Examination of Witnesses (Questions 20-39)
MR MICK
MCATEER,
MS TERESA
PERCHARD, MR
MIKE BARRY
AND MS
CLAIRE WHYLEY
24 JANUARY 2006
Q20 Mr Newmark: There seems to be
a tension between what I would call the "cover your arse"
mentality within banks and this whole money laundering issue—and
it is complex. What we have to provide to banks is a challenge
for most of us in this room, frankly, let alone someone who is
on benefits. Should the government be giving guidance to institutions,
simple guidance, set below a particular threshold the stringencies
which money laundering is about—which would stop major abuses.
Should there be greater guidance through some sort of threshold?
Would that be helpful, do you think?
Ms Whyley: To me that is what
proportionate regulation means. I am surprised it has not happened
so far. I think that would make a big difference.
Mr Newmark: Thank you.
Q21 Peter Viggers: I have some questions
on the withdrawal of cash and the availability of cash. The previous
Treasury Committee published a report on cash machine charges[3]
and noted that the withdrawal of free cash machines could have
a disadvantageous effect. Are there still problems in this area?
Is it getting worse or getting better?
Mr McAteer: I think the Treasury
Committee's last report on cash machine charges certainly triggered
what we thought was a very positive reaction from the Post Office
and so on. That was a welcome announcement by the Post Office,
but that has to be set against, if we do a rough calculation,
the fact that the number of charging machines is growing at five
times the rate of the number of free machines around the country.
I think there has been a lot of disingenuous comment about the
use of surcharging machines and so on. I do not think anybody
has any problem with true convenience machines if they add to
the network or if they add to the free network, but it becomes
a problem when people in vulnerable communities have access only
to charging machines, particularly when that coincides with a
transfer of benefits into bank accounts. That then becomes a dual
hit on vulnerable communities. We have seen examples now where
the last branch in a local community has closed and the last free
ATM has disappeared, which means that the people in that particular
community can only access their own money through a fee charging
machine. I think that still was an issue that improved temporarily,
but I think some of the trends are threatening to reassert themselves
again.
Q22 Peter Viggers: To help push things
in the right direction, bearing in mind that under the Banking
Code banks are required to notify customers when they close the
last bank branch within one-mile radius in towns and a four-mile
radius in the rural areas, should there be a similar requirement
when removing the last free cash machine within a specified distance?
Ms Whyley: I would like to see
wider consultation on that. If that is people's last point of
free access to cash, it is every bit as important as a bank branch
closure.
Mr McAteer: I would refer to my
previous comment that we are not entirely sure that the Banking
Code is the appropriate mechanism for tackling financial exclusion
problems. The Banking Code is mainly concerned with how banks
can treat customers they can afford to serve properly. I think
that is quite right and quite appropriate. But financial exclusion
is a much different issue, and that requires radical solutions
like shared branch banking and so on, and sharing the cost of
running the ATM facilities, so that people in communities have
access to free machines. I think it takes interventions like that
to tackle financial exclusion. We are not entirely sure that self-regulation
would be good enough to require the banks to meet their obligations
in that regard.
Ms Perchard: As well as machines,
there are also counters. We have supported the Post Office's bid
to become a member of the LINK scheme, which would expand considerably
the availability of post office counters for use by all bank account
holders to undertake transactions and withdraw cash. From our
work with many people who rely on benefits we know that this is
one of their preferred places to deal with financial matters,
probably preferable to using a machine. The Select Committee inquiry
last year was extremely helpful in concentrating the Post Office's
mind on its own policies about fee or free charging machines within
post offices. We have seen quite a big change there, and I believe
a commitment to move to getting rid of the charging machines in
Post Office premises, but we would really like to see more people
with bank accounts be able to use post office counters. Only 2.3
million of the basic bank account holders are able to use post
office counters to withdraw cash, and our understanding is that
LINK have not yet agreed that the Post Office can join LINK. I
am not sure why. I do not know what the problem is. The Post Office
could be a key partner in providing an infrastructure—a
counters' infrastructure as well as a secure cash machine infrastructure—in
the context of banks withdrawing, having already withdrawn and
continuing to withdraw their own machines and branches, and they
need that support as well, I think.
