Examination of Witnesses (Questions 1-19)
MR MICK
MCATEER,
MS TERESA
PERCHARD, MR
MIKE BARRY
AND MS
CLAIRE WHYLEY
24 JANUARY 2006
Q1 Chairman: Good morning, everybody.
Welcome to the first hearing of our inquiry into financial inclusion.
I am grateful for your attendance this morning. Could you introduce
yourselves and your organisations, please?
Mr McAteer: Good morning, Mr Chairman.
Good morning, Committee. My name is Mick McAteer and I am the
Principal Policy Advisor at Which? the Consumer Association.
Ms Whyley: Claire Whyley, Deputy
Director of Policy at the National Consumer Council.
Ms Perchard: Teresa Perchard,
Director of Policy at Citizens Advice, the national body representing
Citizens Advice Bureaux in England and Wales.
Mr Barry: Mike Barry, Project
Manager at Blackpool Citizens Advice Bureau.
Q2 Chairman: Teresa Perchard, we have
your report.[1]
We only received it two minutes ago, which is a bit unfortunate.
If you are coming before a committee, send information to us a
decent time before, so that we can study it. We have not had an
opportunity to study it at all. All we have looked at is the BBC
website this morning.
Ms Perchard: I apologise. I would
clarify that in addition to the written evidence we submitted
to the Committee, we have published a report on Access to Banking
today.
Q3 Chairman: Okay. Financial inclusion.
I have asked around and some people think a lot is happening at
the moment and there is not really any need for an inquiry such
as this. Will we turn anything up in this inquiry?
Ms Perchard: I think there is
quite a lot to turn up on this inquiry. We have very important
things going on at the moment with the Government strategy on
financial inclusion, major new investment in some aspects of financial
inclusion and the new £120 million financial inclusion fund,
but we also have some questions about progress, about medium and
longer term objectives and commitment. The £120 million fund
is only for the next two years. It will provide a step-change
in the availability of face-to-face money advice, but what happens
after that? This Committee inquiry is very timely in helping us
to flush out questions about what will happen next and also whether
the whole package of measures the Government is promoting is sufficient
to tackle fully the issue of financial inclusion. There are a
few things on the agenda, but perhaps a few other things that
need to come in: access to insurance, access to savings and financial
education and financial capability for low income households.
Q4 Chairman: What are the benefits
of financial inclusion to the individual and to the financial
services industry itself?
Ms Whyley: There are lots of benefits
to the individual, just of having access to money transmission
services, savings accounts, protection products like insurance,
pensions and so on, but at a more basic level than that financial
inclusion can reduce the costs of poverty for people with the
lowest incomes. There are lots of aspects of very everyday life
which cost people a lot more if they are not financially included;
for example, paying bills, paying to get a cheque cashed. Fairly
everyday services which many people take for granted are much
more expensive for people if they are financially excluded.
Q5 Chairman: Is the issue of financial
inclusion a peripheral issue in society or a big issue?
Mr McAteer: I think it is one
of the Government's key public policy objectives at the moment.
It is fair to say that a number of providers in the retail market
have made commendable efforts to tackle financial inclusion, but
I must say that in general the overall performance of the industry
leaves a lot to be desired and I very much welcome the Committee
having this inquiry at the moment. We think there are two big
public policy issues raised: tackling the pressing need of the
credit problems and access to basic banking in the UK. But we
are of the view, certainly, that financial inclusion will become
a bigger problem in the future because of what we call the number
of environmental trends in society. We are seeing the demographics
changing; we are seeing the socio-economic divisions changing
within different cohorts in society; we are seeing technological
changes which will lead to greater risk-based pricing by the financial
services industry; and we are also seeing banks having increasing
pressure on their margins so they are going to have to focus on
more profitable consumers. We think that financial inclusion is
a growing problem or a growing challenge and we very much welcome
the Committee inquiry.
Ms Perchard: There was some research
in 2000 which highlighted that the extra cost of people being
financially excluded was about £800 a year. Evidence to the
Committee's inquiry from the Fuel Poverty Advisory Group has highlighted
an extra cost of £70 a year just for the way you pay for
your fuel, and we come across people who lose jobs because they
do not have bank accounts to pay their wages into because that
is how employers pay wages these days. There are real costs for
consumers of not being sufficiently capable to make long-term
decisions about their personal finances—paying too much
in interest, over-borrowing, over-indebtedness, and the impact
of that on individuals and their families—which means that
this is a big ticket item, as Mick has suggested.
Q6 Ms Keeble: I would like to ask
about basic bank accounts. I went around doing some mystery shopping
to prepare for this. All banks have obviously said they have a
corporate commitment to basic bank accounts, but I have to say
that I found in practice that that is not always right, in particular
in Camberwell, Walworth, Brixton, Herne Hill, areas where you
would expect them to be up to speed. Is that your experience as
well?
