APPENDIX 2
Memorandum by the Citizens Advice Bureau
SUMMARY
Citizens Advice Bureaux (CABx) developed a great
deal of experience helping clients move to direct payment of benefits
into bank accounts, and have helped many people choose the most
appropriate method of payment for their circumstances during the
migration from benefit books to direct payment.
We are extremely concerned about the lack of
clarity on the future of the Post Office card account (POCA) when
the current contract runs out in 2010, and are frustrated about
the lack of clear information given by the Department for Work
and Pensions (DWP) about its plans for the POCA. This frustration
extends to the lack of consultation about the brief pilots that
were run by DWP to test methods of encouraging POCA holders to
migrate to bank accounts. We are disappointed that the report
of the results from the pilots has only just been laid before
parliament (20 July 2006) and fear that the timing of its publication
may limit the level of Parliamentary scrutiny which it receives.
While up to 70% of people with POCAs also possess
some type of bank account, those without bank accounts—who
are likely to be among the most financially excluded and vulnerable—must
not be forgotten when the POCA is phased out. We understand that
DWP is considering the provision of some form of functional account
for these people, and would encourage them to ensure that this
meets the needs of this group and is in place well before 2010.
Operation of this account will rightly be determined by competitive
tender, but we see great value in Post Office Limited bidding
to run the account since this may help to minimise disruption
while also allowing vulnerable customers to benefit from the extensive
Post Office network.
It seems likely that DWP will be keen to migrate
as many people who currently have POCAs to open bank accounts.
Citizens Advice considers that any proposals to migrate people
to bank accounts should only go ahead if a number of conditions
are met:
1. There must be significant investment
in the process of migration since it is necessary to make sure
people are offered appropriate accounts, that the accounts allow
people to access their money at the most convenient location,
and that people receive the support that they require when making
any transition. DWP should make sure that its submission to HM
Treasury as part of the Comprehensive Spending Review takes account
of this.
2. It is imperative that the process of
opening basic bank accounts is made much easier. This must include
the need for greater flexibility over acceptable identification
documents and access to accounts for people in debt or undischarged
bankrupts.
3. People should be able to open basic bank
accounts in post office branches, and all current account holders
should be able to withdraw cash over the counter at Post Offices.
1. INTRODUCTION
1.1 The Citizens Advice Bureaux (CAB) network
is the largest independent network of free advice centres in Europe,
providing advice from over 3,200 outlets, ranging from GPs' surgeries,
hospitals, community centres, county courts and magistrates courts,
and mobile services both in rural areas and to serve particular
dispersed groups.
1.2 The service has two equal aims:
— to ensure that individuals do
not suffer through lack of knowledge of their rights and responsibilities
or of the services available to them, or through an inability
to express their needs effectively;
— and equally, to exercise a responsible
influence on the development of social policies and services,
both locally and nationally.
1.3 In 2004-05 the CAB service dealt with
5.2 million new enquiries. Of these enquiries nearly 1.2 million
were debt or finance-related. Between January and June 2006, 116
bureaux submitting detailed statistics to Citizens Advice reported
that almost a third of their enquiries about bank accounts and
post office card accounts—and by far the largest number—related
to problems with access.
1.4 CAB clients are likely to be on low
incomes. Recent research for Citizens Advice by MORI shows that
CAB clients are predominantly in social groups DE and more likely
to be tenants of social housing than the population as a whole.
[2]
2. GENERAL COMMENTS
2.1 The Trade and Industry Committee's inquiry
into the Royal Mail Group focuses on three areas:
— the extent to which the refinancing
package announced by the Government will help Royal Mail to pay
for modernisation and deal with its pension fund deficit;
— the structure of the "shares"
scheme proposed by Royal Mail managers, and its implications for
the future of Royal Mail Group; and
— the future of the Post Office
Card Account and the effects on the Post Office network.
2.2 Our comments are confined to the third
area, namely the future of the Post Office Card Account and the
effects on the Post Office network.
2.3 Citizens Advice Bureaux (CABx) have
a great deal of experience helping clients move to direct payment
of benefits into bank accounts, and have helped many people choose
the most appropriate method of payment for their circumstances
during the migration from benefit books to direct payment.
