Tackling Financial Exclusion (Financial Exclusion Report)

Baroness Tyler of Enfield Excerpts

Monday 18th December 2017 Lords Chamber

Moved by

[Baroness Tyler of Enfield]

That this House takes note of the Report from the Select Committee on Financial Exclusion Tackling Financial Exclusion: A country that works for everyone? (Session 2016-17, HL Paper 132).

[Baroness Tyler of Enfield (LD)]

My Lords, it is a pleasure and a privilege to lead this debate, as it was to chair the Lords Select Committee on Financial Exclusion, a committee proposed initially by my noble friend Lord Kirkwood. The committee published its report just before Easter with a raft of recommendations calling on the Government, the Financial Conduct Authority and the banks to give much greater priority to tackling financial exclusion and ensuring that vulnerable customers were getting a fairer deal. It has felt like a long wait for a government response to the report and for this debate, but I hope it has given all concerned a chance to think seriously about what needs to be done.

I place on record my thanks to my fellow committee members for all their hard work. I consider myself very fortunate to have worked with such a highly committed, engaged, constructive and knowledgeable group of Peers from all Benches. Our discussions were marked by a strong sense of social justice and shared endeavour. We were hugely assisted by all those who provided written and oral evidence—we had 101 submissions of written evidence and 52 witnesses giving oral evidence—and by the very high-quality advice that we received from Professor Karen Rowlingson of the University of Birmingham, who served as a specialist adviser to the committee.

We benefited greatly from two excellent visits, one to Coventry and one to Toynbee Hall. On both occasions we met individuals with first-hand experience of financial exclusion and a range of agencies that provide help and support in this field. I particularly thank the staff of Toynbee Hall, Coventry City Council and Coventry Citizens Advice, who made this possible. Of course none of this could have happened without the truly outstanding support that we receive from the committee secretariat. I want to mention by name our committee clerk, Matt Smith, our policy analyst, Nathan Lechler, and our committee assistant, James Thomas. We in this House are fortunate indeed to have such talented and committed staff who work so hard.

I am proud of the report that we produced. I pay particular tribute to those who produced the easy-read version, which I gather is now considered a model of its type. I was also very pleased by the reception that the report received from both the sector and the media. The extensive media coverage was entirely positive and there was no criticism of the report or any of its recommendations. That suggests that we tapped into a wellspring of support, and I place on record my thanks to Owen Williams, the head of press and media, for his support here.

So what exactly is financial exclusion and why does it matter? Simply put, it is when people, particularly the poorest, cannot get access to fairly priced basic financial services that most people—certainly in this Chamber—take for granted, and are forced to rely on extortionately priced and often substandard financial products. The committee felt that it was deeply ironic that, while the UK is considered a world leader in financial services, some 1.7 million people do not have a bank account, some 8 million people are experiencing problem debt and 40% of the working-age population has less than £100 in savings—that is, no buffer to help deal with any unexpected emergencies.

Uppermost in the committee’s thoughts was the unpalatable fact that the poor pay more, which is often called the poverty premium. Currently the poor pay more for a range of services, from heating their homes to accessing credit, contributing to a vicious circle that can drive people ever deeper into debt. The situation is made worse by the growing number of bank closures, with 53% of UK bank branches closing between 1989 and 2016, a far steeper decline than in many parts of Europe, and the growing number of people who say they are having real difficulty managing their personal finances daily as the cost of living rises while wages stagnate.

So the problem was clear to see. I shall outline briefly some of the report’s recommendations in four key areas and then comment on the Government’s response. I know other committee members will pick up on the other critical areas that I do not have time to cover, particularly financial education, welfare reform, debt advice and financial technology.