Mr Barry: I think that is our
clients' experience. You have hit the nail on the head. At ground
level, despite the corporate commitment, the individual banks
are in some cases actively discouraging the opening of basic bank
accounts. One customer of ours went to a local high street branch
to speak to the customer services manager, who told him "Those
accounts are only opened by the lowest of the low" and was
actively discouraging him from opening an account. We find that
is a widespread issue amongst our clients.
Q7 Ms Keeble: I went in to a branch
of the Halifax and was directed to go to the Post Office. Do you
find that there is a tendency for some banks to direct people
in another direction to open a basic bank account?
Mr Barry: There is a tendency
for them to direct people away from themselves. Where that might
be is another issue. But I think one of the reasons for the big
take-up of Post Office card accounts is the fact that banks are
making it exceptionally difficult to open basic accounts for some
people.
Q8 Ms Keeble: The other thing I found
was that there was a basic issue about access to leaflets: they
were all under the counter, and Barclays Bank said they did not
have any leaflets. Is that a common experience?
Mr McAteer: I do think there is
quite a wide range in the performance of different financial institutions.
If you look at the Banking Code Standards Board mystery shopping
exercise into people trying to open basic bank accounts, there
is a huge variation in how welcoming and how readily the individual
institutions performed. Also it is quite interesting, if you look
at the Treasury's Promoting Financial Inclusion Report
of December 2004, that where the Treasury had said there are 2.8
million people excluded, we now think that is maybe an underestimate
because the number of people without a current account was put
at 12% of the population which is actually around 4 million. If
you look at the overall performance of the banking industry generally,
then, according to the BBA figures, they have opened 1.5 million
basic bank accounts, so there is clearly an awfully long way to
go before they meet the Government's targets. Even within the
sector itself, the Banking Code survey looked at the number of
basic bank accounts as a proportion of ordinary current accounts
and found it ranged from one bank which opened 50% of accounts
as basic bank accounts—which is a very good performance
-to another bank at which only 2% of the total accounts opened
were basic bank accounts. There is an incredible variation in
how committed individual institutions are.
Q9 Chairman: Do you have figures
from each bank?
Mr McAteer: We cannot get figures
from each bank.
Q10 Chairman: Would it be helpful
if we tried to get that? [2]
Mr McAteer: I think it would be.
One of the core things we would like to see is more disclosure
and transparency on the performance of financial institutions.
Q11 Ms Keeble: Do you think that
the Banking Code Standards Board should publish the results by
name, so that people could see where the best practice is and
where practice could be improved?
Mr McAteer: Maybe others will
differ on this one but we do not think the Banking Code Standards
Board or the Banking Code is the appropriate mechanism for tackling
financial exclusion. We have always taken the view that the Banking
Code is really about how well the banks treat the customers they
can afford to serve profitably. We do not think it is the appropriate
mechanism to tackle financial exclusion. I think the Banking Code
Standards Board would have trouble publishing its figures—given
that it is self-regulation and it is voluntary regulation. I would
urge a Government department—or the Treasury select committee
which usually has influence—to force the publication of
these individual performance figures.
Q12 Ms Keeble: Do you think there
is a case for the Banking Code specifying an acceptable time lapse
between application and ensuring that the account is operational?
I went into the Halifax, which said it would take three weeks
to open an account—which is quite a long time.
Ms Whyley: I think that would
make a difference. We always argue that the Banking Code should
treat basic bank accounts and current accounts the same, so that
there should not be any distinction in the service you would receive
from a basic bank account and a current account. But, because
the basic bank account is often used for benefit payment and knowing
when your account will be open is critical to having that system
working reliably, I feel there should be a time limit specified
for basic bank account opening.
Q13 Ms Keeble: Both TSB and Barclays
do not open the account in-house; they send them out to a processing
centre—which is an increasing trend. Do you think that is
an inhibiting factor?
Ms Whyley: Yes.
Ms Perchard: I would like to support
what Claire said: really looking for a common standard and a consistent
standard of service in those areas where that makes sense. The
basic bank account is a limited product, but there should not
really be a difference or a second-class service on the time it
takes to open the account compared to an ordinary account. We
have come across delays of 10 weeks or even three months in setting
up an account. In a situation, Blackpool—which is a pilot
area for the local housing allowance, for housing benefit—predominantly
all recipients of LHA, with some exceptions, have had to have
an account to pay their housing benefit into, otherwise they do
not get the money. If you have a ten-week or three-month delay
to get your money, to pay your rent, to get somewhere to live,
it creates serious problems for somebody who relies on benefit
income for what is their largest expense. Quite apart from that,
why on earth should it take 10 weeks or three months to open a
simple basic account with no overdraft facilities on it?
Q14 Ms Keeble: The FSA says over
the last 18 months it has been leading a multi-agency drive to
get a more proportionate customer identification regime.
Ms Whyley: Yes.
Q15 Ms Keeble: Obviously there are
strict money-laundering requirements for opening bank accounts,
but do you think this needs to be looked at with basic bank accounts,
because to ask somebody, as I have found, to send away their passport
to a processing centre to open a basic bank account just seems
to be quite a high threshold of proof for someone who basically
is just talking about banking their benefits in some instances.
Ms Perchard: Yes.
