Memorandum submitted by adviceUK
ABOUT ADVICEUK
adviceUK is a UK wide trade association
with about 1,000 independent advice centres in membership, thus
making it the largest UK advice network. Of these, about 350 members
give debt advice to the public and collectively we estimate that
they dealt with 250,000 people with debt problems in 2004-05.
Our core role is the provision of organisational support focused
on the management and delivery of advice services. We have pioneered
new approaches to advice agency networking, development and training.
Our membership is highly diverse, with both
large and small independent agencies: some serving large inner-city
areas and others serving small rural communities. Some provide
the only advice service in their area and take all types of enquiries
while others specialise in serving a particular community or in
advising on a particular subject such as housing, consumer rights
or debt advice.
The majority of our members provide advice at
the Legal Services Commission General Help levels, although significant
numbers hold not-for-profit LSC contracts.
Working with our membership, our aim is to ensure
access to good quality information and advice services enabling
people to fully achieve, protect and exercise their rights.
We provide organisational support and co-ordination
to our member organisations. We represent their interests at UK,
national and regional levels and we provide a voice in policy
making. We also engage and work closely with other similar organisations
in our sector, with other national organisations in the wider
voluntary and community sector, with relevant private sector concerns
and with national and local government.
65% of client seeking advice from AUK members
are in socio-economic categories D and E, with over 50% of our
members located in the Social Exclusion Units list of the 44 most
deprived or poorest boroughs. 25% of our members have a black
or ethnic minority focus.
1. Access to banking services
On the whole, we believe that the initiatives
taken by Government and in particular the banking industry have
made very significant progress in reducing the number of households
in the UK without access to a bank account. In our view the empirical
evidence, in terms of the rapid decline in the number of unbanked,
suggests that the banks have made great efforts to provide banking
services, whether basic bank accounts or "normal" accounts
to those that want/need them. We fully understand that the banks
do not really want to do business with the type of customers who
need/want a basic bank account on the basis that there is apparently
no commercial imperative but despite this they have offered the
basic bank account to customers in enormous numbers. In short,
almost anyone who wants or needs a bank account can get one, which
was not perhaps previously the case.
Obviously, the biggest single driver to increasing
the number of unbanked has been the decision by Government to
require benefit payments to be made into bank accounts rather
than any other reason. Despite this, it has to be accepted that
there will always be a percentage of the public who will never
have an account or any sort. The basic bank account itself has
proved popular with customers and appears to be sufficiently regulated
given the regulatory burden already placed on banks by the FSA.
We remain concerned that in a very small minority
of occasions customers are put off opening basic bank accounts
either because staff in braches do not have sufficient information
about them or because of confusion in the minds of staff over
the ID requirements of the Money Laundering Directive. Given the
lack of staff training devoted by banks to these products, this
is perhaps inevitable.
We also appreciate that branch closures have
reduced access to banking services to a relatively small minority
of the population, particularly in rural areas. To some extent
the huge growth in chip/pin facilities in rural pubs, shops and
cafe's does allow free "cashback" facilities where previously
no banking facilities had previously existed. We also appreciate
the concerns of many about the growth in fee charging ATM's, especially
for those on low incomes to whom any charge equates to a substantial
percentage of their income. However, it would appear that many
of these machines are been placed in areas where there have never
been any banking facilities and we would question the assertion
of made that they are necessarily a retrograde step.
2. Access to affordable credit
adviceUK appreciates the simple economic
reality that households excluded from "mainstream" credit
will inevitably pay more if they want to borrow money. This is
particularly the case where poorer people want to borrow relatively
small sums (less than £1,000) over short periods because
costs and risks are higher leading to higher interest rates. It
is also clear from research carried out by Prof Elaine Kempson
from the University of Bristol Personal Finance Research Centre
("Affordable Credit for Low Income Households")
that many of the features that low income borrowers want from
"ideal source of credit" are met by weekly collected
licensed moneylenders such as the Provident. Although we appreciate
the benefits of Credit Unions and Community Development Finance
Institutions for the tiny minority of people who use their services,
the reality is that in the foreseeable future their impact will
be negligible. Unfortunately the £36 million from the DWP
Growth Fund will not change this reality.
We would argue that the way forward for these
social lending institutions is perhaps working alongside the major
financial institutions but given the reluctance of mainstream
lenders and indeed perhaps many credit Unions/CDFI's in the UK
to work together there appears to be little prospect of this without
legislation which forces the issue. We do not support the idea
of a cap on unsecured interest rates and would be happy to provide
further information on this area if it would be helpful. In short,
although CU/CDFI's are seen as the great hope for the financially
excluded, as it stands at present, despite the small sum allocated
for the Growth Fund, their impact will still only ever be limited.
Interest Free Loans from the Social Fund appear
to work well for the small number who can actually successfully
obtain a loan. Evidence from our members suggests that the major
problems associated with the Fund are that it is difficult to
access, the process is too beaucratic and complicated, thus it
takes too long, is too intrusive of personal information and the
repayments are too high, especially as they are deducted at source
from benefit.