2.4 We have serious concerns about the lack
of clarity on the future of the Post Office card account (POCA)
when the current contract runs out in 2010, and are frustrated
about the lack of clear information given by the Department for
Work and Pensions (DWP) about its plans for the POCA.
2.5 Whilst the POCA offers very limited
functionality, over 4.7 million POCAs had been opened for the
receipt of benefits, pensions and tax credits (accounting for
approximately 40% of benefit claimants invited to convert to direct
payment). Evidence from Citizens Advice Bureaux shows that the
POCA is popular with our clients because:
— People with POCAs can use their
local post office to receive their benefit and pension; and
— Many of our clients find it
difficult to open, access and operate bank accounts, including
basic bank accounts. These problems are detailed in our recent
evidence report, Banking benefits. 2[3]
2.6 Citizens Advice recognises that the
POCA fulfils a useful role for many people, but its limited functionality
renders it of limited use in fostering real financial inclusion.
For instance, it offers no overdraft, direct debit or standing
order facilities and can only accept electronic payment of state
benefits, pensions and tax credits.
2.7 We understand that DWP is currently
considering replacing the POCA with an account targeted at those
people who may not feel confident enough to operate a bank account.
We recommend that any such account must feature attributes that
have been designed with the needs of those on low income or benefits
in mind.
2.8 DWP is also likely to want to encourage
as many POCA holders as possible to migrate across to use bank
accounts. For this mass migration to be successful, a number of
conditions must be met:
— the process of opening basic
bank accounts should be made easier (including greater flexibility
over ID);
— basic bank accounts should be
made more suitable for people on benefits or low incomes;
— all bank accounts should be
accessible free of charge at post office counters; and
— support should be available
for people to open and use bank accounts. The CAB service would
be happy to play a role in the delivery of this support but it
will be essential that DWP factors the need—and costs—of
such support into his submission to HM Treasury as part of the
Comprehensive Spending Review.
2.9 Finally, if the contract for the POCA
is not renewed after 2010 it will remove another important revenue
stream for subpostmasters. This change will threaten the profitability
of certain Post Office branches, particularly those in rural or
urban deprived areas, at a time when the future of the subsidy
for rural post offices is under review, and where the threat of
a wave of branch closures cannot be ruled out.
3. TAKE-UP
OF POCA
3.1 The POCA has very limited functionality:
it offers no overdraft, direct debit or standing order facilities
and can only accept electronic payment of state benefits, pensions
and tax credits. Moreover, the process for opening a POCA was
so convoluted that it might have put some people off applying.
Yet POCAs proved to be very popular, with over 4.7 million having
been opened for the receipt of benefits, pensions and tax credits
(accounting for approximately 40% of benefit claimants invited
to convert to direct payment).
3.2 Evidence from Citizens Advice Bureaux
shows that the POCA is popular with our clients for two main reasons.
Firstly, many people open a POCA because it allows them to use
their local post office to receive their benefit and pension,
and this is much more convenient for many people due to the respective
size and reach of the networks: only four per cent of villages
now have a bank or building society whereas 60% currently have
a post office. 3[4]
DWP figures suggest that roughly 70% of POCA holders also possess
a bank account but may be signalling their preference for the
Post Office over banks in receiving benefits payments into their
POCA.
3.3 Secondly, many of our clients find it
difficult to open, access and operate bank accounts, including
basic bank accounts. These problems, detailed in our recent evidence
report Banking benefits, include: use of credit scoring
to determine eligibility to bank accounts; problems providing
acceptable identification documents; long delays in opening accounts;
and banks taking money out of accounts to pay other debts to the
bank without checking the customer's circumstances first.
3.4 Despite the popularity of the POCA,
the government has signalled its intention not to renew the contract
with the Post Office to offer POCAs. The main driver for this
is almost certainly financial, given that the cost per transaction
to government for payments into a POCA is apparently £1 whereas
payments into bank accounts cost just 1p. [5]
3.5 Citizens Advice recognises that the
POCA offers limited functionality, but notes take-up of the POCA
has far exceeded DWP's initial estimates, with over 4.7 million
people now possessing a POCA. We understand that DWP is currently
considering replacing the POCA with an account targeted solely
at those people who may not feel confident enough to operate a
bank account. We recommend that any such account must feature
attributes that have been designed with the needs of those on
low income or benefits in mind, and would be happy to contribute
to the design of such an account. It will also be imperative that
such an account is available well in advance of 2010 when the
POCA contract is to end in order to ensure a more measured transition.