Q16 Ms Keeble: What do you do about
identification requirements? And secondly, when you look at some
of the forms for basic bank accounts they make pension credit
look easy to apply for.
Ms Perchard: The identification
requirements are one of the key challenges blocking people getting
access to accounts when they go into branches. It is not so much
a failure of policy, because the money-laundering guidance, and
improvements to it, which are in train, and the guidance from
the FSA have provisions relating to financial inclusion, guidance
that says it is okay to use an alternative method, such as a letter
from a responsible person, perhaps a social worker or somebody
who is looking after the individual, or a benefit letter. Those
things are all acceptable in the guidance. The issue is not the
policy; it is getting the practice right on the frontline. There
maybe a problem caused by the individual liability that is created
by the money-laundering regime, where bank staff have it drummed
into them that if they let a money-launderer into the system they
will be individually responsible for fines of several thousand
pounds. That strikes a little bit of fear into the heart, does
it not, when you are looking at making a discretionary judgment
about acceptable documentation? Also, when you are trying, on
a large system basis, to get all your staff to do the right things
and tick the right boxes, you will narrow down to simpler things
rather than give people discretion. Perhaps a move to more corporate
accountability on money laundering would enable people to make
better decisions in branches, but there really needs to be much
better promotion of what the policy says. We have advocated that
any leaflets about basic banks accounts should include: what you
would need to bring, to show that you are who you say you are,
before we will give you an account. It is not a secret issue;
it is just not promoted or advertised to the individuals or anyone
advocating opening a basic bank account.
Q17 Ms Keeble: Do you think these
accounts are the right model for providing for and trying to pull
the currently unbanked into financial services? Does the style
of banking support these customers, in particular, looking at
their need for face-to-face advice? I have to say that the longest
queue I encountered was about an hour, just to get information
about opening a basic bank account.
Ms Whyley: At NCC we would argue
the basic bank account model is not quite appropriate for people
who have been financially excluded. It does not offer the benefits
of financial inclusion which are going to attract people to start
changing their money management style and trusting banks with
whom they have never had much contact before. It is a classic
case of: we have the basic bank account, we have taken some bits
off the standard current account, and we are trying to fit people
into that model. I think the bit that has been missed out is talking
to people who are financially excluded about what banking services
they need, how they would like them to be delivered and how that
would offer them the sorts of benefits that would attract them
into banks to take those accounts out. I think that is the bit
that has been missed out.
Q18 Ms Keeble: So far, as you rightly
point out, the Government have relied on a voluntary partnership
approach with the major retail banks to provide the basic facilities.
Do you think that is sufficient? There have been an awful lot
of the accounts opened, and you could say that what remains is
the more difficult end of the market, as it were, to provide services
for. Do you think it is time, perhaps, to look at something like
a universal service obligation or an arrangement like the French
have, where people have a right to a bank account or there is
a mechanism to decide which bank the person should be directed
to?
Ms Whyley: I would not argue for
that at this stage. I think that is something that may be appropriate
further down the line. I would argue very strongly that we have
to get the policy right and then decide what the best mechanism
is for implementing it. I am concerned that if we were to rush
into a universal service obligation we may have the wrong type
of obligation. We may see customers who still do not have the
banking services that they need, are still not able to use accounts
appropriately, and I would certainly be very concerned about something
which just made opening an account the end result, because clearly
that is not financial inclusion. Financial inclusion is about
being able to use that account and benefit from it. The number
of people who are unbanked in France I think is similar to here.
I think it is higher in the States, where they have a different
form of obligation. I would argue that it is absolutely imperative
that we find out what it is we should be offering, before we work
out how to offer it.
Q19 Ms Keeble: The Government set
the target to halve the number of adults and households without
a bank account. Given what you have said, do you think this is
an appropriate target? Do you think simply setting that as a target
misses the point of saying: What are they doing with the bank
account? If it is just a process for channelling benefits, you
are replacing the queues we used to see in the old benefit offices
with queues for access to cash and advice in the banks. What do
you think of the target and how do you think it should move on?
Ms Perchard: You cannot disagree
with the idea that just counting accounts is not measuring the
quality or the impact of what is going on. There is nothing quite
like a number for concentrating people's minds. If we were able
to have more transparency about which banks are getting on board
with this and which aren't, it might help us get the numbers up.
There are features in what is going on here that might make a
real difference. The Post Office card account is very popular
amongst many benefit recipients—hard to get, yet how many
millions of people have got hold of one—but lots of basic
accounts are not usable over the counter in post offices. Less
than half the basic accounts that exist can be used over post
office counters. Taking a strategic approach to try to enable
those people who want to use the Post Office to use it for more
banking services might improve the quality of this—and there
are features of the products (like direct debit charges and timing
of clearance into the account and payments out) which need to
be addressed, as well as the numbers of accounts which exist.
Ms Whyley: Financial inclusion
is definitely something that has to be measured qualitatively
and not just quantitatively. That is inappropriate.
1 "Banking Benefits" Citizens Advice,
24 January 2006 Back
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