Consumer Access: Financial Services

Colin Clark Excerpts

Thursday 6th June 2019 Westminster Hall

[Nicky Morgan]

I do. I think the FCA is very aware of that, and wants to do better. That is why it has published the consultation on the definition of vulnerability. The hon. Gentleman and I have had previous conversations about the Financial Ombudsman Service, and I have had correspondence with other Members of this House. We all know that the FOS can sometimes struggle to offer the remedies and the speedy service that people are looking for. The FOS performs an important function, and its new leadership is very aware of the challenges. In particular, more and more of us are aware of the ability to go to the Financial Ombudsman Service, which puts pressure on it. However, the basic conclusion of our report is that everybody involved in financial services could do more.

Financial exclusion is a broad issue that can and does affect us all in many different ways. The key areas that the Committee chose to look at were why financial inclusion matters, which I hope I have already captured in my earlier remarks; the many issues that vulnerable consumers face, such as being able to understand their bank statements and communicate with their service providers in the way that they want to; and the closure of local bank branches and the use of post offices as a replacement.

[Colin Clark (Gordon) (Con)]

As a member of the Treasury Committee, I was glad to get into what is a vital issue in Scotland and rural parts of the country, which are being left with no banks because they are closing. One of our recommendations is that post offices should be properly funded and have proper facilities, so that people can use them as banking hubs, but the banks—not the taxpayer or the Post Office—should pay for that, because they are saving a fortune in closing branches and they must take responsibility for customers. Post Office banking hubs cannot be an afterthought at the back of a corner shop; they must be proper facilities that people have confidence in.

[Nicky Morgan]

My hon. Friend is a new but valuable addition to the Treasury Committee and we enjoy having him as a member. He is absolutely right. From the evidence we heard, we concluded that many banks are ushering customers towards the Post Office, which is providing basic banking services to customers of many high street banks at a loss. He is right to say that taxpayers should not subsidise the big six banks’ lack of branches. The Post Office must receive adequate funding from banks for the services it provides on their behalf. I will come on to say that post offices are not always the optimum place for customers, particularly those with vulnerabilities, to receive personal or confidential advice. I hope that that recommendation will be taken on board and that the Minister will respond accordingly.

Other issues that we talked about included insurance companies discriminating against consumers with pre-existing conditions that need not increase their premiums, and how poorly designed physical financial services infrastructure may not be noticed by all, but could have a profound impact on specific groups, such as touch screen ATMs and payment terminals that were rendered useless to the visually impaired. Again, we heard evidence from Eleanor Southwood, who talked about having to hand over her debit card to a taxi driver after a recent journey because she could not use the PIN terminal due to her visual impairment. As it turned out, the taxi driver was a thoroughly honest, decent person, as most taxi drivers are, who respected her need to pay just the bill, but that is another vulnerability that many of us who do not suffer it will not think about. It is not uncommon, however, and our big financial services providers should think about it in the design of their infrastructure.

The inquiry looked at various initiatives to address specific forms of financial exclusion, such as basic bank accounts and powers of attorney. On powers of attorney, as a constituency Member of Parliament, I see more and more older constituents who are appointing people with powers of attorney—other hon. Members may agree. The number of powers of attorney is growing enormously: in 2018-19, 749,000 lasting powers of attorney were registered with the Office of the Public Guardian, which is a 63% increase from 2016-17, and as of May, there were 3,998,000 lasting powers of attorney registered in total. That provides challenges for the carer who has power of attorney, in terms of accessing advice on behalf of the person they are looking after, and for the financial services institution, because it has to judge how much security it wants everyone to go through before it talks to them about account details, while at the same time not making its consumers’ or their carers’ lives more challenging than they already are.

We looked at whether changes to financial services regulation were necessary, such as the introduction of a duty of care to customers, similar to that which exists in legal services. We also investigated whether vulnerable customers were more likely to pay a so-called loyalty penalty for staying with their providers, and the ways in which consumers could be provided with greater access to low-cost credit.

Let me turn to our headline conclusions. I have already set out why financial inclusion is important and why it is a basic right when it comes to being part of our society. It is vital that all financial services providers do what they can to empower consumers to maintain their personal finances and mental health. The Committee heard that firms can do that by incorporating a universal design approach in all their interactions with every customer, which means that all customers, no matter what their individual needs, will be catered for. That can be done by having compassionate, well-trained staff, who ask their customers how they would like to be communicated with, and by making sure that every communication channel is available to them.