Anecdotal evidence suggests that many people
would rather borrow from commercial lenders because of these drawbacks.
It is impossible to imagine any Government Department being prepared
to lend to people in the same way as the commerce lenders operating
in this market. In our view Government should examine how it can
work with the Consumer Credit Association, third sector lenders
and its members to offer a lower cost lending to those people
who need to borrow.
Unfortunately, the HMT Financial Inclusion Taskforce
appears to lack the will and consensus to begin this debate which
we would argue is at the heart of the issue of low cost lending.
In our view, Government can only achieve the stated aim of making
low cost borrowing more widely available by very significant and
costly intervention in the market.
3. Financial Education and access to Financial
advice
Over recent years there has been a very considerable
and costly focus on issues related to increasing financial literacy
and financial education generally in order to increase the public's
level of "financial capability". The aim of increasing
the publics level of financial capability appears to be perceived
as an unquestionably "good thing" but in our view there
are a number of concerns about the reliance on these initiatives
to solve the problems of the financially excluded. It is generally
recognised that the national strategy for financial capability
is a very long term project, indeed the Chair of the FSA has said
that it will take a generation before we see any benefits. There
appears to be no real debate about whether in reality the public
at large can ever realistically be made more financially educated,
particularly given the complex and ever changing nature of the
financial products in the market. The is also an argument which
suggests that it is the advice and sales process as well as the
products themselves which should be tightly regulated by the FSA
as it is impossible for ordinary people to ever really understand
the complexities of many of the products on offer. The overwhelming
majority of mis-selling scandals of the last 10 years or so would
almost certainly not have been prevented even if the public was
more financially literate as it was flaws in the sales process
and product design which led to misselling of products, combined
with commission driven sales which led to mis-selling. It is doubtful
to say the least if consumer education would have prevented these
scandals.
In our view, the FSA etc needs to have a much
more strategic campaign on 2-3 key messages for consumers in order
to have some short term impact on consumer financial literacy.
A good example would be to try to persuade consumers to shop around
for products in order to get the best deal as too few consumers
at present appreciate the significant financial benefits of choosing
the best value products.
In our view there is a misplaced confidence
in the benefits of Financial Education to eradicate financial
exclusion, increase saving and pension contributions and to deliver
greater public understanding of financial services. We would urge
the committee to open re-open the debate on the costs and benefits
of this whole approach.
The advice sector, both in the not for profit
and commercial sectors dispenses a great deal of generic financial
advice about debt and related issues, rather than on financial
services generally. Almost all of the clients seeking advice from
our members on financial services do so in relation to personal
debt rather than in relation to savings or generic financial advice.
In short, our members provide an Accident and Emergency Service
for people with debt problems. Whilst some of our members are
engaged in projects which look at financial capability, on the
whole there are few who would claim to provide generic financial
advice. In order for the not for profit advice sector to have
a role in this type of advice, we will require very considerable
additional funding.
4. Incentives and barriers to saving for
people on below average incomes
The evidence from our members if that there
is demand for easily accessible and simple savings products even
from people on very low incomes but the market has provided very
few suitable products to meet the needs of those on low incomes.
It is self evident that people on low incomes have only small
and irregular sums to save and often only manage to save any money
at all to cover forthcoming items of expenditure such as utility
bills. There is no evidence of reluctance or lack of will to save
amongst the poorest in society, only the surplus income with which
to do so. In a similar way, many people on low incomes realise
the necessity of having contents or home insurance but lack the
income to pay for such cover.
In terms of longer term savings such as pensions,
again lack of income makes it impossible for people of moderate
incomes to make meaningful contributions. In addition, those on
low incomes are simply not seen as profitable by either IFA's
or product providers as the amount they can afford to invest is
simply insufficient to make the level of profit they require.
5. The role of the Government, FSA and other
bodies/organisations promoting financial inclusion
adviceUK has a member of staff, Nick
Pearson, who sits on the Financial Inclusion Taskforce. We are
concerned that the Taskforce meets only four times a year, with
a limited remit and thus does not have the time or resources to
drive the strategies for allocating monies or formulating/implementing
policies. The Terms of Reference for the Taskforce, albeit limited
in vision, are considerable in themselves and it is difficult
to envisage the Taskforce making significant progress given the
lack of time available for meetings etc.
In terms of the use of resources from the HMT
Financial Inclusion Fund we have attached to this document a recent
letter to Gerry Sutcliffe which outlines our concerns in relation
to the Financial Inclusion Fund. We are also concerned about the
short term nature of the funding on face to face advice and would
suggest now is the time for HMT and DTI to revisit the issue of
a levy on the financial services sector to fund on an ongoing
basis an expansion of face to face debt advice in the not for
profit sector.
6. The benefits of financial inclusion and
the extent to which financial inclusion measures can contribute
to combating poverty and reducing barriers to employment
Whilst we believe that initiatives such as increasing
access to banks account and lower cost credit are generally a
good thing, we have seen no evidence to suggest that the measures
currently being used to combat financial exclusion have any impact
on reducing the overall level of relative poverty or barriers
to employment.
January 2006
| 
