Banks: Vulnerable Customers

Baroness Janke Excerpts

Monday 21st December 2015 Lords Chamber

[Baroness Janke (LD)]

My Lords, I am grateful for the opportunity to hear from the noble Baroness, Lady Hayter, about the experience that she has described. It is certainly the case that banks need to look at how their systems work regarding vulnerable customers. I was hoping today to raise the wider issue of financial exclusion in the UK, which has been of concern for some time.

The Parliamentary Commission on Banking Standards estimated that 3 million people are financially excluded—that is, excluded from or unable to engage with the financial services necessary to play a full part in modern life, to manage money to absorb financial shocks, and to plan and provide for the future. Information from the Community Investment Coalition states that 9 million people are overindebted; 13 million people do not have enough savings to support them for a month if they experience a 25% cut in income; and 56% of the poorest households do not have home contents insurance. Citizens advice bureaux in England and Wales dealt with 4,907 new debt problems every day during the quarter ending September 2015.

Access to basic banking facilities is an essential part of modern life, as employers and government agencies move away from cash and cheques towards electronic payments. Small and micro businesses are also affected by difficulties in accessing basic affordable financial tools. This impacts on their sustainability and opportunities for growth. Effective tools for savings, payments and accessing credit and insurance can help people to climb out of poverty or get through a crisis or emergency without falling into debt. It can help businesses to survive and grow and not slide into bankruptcy should a crisis occur.

While there is a rapid move to mobile banking, many older people, cash-based businesses and people in poorer communities are still dependent on access to bank branches to manage their money, yet there was a net loss of nearly 7,500 bank and building society branches between 1989 and 2012—more than 40% of all branches.

The coalition Government undertook a series of measures to tackle specific barriers to financial inclusion, including a £38 million investment in the credit union advancement project, while the previous Government provided £74 million for credit unions and community development finance institutions to lend to deprived and excluded communities. Finance education was put on the national curriculum for secondary schools in England, and the regulation of high-cost short-term credit and auto-enrolment for workplace pensions were introduced. Local authorities and housing associations are trialling ways of supporting financial capability and tackling indebtedness.

However, more needs to be done to address financial exclusion. Every adult, household and business should have access to a basic package of fair and affordable finance tools to actively participate in the economy through employment or entrepreneurialism. These should include a basic transactional bank account; a savings scheme; access to credit; physical access to banking facilities; insurance; and independent money management advice. Clear action from government must include an examination of community finance provision across the UK to identify where communities have the potential to be well served by existing providers and where there are gaps, and an evaluation of existing affordable finance tools—what the take-up is in poorer communities, whether available products are meeting demand and how these products can be offered more widely.

The Government should give regulators clear direction on the value and importance of the community finance sector and the need to regulate to encourage stability and growth. There should be a scaling-up of the community finance sector to increase investment and access to capital with the creation of a banking licence tailored to this sector. This would include permitting co-operatives to hold banking licences and investing in suppliers of central services to all local community finance providers, such as access to payments, infrastructure and regulatory compliance.

Although progress has been made in reducing financial exclusion, radical change in such areas as digital technology, finance systems, benefits and pensions means that a strong lead must be taken by government if the poorest and most vulnerable in society are to be protected from financial disadvantage and the disastrous outcomes that may result. I very much hope that the Minister will consider these proposals and perhaps be able to describe what the Government are doing to reduce financial exclusion and enable everybody to participate in the modern world without the disasters that we know have befallen many vulnerable citizens.