4. MIGRATING
POCA HOLDERS TO
BASIC BANK
ACCOUNTS
4.1 It appears that many people who currently
have their benefits payments paid into a POCA will in future be
encouraged by DWP to receive their payments into a bank account.
4.2 For this to be successful, it is essential
that the basic bank account product meets the needs of its potential
users, and that the process of migration is carefully managed.
There needs to be significant investment in the process of migration
because it is necessary to make sure people are offered appropriate
accounts, that the accounts allow people to access their money
at the most convenient location, and that people receive the support
that they require when making the transition. It will be essential
that DWP factors the need—and costs—of such support
into his submission to HM Treasury as part of the Comprehensive
Spending Review.
4.3 Here are a few cases that demonstrate
the difficulties faced in opening basic bank accounts, and the
support that can be required:
A CAB in Lancashire (Blackpool) reported that
it took a whole day for an elderly vulnerable woman to open a
bank account for payment of her pension credit and Local Housing
Allowance entitlements. The client was entitled to a substantial
amount in backdated benefits, which could not be paid until a
bank account had been opened. The CAB adviser had arranged to
go with the client to open a basic account at a local building
society branch and had organised an appointment. However the client
had gone to the local DWP office instead to pick up a girocheque
for some of the benefit owed to her.
A Sussex CAB reported that their client, an asylum
seeker in his early 70s, attempted to open a basic bank account
but was turned down by numerous banks and building societies on
the grounds that his ID was not suitable. Following intervention
from the local CAB one of the building societies agreed to accept
his documents proving ID (which included passport, solicitor's
letter and letter of entitlement from DWP).
4.4 Switching bank accounts remains rare
even among people who have mainstream financial products, so in
this setting—where many financially inexperienced people
may be forced to move to an account that offers much greater functionality—it
will be incredibly stressful, and require substantial support
services. The CAB service would be happy to play a role in the
delivery of this support.
4.5 If this support is not forthcoming,
there is a real risk that many people who are forced to use a
bank account for the first time may encounter difficulties in
managing the added functions attached to their account—for
example they may end up incurring bank charges of up to £39
for unpaid direct debits. Such charges can represent a significant
proportion of a benefit recipient's income and can engender strong
resistance to efforts to promote use of financial products and
services. We urge DWP to provide assistance to POCA holders not
just in opening accounts but also in operating the accounts successfully.
We are concerned that this issue does not yet seem to have been
fully grasped by DWP. [6]
4.6 Given our willingness to assist with
any process of migration it was particularly disappointing that
DWP officials did not consult with Citizens Advice, or with other
organisations that have a strong interest in this area, when they
devised and ran three short-scale pilots which were intended to
encourage POCA holders to migrate to bank accounts and to inform
DWP's future policy proposals.
4.7 We are disappointed that the DWP's report
into the pilot activity has been published immediately prior to
the Summer Recess, and we fear that this may mean that it does
not receive the Parliamentary scrutiny that it deserves. We urge
the Trade and Industry Committee to make sure that this does not
happen.
5. CHEQUE PAYMENTS
5.1 Benefit recipients who are unable to
manage a bank account or POCA themselves—perhaps because
they have become housebound or have experienced mental health
difficulties—have a number of options open to them in order
to maintain receipt of benefits payments.
5.2 If they have a current account they
can give Power of Attorney to a friend or relative who can then
operate the account on their behalf. Meanwhile POCA holders are
able to nominate a second person to receive a card and PIN number
for their account. However, basic bank account customers have
neither option open to them, since they must rely on pin pads
or ATMs to access their money and sharing PIN numbers is actively
discouraged since the account holder is personally liable for
any losses incurred because they have given their PIN to someone
else.