Q23 Peter Viggers: Indeed, there
are more post office branches than there are building society
and bank branches put together, as I understand.
Ms Perchard: Absolutely.
Q24 Peter Viggers: LINK have told
us they are proposing to establish a standing committee for representatives
of consumer groups to put their views to members of the card scheme.
Are any of your bodies involved in this?
Ms Perchard: I think we are actually.
We have been having discussions with LINK over the last year,
since the Select Committee inquiry, about us undertaking some
compliance monitoring of the new LINK standards for displaying
information on ATMs, and we are about to start a major ATM watch
activity involving CAB volunteers throughout the country and we
have ongoing dialogue with LINK about that. That is not quite
such a big issue as the Post Office becoming a member of LINK—LINK
know what our views are: we would like to see them in.
Q25 Peter Viggers: Following the
move to direct payment of pensions, the Government gave benefit
recipients the choice of having benefit paid into a current account,
a basic bank account or the Post Office card account. The Post
Office card account has been much more popular than the Government
initially expected: 4.3 million against 2 million. Why do you
think that is?
Ms Perchard: Because people like
the Post Office. This is people showing their support for the
Post Office. It may even be the only place they can go and withdraw
cash. It is a phenomenal take up because it is, and was, an extremely
difficult financial product to obtain. There are about 10 steps
to open a Post Office card account: ringing up and getting a form,
getting a password, proving your identity—all sorts of things
designed to make it quite difficult for people to take it up.
It is intended as a financial service of last resort really. I
think the consumers have voted with their pens by persisting with
it.
Ms Whyley: Could I just add to
that. People do like to deal with the Post Office. It is something
that is familiar to them. The trust gap between the financial
services industry and people who traditionally have not been served
by or attractive to it, is huge and is something which really
does need to be addressed. I do not think just making the right
products available will bridge that gap; I think there is further
to go with that. Also, because the basic bank account does not
particularly offer people that many benefits, there is not that
much incentive not to go to the Post Office, and people are sticking
with what they know and trust. Our research at NCC has found that
using a basic bank account for everyday money management can make
people worse off: it makes them more likely to fall into arrears
with their household bills, for example, because payment mechanisms
through basic bank accounts just are not suitable for people on
very low incomes. If you see it in that context, it makes perfect
sense that the POCA is far more popular than had been expected.
Ms Perchard: Could I highlight
one thing, though: there are still 700,000 people receiving benefit
payments through cheques rather than through the Post Office card
account or through a bank account of some kind. The dash for electronic
payment has still left some people outside the loop. Mike has
a very vivid example from his work in Blackpool.
Mr Barry: A lot of people have
taken on Post Office card accounts to receive benefits. Blackpool
is a pathfinder area of the local housing allowance for direct
payment of housing benefits. The local housing allowance cannot
be paid into a Post Office card account, so a lot of people who
have opened these accounts for receipt of their benefits are still
no more financially included, as they are now being told they
have to go and open a standard bank account anyway—and many
of them cannot do that because they do not have the ID required.
Q26 Peter Viggers: To what extent
do you think the Post Office card account has played its part
in encouraging and allowing financial inclusion? To what extent
do you regard the Post Office card account holders as being financially
included?
Ms Whyley: I would argue they
are not. There are reasons why the Post Office is popular with
people, but the limited functionality of those accounts really
does not amount to financial inclusion. It merely is a good way
of people receiving their money electronically. It is not financial
inclusion in any meaningful sense.
Q27 Peter Viggers: It was intended
to be a stepping stone through into financial inclusion, was it
not? Do you have evidence that it has worked as such?
Ms Perchard: No.
