The Treasury Committee has published a new unanimously-agreed Report on consumers’ access to financial services. The report says access to financial services and financial inclusion are issues of fundamental importance to the Treasury Committee, UK consumers, and also the functioning of the economy. Everyone can be vulnerable at some point, so financial inclusion matters to everybody, not just the disadvantaged.
The report says a duty of care is an obligation to exercise reasonable care and skill when providing a product or service. All retail financial services providers (FSPs) should always be acting in their customers’ best interests, but they are currently not required to do so. If the Financial Conduct Authority (FCA) can’t enforce such behaviour, the Committee would support a legal duty of care, creating a legal obligation for firms to act in their customers’ best interests.
The Equality and Human Rights Commission (EHRC) has a range of enforcement powers for Equality Act 2010, which requires service providers to make reasonable adjustments for individuals covered by the Act. Reasonable adjustments that FSPs should make include providing interpreters, tactile bank cards and Braille or Moon tactile font communications.
The FCA should make it clear to FSPs that such adjustments are expected of them under its principle of treating customers fairly. The EHRC has decided that enforcing access to financial services is not one of its strategic priorities and that it is unable to take on individual cases due to a lack of resources. Either the FCA or the Financial Ombudsman Service (FOS) (who do have the resources and expertise) must be given the legal power to take on such cases on behalf of consumers. Other suggestions from the report include:
- The loyalty penalty is the cost of being a long-standing customer, compared to a new customer receiving the same product or service. Citizens Advice has calculated that this could be nearly £1,000 extra per year. The Competitions and Market Authority (CMA) has said vulnerable people may be more at risk of paying the loyalty penalty. In line with the CMA’s recommendation, the FCA should make it mandatory for firms to publish the size of their loyalty penalties to consumers so that they are fully informed.
- Vulnerable people, such as the elderly or those on lower incomes, are more likely to be impacted by bank branch closures as they often rely on branches to carry out their banking needs. Preserving a branch network, therefore, should help preserve financial inclusion. The increasing number of IT failures within banks, and the inability of FSPs to serve their customers digitally during such service failures, shows why banks can’t rely solely on their digital channels to replace branches entirely.
- Many banks are ushering customers towards the Post Office, which is a Government-owned company providing basic banking services to customers of many high street banks. The Post Office provides this service at a loss. Taxpayers should not be subsidising the big six banks’ lack of branches. The Government must ensure that the Post Office receives adequate funding from banks for the services it provides on their behalf. The Post Office is not an optimum environment for customers, particularly vulnerable ones, for banking services as staff are typically not banking specialists. Rather, the service provided is comparable to that of an ATM. The Post Office should not be seen as a replacement for a bank branches, but a complimentary proposition where available. In cases where the ‘last bank in town’ is due to close, banks should be required to provide and fund ‘banking hubs’ in the local Post Office, with adequately trained staff.
- To protect the freedom of consumers to pay for goods and services how they choose, free access to cash must be maintained for those who need it. This includes free-to-use ATMs. The Government should implement the recommendations of the independent Access to Cash Review urgently. Failure from the Government to intervene risks the UK inadvertently becoming a cashless society. For the most vulnerable in society, this would have stark consequences.
- Banks should follow Monzo’s lead on its voluntary block on gambling transactions. There is scope for banks to do more to help consumers with other types of spending blocks, but they are restricted by a lack of data. For example, an alcohol purchasing block is possible. However, the current lack of data means that a supermarket cannot distinguish between an alcohol purchase and anything else. Retailers tend not to make the required granular data available to FSPs. Whilst there are concerns about the privacy of consumer data, the idea of providing such data to FSPs with the informed consent of consumers should be explored.
Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said “The importance of financial inclusion cannot be understated. As the World Bank said recently, there can be no end to poverty without financial inclusion. And as Eleanor Southwood from the RNIB told the Committee, financial inclusion is about independence, protection from financial abuse, and confidence.”
“The financial inclusion of vulnerable consumers – and we can all be vulnerable at some point in our lives – should be of the utmost priority for financial services providers, the Government, and financial regulators. It can no longer be an option for banks to ignore financial inclusion.”
“A patchwork of improvements and adjustments have been targeted at some groups of consumers, but the basic level of access is still not universal. There are significant areas of concern where vulnerable consumers are effectively excluded from participating with financial services providers.”
“This report makes a series of recommendations to Government and the regulator for how consumers’ access to financial services can be improved.”
Responding to the recommendations StepChange Debt Charity said it welcomes the Committee’s high levels of expectation of Government action in relation to bailiff reform and the introduction of a pilot No Interest Loan Scheme.
Richard Lane, Director of External Affairs at StepChange Debt Charity, said “It’s good to see the Treasury Committee seeking to hold the Government’s feet to the fire on progress in introducing the No Interest Loan Scheme feasibility pilot, bailiff reform, and improvements on government debt collection practice. People experiencing problem debt really do need help, and the scrutiny now being given by MPs to the flaws in the system can only lead to improvements.”
Joanna Elson OBE, Chief Executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said “We welcome this wide-ranging report which covers many important issues for consumers across the areas of financial inclusion, access and vulnerability. We are particularly pleased to see the Treasury Select Committee’s strong support for the vulnerability agenda, including recommending that the FCA sets clear expectations for firms in its forthcoming guidance, and highlighting the central importance of training for financial services staff.”
“As the report notes, demand for the Money Advice Trust’s vulnerability training is increasing significantly – and we have now worked with more than 220 creditors to train more than 19,000 staff. However, the Committee is right to highlight that progress has not been uniform – and as our collective understanding of vulnerability improves, this is an issue that requires a constant focus from firms of all sizes.”
“The FCA’s forthcoming guidance is a good opportunity to renew momentum on vulnerability across the industry. We look forward to working with the FCA and with firms to continue to improve in this crucial area.”
Gillian Guy, Chief Executive of Citizens Advice, said “It is essential banks provide support to their customers – particularly people who are vulnerable due to their health or financial situation. MPs are right to expect this duty of care to be enforced.”
“It’s astounding that banks are not currently required to act in their customers’ best interests or pay attention to their specific circumstances. When they spot warning signs of financial difficulty, banks should provide support and set up a phone or face-to-face debt advice session.”
“We also know vulnerable consumers are more likely to pay the loyalty penalty. While it’s a good first step to call on banks to report on the size of the loyalty penalty, stronger action is needed to stamp out this bad practice.”