5.3 If none of these options is appropriate,
perhaps because of illness or disability, or because the person
concerned relies on different carers to collect their money for
them, then payment is made by cheque which can be cashed at post
office branches (provided it is for less than £450). This
facility provides a vital lifeline for many of the most isolated,
vulnerable or housebound people.
5.4 Currently, over 700,000 people receive
their benefits payments by cheque (equivalent to 4% of benefit
recipients). [7]It
costs DWP £1.70 to make a payment by cheque, compared to
£1 to make a payment into a POCA and just 1p to make a payment
into a bank account. [8]
5.5 DWP's plans to end the POCA contract
appear, at least in part, to be driven by the potential to cut
expenditure. Citizens Advice is concerned that as part of the
process of migrating people from POCAs to bank accounts DWP may
look to make additional savings by reducing the number of people
paid by cheque. While we are supportive of efforts to increase
levels of financial inclusion we do not wish to see people forced
to open bank accounts where these are clearly not suitable.
5.6 People who have chosen to receive their
benefits by cheque have clearly indicated their preference for
this payment method and efforts to move them to open some form
of account must be handled sensitively, paying attention to their
needs, including the facility to nominate a second person to use
the account on their behalf. If it is clear that cheque payment
remains the most suitable method, and payment into a bank account
would be likely to cause difficulties, then cheque payment should
continue.
6. ACCESS TO
BASIC BANK
ACCOUNTS
6.1 In terms of access to bank accounts,
it is imperative that the process of opening the accounts is made
much easier. This must include the need for greater flexibility
over acceptable identification documents. Citizens Advice's report,
Banking benefits, found that bank staff are frequently
not willing to be flexible in the type of documents they are willing
to accept. This was a significant issue reported by bureaux, with
nearly a third of the case studies used to compile the report
concerning problems with banks not regarding customers' documents
as suitable or sufficient to prove identity and address. The impact
of this can be substantial:
A Somerset CAB's client had been offered a job
and so needed to open a bank account to receive his wages. However,
as he was homeless this proved impossible. The client found himself
caught in a vicious circle in which he was unable to open a bank
account without an address, he could not find a place to live
without one month's rent and deposit, and yet could not start
work without opening a bank account to receive his wages.
6.2 Since most banks refuse to offer basic
bank accounts to people who are in debt or who are undischarged
bankrupts[9]
there is a significant risk that migration from POCAs (which have
no restrictions on who can open an account as long as they are
in receipt of a state pension or benefit) to bank accounts may
create a new underclass of unbanked people. Banks' refusal to
open basic accounts for those in debt seems to stem from their
use of credit scoring but is unwarranted since these accounts
offer no credit. To counter this, full credit scoring should not
be used to determine access to a basic bank account.
A CAB in Cumbria recommended that their client
open a basic bank account. However, he was only allowed to open
a savings account. When the bureau called to query this, they
were informed that the bank submits all applications to credit
scoring and credit reference agency checks.
A CAB in Wiltshire had a client who was experiencing
debt problems so was given advice to open a basic bank account.
However, he was refused an account as he had a bad credit history.
This meant that the client was unable to take steps to deal with
his debt—he did not wish to make payments to his existing
account as the bank would use them to pay off his non-priority
debts to the bank, at the expense of paying his other, more pressing
creditors.
A Surrey CAB reported that a man who was too
ill to work needed to claim incapacity benefit when he had used
up all his savings. The Jobcentre told him to open a new basic
account for payment of his benefits. The client sought advice
when he was turned down by two banks because of a poor credit
record.
6.3 A key factor in people's decision to
opt for a POCA instead of a bank account has been the ability
to withdraw one's benefit payment over the counter at a Post Office
branch. DWP maintain that customers will still be able to collect
their benefit or pension at the Post Office by using their bank
or building society account there but at present some of the big
banks—notably HSBC, HBOS and RBS group—do not offer
this facility, meaning that about 60% of personal bank accounts
are not accessible at the Post Office.
6.4 Enabling all bank customers to withdraw
their money from the Post Office would not only provide greater
convenience for bank customers but would potentially throw a lifeline
to rural post office branches that have seen a major reduction
in their business following the introduction of direct payment.