The first area I shall focus on is leadership from government and proactive regulation. The evidence that the Select Committee received made it abundantly clear that the lack of a strong lead from government and a coherent strategy to tackle financial exclusion had been at the heart of the problem. Witnesses, including from the Financial Inclusion Commission, consistently lamented the winding up of the Financial Inclusion Taskforce in 2011 as leading to a lack of central government leadership, co-ordination and momentum. Thus, the committee recommended that the Government should appoint a clearly designated Minister for financial inclusion, who should publish a government strategy addressing financial exclusion and make an annual progress report to Parliament, including reporting on high street bank closures and the take-up of basic bank accounts.

We felt that this emphasis needed to be matched by the Financial Conduct Authority, which, in recent years, has introduced a much-needed and successful cap on payday lending. This is why we recommended that the Government should expand the remit of the FCA to include a statutory duty to promote financial inclusion. We also recommended that the FCA be obliged to establish new rules requiring banks and other financial services providers to have a duty of care towards their customers. Taken together, we felt that these measures could transform the delivery of financial services for vulnerable customers.

The second area is financial exclusion and vulnerable groups. It became clear to us that some groups, particularly the elderly, those living with a disability and those suffering from mental health problems, were particularly ill served by the current system. We heard that one-third of people over the age of 80 had either never used a cash machine or preferred to avoid using one and that 93% of those over 80 did not use internet banking. For these people, the ever-increasing rate of closure of physical bank branches is a major cause for concern.

We recognised the two-way relationship between financial exclusion and mental health, and received some compelling evidence on what could be done about it. We recommended that the Government, the FCA and financial services sector should work together to develop and introduce a wider range of control options for those customers experiencing mental health problems—for example, allowing potentially vulnerable consumers voluntarily to opt in to features such as 24-hour delays before processing large transactions, bank accounts with partial third-party control or nudge-type notifications of changes in spending patterns.

It is more than 20 years since the Disability Discrimination Act was passed, introducing the concept of reasonable adjustment into UK law. Banks have had a long time to get it right when it comes to making reasonable adjustments to serve disabled customers. Sadly, we heard far too many examples of failure on the part of banks to tailor their services effectively and appropriately. These included repeatedly contacting deaf customers by telephone and sending written PIN numbers to blind customers instead of using Braille.

As a committee, we considered that to be totally unacceptable, and recommended that the Government, the FCA and the British Banking Association carry out a review of reasonable adjustment practices for disabled customers. I must say that I found the Government’s response particularly disappointing in this regard. I ask the Minister—indeed, I plead with him—to think again.

Thirdly, on access to financial services, in recent years, the number of unbanked people has started to increase again. Too often, we heard that banks were not being proactive in offering basic bank accounts to those customers who were suited to them, or that these accounts were not advertised or promoted properly. Some banks working hard in this area clearly felt that other banks were not pulling their weight. Thus, we recommended that the Government require banks to promote basic bank accounts effectively and take steps to ensure that the burden of providing such accounts, which are clearly loss-making to the banks, is shared more equally.

Barely a week seems to pass without further news of bank branches being closed, and now, also, of ATM closures. This trend is of real concern for those people and groups who rely on physical access to banks or prefer the reassurance of face-to-face communication and dealing directly with bank staff to online banking. The elderly and some of those living with disabilities are at high risk here: we were told that 42% of disabled people are not online, while 37% of retired people are not regular internet users.

Indeed, many of the letters I received immediately after the report was published were from older people or people in rural communities who felt simply abandoned by their bank and were asking why more collaborative measures could not be taken to ensure that there was at least one physical banking presence—perhaps located at a shop, a post office or a community centre—in each town. This would of course involve banks working together to ensure that there was at least one physical banking presence, perhaps located in a shop, post office or community centre, in each town. This would of course involve banks working together, but surely this should not be beyond the wit of man—or, indeed, woman. We were also struck by the sheer scale of the Post Office network which, at 11,600 branches, has more outlets than all the high street banks combined. What is more, the Post Office can offer banking services to 99% of UK current account customers. That is not well known, and we believe that the Government, banks and post offices need to do more to raise public awareness of these services. I was very pleased to have a very constructive meeting with the chief executive of the Post Office in the summer.

