Banking (Cash Machine Charges and Financial Inclusion)

Ged Killen Excerpts

1st reading: House of Commons
Wednesday 16th May 2018 Commons Chamber

[Ged Killen (Rutherglen and Hamilton West) (Lab/Co-op)]

I beg to move,

That leave be given to bring in a Bill to prohibit cash machine charges; to require banks to enable free cash withdrawals from current accounts in other circumstances; to require the Financial Conduct Authority to supervise an access to banking standard; to impose penalties for breaches of that standard; to establish a financial inclusion fund, and provide for amounts received in such penalties to be paid into that fund; and for connected purposes.

Recently LINK, which set the funding formula for ATM operators, consulted its members on proposals to reduce from 25p to 20p the interchange fee paid to ATM operators by banks when cash is withdrawn. The first phase of the cut will take place on 1 July 2018. This proposed reduction in the funding formula has led to concerns that many ATMs will become financially unviable and therefore may be forced to close or charge a fee to remain in use.

The Bill seeks to remove the option for ATMs to become fee-charging by banning fees. I take this position, first and foremost, out of principle, as I do not believe that anyone should have to pay to access their own money. However, a ban on ATM charges makes it a practical necessity that an appropriate funding formula for free-to-use ATMs be devised. In supporting this objective, the Bill seeks to provide a legal requirement for access to cash withdrawals through ATMs or other means where there is a demand for it. Such demand would be established through a full market review of the ATM network by the Payment Systems Regulator. There has been no recent review of the demand for access to cash, and as we transition towards a cashless society it is important that we fully and comprehensively establish where demand remains for cash in order to target resources effectively.

Further, the Bill would create a new access to banking standard, borrowing on the existing 2017 access to banking standards, but strengthening them by placing the enforcement of the standard within the remit of the Financial Conduct Authority, rather than the Lending Standards Board. The new standard would introduce a financial inclusion penalty for banks that fail to meet the minimum threshold, with any funds gathered being used for community reinvestment in alternative financial services.

The most concerning thing about LINK’s announcement is that it did not include any consultation with the public. The only people LINK asked were its own members, three quarters of whom are the card issuers and banks that must pay the interchange fee. As a result, LINK could be accused of a conflict of interest, as the majority of those consulted had a financial incentive to see the funding formula reduced.

Owing to this failure to consult, the first major evidence gathered about the public’s views has happened after the fact. Research by the consumer group Which? has found that 44% of those 1,200 members surveyed used a cashpoint at least once a week. Nine in 10 said that access to the free-to-use network was important to their daily lives, with more than half of them describing it as essential for their day-to-day lives. Likewise, a poll of small businesses by the Federation of Small Businesses found that 59% of retail businesses felt a cash machine was useful to their business, with 50% saying their nearest free-to-access cashpoint was already over 1 km from their business.

In my own constituency, we have seen banking services gradually pushed out to the two larger towns of Rutherglen and Hamilton at either end of the constituency, with towns in the middle, such as Cambuslang, left with no bank branches. In fact, there are now more ATMs in the Houses of Parliament than in the entirety of Cambuslang main street. These reductions have a real-world impact. Among other concerns, I often hear from small businesses on Cambuslang main street that rely on small, impulse cash purchases that the ATMs have run out of cash. That has a direct impact on their day’s takings, and yet their views on changes to the interchange fee have not been sought.

I accept that we are moving towards a cashless society, but we are not there yet. People budgeting on a low income, older people and those who are not as confident with advances in digital banking all stand to lose out if we force progress towards a cashless society. We know that dealing in cash costs banks money, which is why we cannot leave it to banks alone to dictate the pace of change. It must be driven by consumers. Without intervention to remove the option of ATM charges, bank branch closures and the reduction of the interchange fee will mean pay-to-use ATMs becoming the norm. We only have to look to the USA, where a similar reduction in the interchange fee has resulted in an average charge of $5 for a withdrawal from a machine not owned by the customer’s bank.

LINK accepts that it wants to reduce the overall number of ATMs and says it expects this reduction to happen in city centres, where there are large clusters of ATMs, but there is simply no way of guaranteeing this effect. With different ATM companies working to different models across the UK, it is inevitable that there will be unintended consequences, and it is people in rural communities or smaller urban towns such as the ones I represent who are most likely to lose out.

The assurances that there will be a financial inclusion programme to incentivise at-risk machines where there is not another free-to-use ATM within 1 km sounds good in theory, but there is no evidence that LINK has the capability or resources to monitor the 70,000 ATMs across the UK. Once a machine closes it can cost between £7,000 and £10,000 to have it reinstalled, meaning that once an ATM goes, it is likely that it is gone for good.

There is a high risk that LINK’s strategy will fail. That risk is currently borne purely by the public, not by the banks or the network that made the decision. The Bill seeks to shift the risk away from the communities who still rely on ATMs. If there is no option for an ATM to turn pay-to-use, the onus will be on LINK and the banks to ensure that it remains financially viable using the interchange fee. Of course, that does not remove the risk that the ATM operator will close the machine altogether, which is why the Bill seeks to provide a legal requirement for access to free cash through ATMs or other means following a market review of the network by the Payment Systems Regulator to establish demand.

The Bill also seeks to address the wider issue of how banks are serving our communities. To our great frustration, it appears that currently they can effectively do what they please when pulling out of those communities. I believe that the access to banking standard serves as a good base to shape a system to protect access to banking infrastructure, but, the Lending Standards Board does not have the powers to enforce it effectively. The Bill therefore proposes to shift the responsibility to the Financial Conduct Authority, and enable the FCA to impose a financial inclusion penalty to provide funds for communities who have been cut off by their banks.

Similar legislation in the US requires banks to provide funding for alternative financial services when they close or relocate. The financial inclusion penalty proposed in the Bill would impose a fine on a bank that does not live up to the access to banking standard, or does not take voluntary action to provide alternative services when it pulls out of a community. The penalty would extract funds that can be used to finance alternative financial infrastructure such as credit unions, banking hubs, or free-to-use ATMs.

To be blunt, ATM charges are a rip-off. Over the last few years, the public have supported banks. Their hard-earned taxes were used to bail them out. In response to that, our communities are being ripped off by the banks at every turn as they relentlessly pursue their mission to drive services online and move towards a cashless society. Society is changing, and technological advancements are to be welcomed, but we cannot leave it to the banks to do the right thing on their own.

I am pleased that the Bill has secured support from members of the three main parties in the House. Let me end by saying that, whatever happens to it after today, if we want to protect the communities whom we represent from being ripped off further, we need to take action. I hope that Members on both sides of the House will support those efforts.

Question put and agreed to.

Ordered,

That Ged Killen, Alex Sobel, Gareth Snell, Stephen Doughty, Mr Paul Sweeney, Danielle Rowley, Dr David Drew, Anna Turley, Chris Stephens, Stephen Kerr, Kirstene Hair and Bill Grant present the Bill.

Ged Killen accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 23 November and to be printed (Bill 210).