[10]Those
that are offered this facility place great value on it: in research
carried out for PostComm by Hall and Partners Europe Ltd, partner
bank customers were asked whether they believed that the cash
withdrawal service at the Post Office was a good thing, and "89%
were positive about the service; 48% said the Post Office was
more convenient than using a bank branch; 38% said it was more
convenient as they were using the Post Office for other reasons
anyway; 36% said that the Post Office is closer." [11]
6.5 Citizens Advice recommends that people
should be able to open basic bank accounts in post office branches,
and that all current account holders should be able to withdraw
cash over the counter at Post Offices. It appears that individual
banks are unwilling to reach an agreement with Post Office Ltd
to allow their customers to withdraw cash from the post office
network, and Post Office Ltd's application to join the LINK network
in order to achieve this by another means to enable this to happen.
The income generated from this venture could help to make a significant
contribution towards sustaining the network of rural post offices,
which are a valuable community resource.
6.6 One of the principal reasons given by
banks that do not enable their current account holders to access
their accounts at Post Office branches is that the Post Office
must be viewed as a competitor since it now offers a range of
financial products. [12]This
follows the Post Office's move into the provision of financial
services as part of an attempt to provide alternative income streams
to replace the income lost by cashing benefit order books and
girocheques.
6.7 However, recent research from the National
Federation of SubPostmasters seems to call this decision into
question. The NFSP's research reveals that sales of Post Office
financial services including personal loans, credit cards, instant
saver accounts, guaranteed equity bonds, growth bonds, child trust
fund, car insurance and home insurance generated an average of
just £7 per month income for subpostmasters, while 58% of
subpostmasters received no income whatsoever from such sales.
[13]Citizens
Advice notes that the Post Office is still a fairly new entrant
into the provision of financial services products, but we are
concerned that this policy seems to be impeding progress in allowing
all bank account holders to access their cash for free at Post
Offices, without providing significant benefits to subpostmasters
and by extension the Post Office network.
6.8 In 2000 the Performance and Innovation
Unit's report "Counter Revolution—Modernising the Post
Office Network" noted "although virtually everyone uses
a post office from time to time, post offices' most frequent customers
are older and poorer people." [14]Citizens
Advice considers that this remains the case, and that such people
are also likely to be most reliant on their PO branch. We are
therefore unconvinced by POL's strategy of mimicking other providers'
products and offering an increasing range of financial services
products targeted at the middle-income market. In our opinion,
POL may be better served in considering more innovative ways in
which to tackle financial exclusion and serve its most loyal customers,
notably the elderly and those on low incomes.
7. FREE ACCESS
TO CASH
7.1 The ability to withdraw cash over PO
counters provides one important method by which people can withdraw
their cash without incurring any fees. Another way is through
using free cash machines, and here the Post Office network has
a unique opportunity to provide an alternative means of free access
to money for low-income consumers, reducing the reliance on charging
machines. In particular, the Post Office network boasts:
— a large network of over 14,000
branches, which means that over 93% of people in the UK live within
a mile of a Post Office;
— a large existing customer base,
with over 28 million customers using the Post Office each year;
and
— extensive representation in
rural locations—while only 4% of villages have a bank branch,
60% have a post office branch.
7.2 In this context, it was extremely disappointing
that a large number of PO branches previously installed fee-charging
cash machines, which charged £1.50 on average to withdraw
money. Citizens Advice's recent report, Out of pocket,
drew attention to large numbers of "free cash machine deserts"—areas
without any access to free cash machines. [15]In
many of the "free cash machine deserts" there is a Post
Office branch which has an ATM that charges a fee.
7.3 We are pleased to note that recent announcements
from POL's have committed them to reverse the installation of
fee-charging machines and to roll out 1,500 free cash machines
in PO branches. However, of the 2,500 ATMs currently in use across
the Post Office network, 72% remain fee-charging. We urge POL
to roll out the free ATMs as promptly as possible, with preference
given to areas of financial deprivation where there are no other
free ATMs at present.