Fourthly, an area of particular concern to the committee was the high-cost credit market. In 2015, the FCA introduced new regulations to tackle some of the most egregious practices by placing a cap on both daily interest rates and total interest charges and fees for payday lenders, which were a marked success. But the committee felt strongly that these new rules were too limited in scope and should equally apply to other forms of high-cost credit. In particular, the committee called for urgent action to introduce new controls on rent-to-own products and unauthorised bank overdraft fees. In both instances, the committee received evidence of quite eye-wateringly high interest rates being charged to vulnerable people, forcing them further into financial difficulty. In some cases, it was nothing short of extortionate.

I am pleased that, since the report was published, the FCA, through its own review of high-cost credit, as well as maintaining the payday cap at its current level, is now looking at fundamental reform of unauthorised overdrafts and has the rent-to-own sector very clearly in its sights. I strongly commend the action taken by the FCA on 1 November to order BrightHouse, Britain’s biggest rent-to-own retailer, to repay £14.8 million to nearly 250,000 of its customers. It was extraordinary that there was no mention of this strong action, of which I thoroughly approve, in the Government’s response, which was published a week later. I also commend the stronger focus that the FCA has placed recently on consumer vulnerability and its occasional paper on the ageing population. I was extremely grateful for the very constructive meeting that I had with the chief executive in November.

I now wish to turn to the government response more generally. After a long wait, I cannot pretend that I was anything other than rather disappointed by the tone of the Government’s response. To me, it lacked a sense of urgency and ambition. It contained a longish list of things that the Government were doing anyway and failed to engage directly with a significant number of the issues raised and recommendations in the report. I have done a quick tally and, of the report’s 22 recommendations, four have been implemented, four partially implemented, and 14 not implemented. Perhaps I should be satisfied by that but, given the cross-party consensus achieved in the committee and favourable reception that the report received externally for being reasonable, insightful but largely uncontroversial, I had hoped that the Government would have taken the recommendations a bit more seriously.

I welcome, of course, the creation of a new DWP Minister with financial inclusion in the title, but I was slightly perplexed by how that Minister could take on the stronger leadership and co-ordination role that the Select Committee argued for, particularly when the government response makes it clear that the Treasury Select Committee will take the lead on co-ordination of government-wide policy in this area. Perhaps the Minister will be able to clarify on that point. That said, I look forward to meeting one or both of them, if they can spare the time to see me.

Secondly, I very much welcome the new financial inclusion policy forum, which will,

“enable ministers to take a strategic, cross-government approach on action to improve financial inclusion”.

Could the Minister please say when the body will first meet, how often it will meet, what its membership will be, how the voice of financially excluded people will be heard and whether its agenda and minutes will be published? Most crucially of all, will the policy forum be responsible for producing a cross-government strategy document and an annual report to Parliament, as we recommended?

Finally, I was disappointed that the two recommendations relating specifically to the remit and regulatory powers of the FCA were not greeted more enthusiastically. With the Government’s recent very welcome decision during the passage of the Financial Guidance and Claims Bill to include vulnerability within the stated objectives of the new single financial guidance body, would they consider rethinking whether it would not now make sense to include similar words specifically within the remit of the FCA to bring the two in line? That would be a most welcome step, as would introducing a duty of care, which would make a real difference to the support that vulnerable consumers receive from their banks, particularly, for example, those with cancer.

In conclusion, there is much to do to build a financial services system that works fairly for everyone and helps to tackle rather than exacerbate inequalities. On many occasions, this Government have said that they want a country and system that works for all, not just the well off. So do I, and despite the government response I still hope that the Government share our view that the current level of financial exclusion is unacceptable and our sense of urgency to do something about it. The victims of the current system are often the most vulnerable—the elderly, the poor and those living with a disability. At this time of good will, let us demonstrate in this debate and by the actions that we take that we truly care. I beg to move.