of the task force are to identify good practice and the gaps where policy, systems, products and implementation could be improved, and to make recommendations within six months to see that best practice is adopted across the industry. In particular, it will consider opportunities for retail banks to deliver more consistency in key processes, such as firms’ requirements of consumers in bereavement notifications, access to power of attorney accounts, which the noble Lord, Lord Soley, referred to, and identification requirements. I can tell the noble Lord, Lord Soley, that the power of attorney issue will be covered by the BBA task force. It is clear that this is something that members of the industry have started to recognise and are looking to address.

The aim should be that vulnerable customers are treated fairly from the outset. If that is not the case, it is of course possible for the customer to complain to their bank. Again, the FCA’s rules require the banks to properly investigate all complaints, and it monitors complaint-handling processes. If the customer is unhappy with the way the bank has handled their complaint, the Financial Ombudsman Service may be able to investigate. It provides a free, independent dispute resolution service for bank customers, and would consider the emotional or practical impact on a customer and not just financial loss.

The Government are also working hard to ensure that all customers can access the banking services that they need, which the noble Baroness, Lady Janke, and the noble Lord, Lord Cashman, referred to. The regulation of the consumer credit market has been fundamentally reformed by transferring responsibility for consumer credit regulation, including the payday market, from the Office of Fair Trading to the FCA, which has much stronger powers. The Government have legislated to require the FCA to introduce a cap on the cost of payday loans to protect consumers from unfair costs.

The noble Baroness, Lady Janke, mentioned also financial literacy, which has been introduced into the secondary school national curriculum.

The Government also recognise the difficulties customers may have in accessing a bank account, which relates to the points made by the noble Baroness, Lady Janke, about exclusion. To address this, the Government have reached a landmark agreement on basic bank accounts. It makes clear the groups of customers who should be offered a basic bank account, including those who have no bank account, have a bank account elsewhere but want to change provider, or have a bank account but are in financial difficulty and want their bank to open a new, functional account for them.

Until now, basic bank account customers have risked incurring charges for failed payments, meaning financially vulnerable customers could be pushed into serious debt. From the end of this year, basic bank accounts offered by the nine major current account providers in the UK will be truly fee free, including for failed payments. In September 2016, the Payment Accounts Regulations—to which the noble Lord, Lord Cashman, referred—will come into force, and I had the pleasure of taking them through this House with the full support of the opposition parties. That will create a firm legislative framework for continued access to basic bank accounts in the future.

The noble Baroness, Lady Hayter, asked about the Competition and Markets Authority. Its provisional findings were published at the end of October and they still need to be consulted on. The CMA will issue a final report next spring but the Government stand ready to take action as appropriate once we have the CMA’s final recommendations.

The noble Baroness also referred to bank account closures. The supervisors in the FCA may well use account closure as an example to explore how a bank treats its customers. If they receive specific intelligence on an issue at a specific firm, they may consider whether it is appropriate to pursue the issue. As I have said, individual cases should be pushed through the official complaints process.

The noble Baroness, Lady Janke, referred to credit unions as part of her remarks on exclusion in financial services. We have encouraged the growth of the credit union sector, but I will not go into the detail of that.

The noble Baroness also asked what the Government are doing to ensure that the vulnerable, the elderly and the rural communities have access to banking services. We are committed to improving access for those groups. Banks and building societies are required by the FCA to provide a prompt, efficient and fair service to all their customers. Very importantly, each of the major banks offers some level of service through the Post Office network, which the majority of the banks’ customers can use in 11,500 branches across the UK.

I mentioned financial literacy at school, but financial literacy and numeracy among adults in this country is also quite shocking. The coalition Government established the Money Advice Service to enhance consumers’ understanding and knowledge of financial matters. Recently, we launched Pension Wise, which offers free and impartial guidance to those aged 50 or over on their retirement options.

On basic bank accounts, I mentioned the payment accounts directive and the agreement that we had reached. These negotiations to improve basic bank accounts have been aimed at preventing practices such as limited access to ATMs and the charging of significant fees.

The noble Lord, Lord Soley, referred to the power of attorney. It is an issue which will be covered by the BBA task force. That is a very important aspect that it needs to cover. On auto-renewal, the FCA has launched a consultation, which was published on 3 December. I feel that there has been a sea change in the sense that the FCA has been very clear in what it has written and what it expects from companies. The BBA task force, which covers all financial services, has a wide group involved in it, including charities, and will report in six months. As I have said, the Government stand ready to come in but we will see what it comes up with in a relatively short space of time.

In conclusion, I assure all noble Lords who have spoken that the Government are committed to ensuring that retail banks treat all their customers fairly. This includes vulnerable customers. I hope the Government’s actions that I have outlined today provide noble Lords with some reassurance on this point.