8. IMPACT ON
POST OFFICE
NETWORK
8.1 Finally, if the contract for the POCA
is not renewed after 2010 it will remove another important revenue
stream for subpostmasters. The NFSP's research found that POCA
transactions brought in an average of £249 income for subpostmasters
per month, which amounts to 10% of their net pay. Subpostmasters
in urban deprived areas are most dependent on card accounts as
a source of income, as POCAs bring them an average of £403.
15[16]
8.2 The removal of the POCA will therefore
threaten the profitability of certain Post Office branches, particularly
those in rural or urban deprived areas, at a time when the future
of the subsidy for rural post offices is under review, and where
the threat of a wave of branch closures cannot be ruled out. The
impact of PO branch closure can be severe, as the cases below
demonstrate:
A rural CAB in East Sussex reported that the
closure of a local post office branch meant that their client—an
86 year old widower who looked after her semi-housebound sister,
aged 91—would have to travel over one mile to her nearest
post office or banking facilities. The difficulty in accessing
basic services was causing the client great inconvenience, worry
and stress.
A CAB in Mid-Wales' client found that following
the closure of the village post office there was a severe downturn
in passing trade at her discount store, so she had to close the
business. As a result of this, the client had to go bankrupt and
is now unemployed and in receipt of incapacity benefit.
8.3 Citizens Advice recommends that the
future of the POCA, and the revenue streams it generates for subpostmasters,
must be considered in any discussion of the future of the Post
Office network.
July 2006
2 Unmet need for Citizens Advice Bureaux, MORI,
September 2004. Back
3
Banking benefits-CAB evidence on payment of benefits into
bank accounts is available at: http://www.citizensadvice.org.uk Back
4
House of Commons Treasury Select Committee, Cash Machine Charges-Fifth
Report of Session 2004-05, p 46. Back
5
"It costs us £1 for every Post Office card account
transaction; it costs us a penny for every bank transfer."
Uncorrected evidence from Rt Hon John Hutton MP, Secretary of
State for Work and Pensions, Work and Pensions Select Committee
hearing, 3 July 2006. Available at http://www.publications.parliament.uk/pa/cm200506/cmselect/cmworpen/uc1389-i/uc138901.htm Back
6
"Customers who have managed to open and operate a Post
Office card account should be able to do the same with at
least a basic bank account. As we have done in the past, support
could, where appropriate, include helping customers complete an
application form to open a bank account and obtaining the required
documents to prove their identity." The Parliamentary Under-Secretary
of State, Department for Work and Pensions (Lord Hunt of Kings
Heath): 6 July 2006: Column WA75. Back
7
http://www.publications.parliament.uk/pa/cm200506/cmhansrd/cm050704/text/50704w19.htm Back
8
http://www.publications.parliament.uk/pa/cm200506/cmhansrd/cm060227/text/60227w67.htm60227w67.html-sbhd3 Back
9
For details, see Basic bank accounts-your questions answered,
FSA, October 2005. Back
10
The National Federation of Subpostmasters/MORI research on subpostmasters'
pay showed that before the introduction of direct payments around
40% of Post Office business had previously derived from benefits
and pensions. "Building a viable network-fourth annual report
on the network of post offices 2003-04", Postcomm, October
2004, p 55. Back
11
Building a viable network-fourth annual report on the network
of post offices 2003-04, Postcomm, October 2004, p 28. Back
12
For example, Sir Fred Goodwin, RBS recently stated "The Post
Office is in active competition with us... the Post Office is
a competitor in the same way as the people here are competitors,
so I do not like to put in place arrangements for our customers
to use their counters either". Uncorrected transcript of
Oral Evidence taken before Treasury Committee's inquiry into Financial
Inclusion, 18 May 2006. Back
13
SubPostmaster Income-Wave 3, Research Study Conducted by Ipsos/MORI
for The National Federation of SubPostmasters, February-March
2006. Back
14
Counter Revolution-Modernising the Post Office Network, PIU Report,
June 2000, p 22. Back
15
Out of pocket-CAB evidence on the impact of fee-charging cash
machines, July 2006. Back
16
SubPostmaster Income-Wave 3, Research Study Conducted by Ipsos/MORI
for The National Federation of SubPostmasters, February-March
2006. Back
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