Ms Whyley: For that to happen,
the next step, the basic bank account would have to be attractive.
There would have to be an incentive for people to move through
the system and I am just not sure that incentive exists at the
moment.
Ms Perchard: For those people
who had been completely outside the banking system before benefit
books were on the way out and the Post Office card account came
in as a washing-up measure to deal with those who would not or
could not open a bank account, for those people to join the mainstream
if they have no other banking service will require quite a lot
of individual support. Mike and his colleagues in Blackpool have
come across people who really have gone without essential benefit
income for a very long time because they have not had a bank account
and have not been able to deal with the administrative process
of creating a Post Office card account. In one case which we highlight
in our report today, a woman had £13,000 of pension she had
not received over a year because she did not have a Post Office
card account or bank account and had not responded to DWP letters.
People like that are quite difficult to reach in our communities.
They are quite isolated. They may have mental health problems
or they may be older people with Alzheimer's who cannot deal with
their financial affairs in the way that we might attempt to, and
they will need more support than mainstream consumers. That has
to be part of tackling financial inclusion. It is not just about
putting out cards and accounts and telling people where to go.
Some people will need much more support and help to get into the
system but also to manage their financial affairs effectively
when they are in. That is why the strategy here about numbers
of accounts is too narrow and needs to take a broader approach.
Mr Barry: The understanding of
some of our customers of how to operate the account that they
have opened is very low indeed. Some customers fall automatically
and almost immediately into a situation of bank charges and overdrafts.
Because they have never known any different, we have seen clients
who think that is the norm. One client of mine had £140 a
month being taken from her account in bank charges and she thought
it was a standard payment. It was for non-payment of direct debits—so
she was being charged £140 a month for not paying her bills,
and still her bills were not being paid. It is more than opening
accounts; it is about education. It is about financial literacy
in operating the accounts, how to avoid those charges and how
to budget properly, and those are the missing items. It is not
just about opening bank accounts.
Q28 Peter Viggers: Whilst I am not
aware of any official announcement, I had heard the minister on
the radio saying that the support for the Post Office card account
will phase out after 2010 and this has caused some concern. Could
I ask for your observations? How do you think the situation should
evolve? What would your advice and recommendation be?
Ms Perchard: If the Post Office
card account really comes to an end and nobody can take it on
as a product and develop it—perhaps because they cannot
afford to do so—then we need to find a way of giving the
more than four million people who use it a way of getting their
benefits. It needs to transform into another form of payment system,
perhaps with more services attached to it—perhaps a form
of bank account accessible through post offices. Either that or
you try to transfer those customers into basic bank accounts.
But then you would really need to do a lot of work with individuals
about choosing the right account and also making sure that all
the accounts they want are useable through the Post Office—which
they are not today. I do not think you can take four million people
who rely on benefits—a lot of them older people who use
that as their payment system—and suddenly close the door
on that payment method in 2010. You need to start now to think
about how you can transfer people onto a payment system which
will be there for them in 10 years time.
Ms Whyley: I would absolutely
agree with that. It is essential that we get the basic bank account
products right if we are going to expect people to move from the
Post Office card account to those accounts, but it is really important
that we get the migration process right. There needs to be significant
investment in that, because we have to make sure people have the
right accounts for them, that they have accounts that allow them
to access their money where they want to access it and which offer
them a product that works. If you think how rare it is and how
big a deal it is, even in mainstream, when people switch a current
account, in this setting, where people are being forced to move,
it is going to be incredibly stressful. It is vital that we get
this right, as it will move the basic banking progress back several
years if we get it wrong.
Q29 Mr Mudie: I hear what you say,
that if they are going to finish Post Office accounts they are
going to have to do something else, but I would like to know what
you think they can do. Not only will it affect the Post Office,
but, with the closure of inner city banks in the poorest areas,
it seems to be the only place where pensioners and the like, can
get their hands on their money. How on earth can they do it? The
banks do not have the same geographical limitations as the post
offices. It is a strange decision—well, not strange, but
disturbing.
