Tackling financial exclusion: A country that works for everyone?

The House of Lords Select Committee into Financial Exclusion, of which Chris is a member, published their report “Tackling financial exclusion: A country that works for everyone?” on 25th March. The report calls on the Government, the Financial Conduct Authority and banks to give greater priority to tackling financial exclusion.

While the UK has a world class financial services sector, it is failing those customers who need it most. The Committee heard that more than 1.7m people in the UK do not have a bank account, and that 40% of the working age population had less than £100 in savings. Estimates suggest at least 600,000 older people are financially excluded, while 51% of 18 to 24 year olds regularly worry about money.

The report says the Government should show its commitment to addressing this issue by broadening the remit of the FCA to give priority to tackling financial exclusion, and working with the FCA to establish new rules requiring banks to have a duty of care towards their customers. This would strengthen the protection offered to customers and reduce the potential for unfair practices.

The Government should also appoint a Minister for Financial Inclusion and report annually to Parliament on progress made toward addressing financial exclusion.

The report highlights that regulation has proved to be effective in tackling abusive practices by pay day loan companies since the Government asked the FCA to cap interest rates. The Committee recommends that similar restrictions should be introduced for other forms of high cost credit. The Committee calls for urgent action to introduce new controls on ‘rent to own’ products and unarranged overdraft fees.

Better financial literacy is identified by the Committee as a key priority for reducing financial exclusion. To achieve this the report says financial education should be introduced to the English primary school curriculum and that Ofsted should assess the extent to which schools provide young people with the necessary financial knowledge and skills.

The Committee also considered the relationship between disability, mental health issues and financial exclusion. It calls on the Government, the FCA and the British Bankers Association to carry out a review of reasonable adjustments for disabled customers and to publish that review within 18 months. The Committee points out that banks are required by law to make reasonable adjustments when communicating with disabled customers but do not appear to be doing so.

The report also identifies the accelerating trend for banks to focus on online services at the expense of their branch network as potentially excluding older people and others who lack access to the internet – 53% of UK bank branches closed down between 1989 and 2016. The Post Office now has more physical outlets than all the high street banks combined, and can offer banking services for 99% of current account customers in the UK, although awareness of this service is very low at present. The Committee calls for the banks and Government to fund a major publicity campaign to address this, and to help the Post Office provide services to those customers who have lost their local bank branch.

The Committee also considered the impact of Universal Credit on financial exclusion and highlighted the six-week gap between claiming Universal Credit and receiving the first payment as a period during which people were at risk of taking on unaffordable debt or falling into arrears. To tackle this the Committee recommends the Government abolish the seven-day wait before a claimant becomes entitled to Universal Credit, and also that it should allow more flexibility about whether payments are made monthly or more frequently. This flexibility is already in place in Scotland and Northern Ireland.

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