On bank closures, which I have already touched on, large sections of society still rely on bank branches and face-to-face conversations with trained staff who understand financial services to carry out their banking needs, which can range from making transactions to taking out mortgages, credit cards or insurance policies. As I am sure hon. Members present can testify, sadly, for many communities, a local bank branch and, increasingly, free-to-use ATMs are becoming a thing of the past.

As we have heard, in many cases banks are redirecting their customers to local post offices to carry out their day-to-day banking, but that has its limits. The Post Office cannot help customers to set up basic banking transactions such as direct debits, nor does it sell mortgages or credit cards in-branch. Even if it did, the layout of many post offices is simply not conducive to giving customers the privacy required to discuss their personal finances.

The Post Office is not a replacement for a rapidly declining branch network, as was apparent during the TSB IT meltdown last year, when customers were told that the best way to make contact with the bank was through their local branch. The TSB branch network actually helped the bank out of its difficulty, because branch staff were by and large very impressive and wanted to help their customers—I think the TSB head office appreciates that. If branch networks are closed, such a workaround will not be possible. The Committee heard that banks have begun to share floor space with other banks or other organisations on the high street to share costs. That is to be encouraged, although it has to be done deliberately and planned properly, and we look forward to more innovation.

The Committee considered the need for a duty of care. Financial services providers should always act in their customers’ best interests, but they are not required to. If the FCA is unable to enforce such behaviour from firms under its current rule book and principles, the Committee supports a legal duty of care, analogous to that in the legal industry, which would create a legal obligation for firms to act in their customers’ best interests. Although a legal duty of care might still mean that customers have to take their provider to court themselves to seek redress, the existence of such a duty would sharpen providers’ minds as to how they treat their customers at all times. The Committee received arguments that a duty of care was not necessary and that financial providers already have to treat their customers fairly under the FCA’s rules, but clearly firms have not always done so.

We also considered the enforcement of the Equality Act 2010, which enshrines in law the obligation for service providers to make reasonable adjustments to assist customers with disabilities. The Committee heard numerous examples, however, where providers were not providing such adjustments. We heard that firms were not always providing interpreters for customers in branches, British Sign Language interpreters for those with hearing loss, or instructions on written correspondence to explain to a customer how to obtain an accessible-format version. Those do not appear to be instances of providers treating customers fairly or complying with the Equality Act.

If consumers want to seek redress, however, they have to take their provider to court as an individual because there is no regulatory body to enforce compliance with the Equality Act on their behalf. The Committee concluded that it would be absurd to expect an individual, particularly a vulnerable individual, to do that themselves, as it would be prohibitively expensive and far too daunting a task. Under existing legislation, the Equality and Human Rights Commission is the statutory body for enforcing the Equality Act, but it confirmed to the Committee that it does not have the relevant resources or expertise to investigate each individual case where a financial services provider is potentially in breach of the Equality Act or is failing to provide reasonable adjustments.

At present, no other statutory body has that power. The FCA told the Committee that it has the expertise and resources, but not the power to act. Therefore, the Committee concluded that the Government should give the FCA the power to take on the enforcement of individual cases relating to financial firms’ compliance with the Equality Act, in addition to the Equality and Human Rights Commission.

There are many other interesting and important aspects of our report that I could talk about, but I will not detain hon. Members for much longer. I urge all hon. Members present to read the Committee’s recommendations in full. The Committee looks forward to hearing the Government’s and the regulator’s responses in due course. I welcome the opportunity to have the debate and for the Minister to respond.

Before I conclude, I want to give one final example that captures it all. You and I, Mr Walker, have worked on mental health issues in this House a lot. We led the first big general debate on mental health in 2012—a groundbreaking experience. Much of the stigma of mental health has been tackled, but there are still cases where people are reluctant to tell others, be they friends or family or financial services providers or anybody else, about their mental health.

We also know that one of the behaviours of certain mental health conditions can be rather exuberant behaviour, sometimes typified by spending. We have one of the most sophisticated financial centres in the world. We have pretty well every major bank represented in the City of London. It struck me, listening to the evidence from Katie Evans, the head of research and policy at the Money and Mental Health Policy Institute, that we can do better, because she said:

“At best, I have heard of people literally putting their credit cards in a Tupperware full of water and putting it in the freezer, which is fantastic: how clever for someone to come up with that system for themselves, to try to put in place the friction they need when they are unwell.”

We should not need people to freeze their credit cards to stop them spending if they have a vulnerability through a mental health condition, or a breakdown, or a crisis. We can do better. Our financial services providers can do better. We will hear today from the shadow Front-Bench spokespeople, and from the Minister, and I hope that we can all make sure that financial inclusion is something that we are championing from here on in.