Mr McAteer: I think that is a
very good point. In this country we already have quite an infrastructure
that could be used to serve groups who are financially excluded
in vulnerable communities, and you wonder why the Post Office
is not being part of a hub, based in local communities to provide
a range of services such as access to a decent bank accounts or
financial advice, or sharing premises with credit unions and community
banks and so on. The infrastructure is there on the ground, but
we question how it is being used. We think it is a fragmented
approach to tackling financial exclusion at the moment, but the
locations are there and the physical space is there.
Q30 Mr Mudie: Did this decision of
the Government come as a surprise to your organisations?
Ms Whyley: No.
Q31 Mr Mudie: Why not?
Ms Perchard: Because the long-term
commitment to the Post Office card account just has never been
there. I suppose I would describe it as: "We will have to
have something for those people who just will not go and open
a bank account when we get rid of the books" and then: "What
about those people who will not even do that?" That is why
we still have 700,000 people getting cheques—and those are
very frequently issued cheques, so they are quite difficult to
manage.
Q32 Mr Mudie: In one of the pieces
of evidence—I do not know which—I read that the Government
had now written to people threatening to take those cheques away
unless that elderly person wrote to them to say they wished to
keep them. Is that current?
Ms Perchard: Getting your hands
on cheques is something where you have to satisfy people that
you cannot receive your payment any other way. It is also quite
a risky method of payment, because an individual cheque can get
lost in the post. The advantages of the books—sounding like
a Luddite here—were that anybody could have a look at the
book and see how much had been taken out and it was easy to deal
with third parties, authorising them to withdraw individual amounts
rather than giving them a standing authorisation to draw money.
With that 700,000 we are talking about the people who need most
support, and it is almost as if they are being left until last
here. We need to be talking now to the millions of people using
Post Office card accounts and the Post Office about which product
would better meet their needs. A Post Office card account is only
a payment device: it does not pay bills, there is no savings feature,
and you cannot draw cash out on a machine. It was designed to
be a very unattractive electronic payment system, simply to save
money and get rid of the books. It was not intended to be a long-life
product.
Q33 Mr Mudie: It was supported in
good faith, and to the customers it was sold as going to evolve
into something. With the banks refusing largely to cooperate in
linking up with it and LINK refusing to allow the Post Office
in, it looks as though there is a conspiracy between the Government
and the banks and LINK to make sure this is short term and all
those people who gave up their books in good faith are now stranded,
are they not?
Ms Perchard: Obviously this is
the start of your inquiry and there are quite a few actors in
this drama -and over time as well. The banks feel a bit fed up
because they did contribute quite a bit of money to the Universal
Banking Project.
Q34 Mr Mudie: Teresa, do not cry
for the banks!
Ms Perchard: Well, if you did
spend £180 million on something—
Q35 Mr Mudie: Petty cash.
Ms Perchard: If I had £180
million to spend—
Q36 Mr Mudie: They do, I can assure
you.
Ms Perchard: —I would want
to get better value than has been got out of the Post Office card
account, frankly. Simply to prevent people developing it and then
to ditch it is an abdication of responsibility which affects a
lot of vulnerable individuals on low incomes at the end of the
day. Something needs to be done about the demise of the Post Office
card account. I hope the Post Office can join LINK and that more
bank accounts can be accessible over the counter.
Q37 Chairman: Why do you think LINK
are reluctant to have the Post Office in?
Ms Perchard: I think you need
to ask LINK that.
Q38 Mr Mudie: But you sit on committees
that meet them to discuss consumer items. What excuses are they
giving you for refusing to let the Post Office join up?
Mr McAteer: I would ask the banks
rather than asking LINK. I think that is where you would find
the answer.
Q39 Chairman: Is it a cartel?
Mr McAteer: It is not a cartel,
no. I think to accuse someone of a cartel has certain legal connotations.
3 HC (2004-05) 191 Back
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