Memorandum submitted by the Financial
Services Consumer Panel
EXECUTIVE SUMMARY
The Panel is pleased to have this opportunity
to inform the Select Committee about its views on some of the
issues of financial inclusion. The Panel sees the solution to
financial exclusion being achieved through the combined efforts
of Government, the financial services sector itself, the Financial
Services Authority, other consumer bodies and advice groups and
through the timely provision of appropriate advice and education.
Access to Bank Accounts and Affordable Credit
The Panel feels that although significant improvements
in the provision of basic banking facilities have occurred recently,
more work needs to be done by the banks in order to improve accessibility
to these services. Access to affordable credit can be addressed
by certain specialised sectors of the market, but some consumers—particularly
those on benefits—are unlikely to have their needs met entirely
by the market on its own initiative. Government must take a central
role in putting forward solutions to exclusion.
Financial education
The Panel fully supports the Financial Capability
initiative. It believes the best way of achieving the objectives
set are to adopt a multi-pronged approach to financial education,
by providing financial education when it is needed, and at different
key stages.
Generic financial advice
The Panel has been campaigning for the provision
of generic financial advice, completely separated from the sales
process, for some time. Despite agreement from both industry commentators
and consumer bodies alike that this service is needed, it is still
some way from being implemented—the biggest barrier to its
implementation being funding. The Panel urges the Government to
help identify a suitable source of funding for this initiative.
The role of Government and other bodies
The Panel believes that the best way to address
issues of financial exclusion is for all parties to work together
towards a solution. However the role of certain parties, for example,
the Financial Services Authority, will be limited and the market
is unlikely to initiate solutions independently. It is therefore
up to Government to take a lead role in developing the solutions
needed.
ACCESS TO
BANK ACCOUNTS
AND AFFORDABLE
CREDIT
1. The Panel is pleased with the progress
being made by the industry as evidenced by the results of a recent
mystery shopping exercise conducted by the Banking Code Standards
Board.[124]
This survey is the fourth to be conducted. Although the results
show that there has been considerable improvement in the availability
of basic banking facilities, more needs to be done to make these
accounts easily accessible to the people who need them most. The
specific areas the Panel feels need to be concentrated on are;
— Availability of literature. The report
highlights that literature covering basic bank accounts is still
not easily accessible in branches. A disappointing number of banks
appear to be holding such literature behind the counter. This
needs to be addressed in order that financially unsophisticated
consumers have easy access to information tailored to their needs.
— Staff awareness. The Panel remains
concerned that some branch staff appear to have little knowledge
of the basic bank account, or alternatively little incentive for
selling such accounts. Staff training needs to be improved, and
incentive schemes operated by banks should incentivise staff to
try to sell the bank account best suited to the consumers needs,
rather than sell higher value more complex products which the
consumer may not need.
— Money laundering. Consumers still
appear to face some difficulty with identification and verification
checks. The Panel understands that work continues to address this
issue and that progress is being made in this area.
— The uneven picture across the banking
industry also gives rise to some concern. The report highlights
that some banks may not be meeting their commitments under the
Banking Code and need to address issues of staff awareness and
accessibility of the account, and the availability of help should
consumers need it.
2. A recent FSA publication[125]
illustrates that a number of banks are offering the basic bank
account to consumers, including to those with undischarged bankruptcy
petitions. This is borne out by the experience of some Panel members.
3. Access to affordable credit for consumers
unable to obtain credit facilities from main stream lenders is
an important issue and the Panel is pleased that there are a number
of initiatives which could help vulnerable consumers in need of
such facilities. The Panel understands that the Financial Services
Authority continues to work closely with Credit Unions to improve
access to affordable credit. The Panel believes these firms can
make a real contribution to the availability of credit to consumers
excluded from mainstream sources of credit. But on their own,
Credit Unions cannot solve the problem. Indeed, for those on very
low incomes, the market itself is unlikely to be able to provide
the solution, as such lending may not be commercially viable for
lenders. What is needed is direct Government action to address
the problems of those financially excluded probably by virtue
of the fact that they are receiving state benefits.
4. The Panel is also pleased that the rules
covering extortionate credit in the Consumer Credit Act are to
be tightened making it easier for consumers who have been unfairly
treated by a lender, to seek redress. The Panel would also like
to see the FSA use its powers, and address issues with unfair
terms which the Panel believes may still be prevalent in some
sectors of the market.
FINANCIAL EDUCATION
5. The Panel is supportive of the Financial
Capability work being undertaken through a collaborative effort
from a number of organisations. However, the real benefit of any
strategy implemented as a result is unlikely to be felt for some
time in some areas. The Panel has long held the view that the
best way of ensuring the success of the project is for Government,
the FSA, the financial services sector and the voluntary sector
to work together to develop the most effective strategy. It is
therefore pleased to see there is still a great deal of cooperation
across a number of different organisations. The Panel is also
pleased that with the creation of the Resolution Foundation real
impetus has been added to this project.
6. Without the basic skills to interpret
information placed before them about financial services products,
consumers will never fully understand how the product operates,
and of course there is the danger that inappropriate purchases
can be made, or that mis-selling scandals will continue to hit
the headlines. Giving consumers these skills must be a priority.
Consumer education should be given at the time it is needed rather
than when it is available. This is not to say that foundation
level training, designed to equip consumers with basic skills
is not appropriate. The Panel is therefore pleased that the Financial
Capability Project is looking at the provision of education at
a number of key stages—for example in schools, and in the
workplace. This multi-pronged approach will achieve better results.
GENERIC ADVICE
7. The Panel has been campaigning for the
provision of generic advice for some time. There is a need for
the provision of advice about general financial needs which is
completely separate from the sales process. It should be easily
accessible and affordable. The Turner Report and recommendations
for pension provision will in the long run increase the need for
a basic level of financial advice separated from sales processes.
The need for generic advice becomes ever more urgent as financial
planning and risks get passed down to the individual, whether
as student, taxpayer, home-owner, employee or pensioner. Consumers
are frequently urged by the relevant authorities to seek advice.
But this is, in some cases, a hollow suggestion because for many
there is nowhere obvious to turn.
8. The Panel stated in its last annual report
that the FSA should help set up a framework for the different
services that could deliver such advice. It is disappointing to
note that despite the agreement of the need for generic advice
from all quarters, there is still no such service available.
9. The Panel sees a real need for clear
branding of generic advice and for there to be a body to set and
police appropriate standards. Coupled with this clear branding
issue there is also a need for a sharper definition of what makes
generic advice distinctive. This should help encourage supply,
whether by publicly supported agencies or the private sector.
The Panel was therefore very pleased at the publication by the
Financial Services Skills Council of the recent consultation on
standards for the generic advice itself. The Panel feels this
will add credibility to the provision of generic advice. It may
also allay the fears of some who feel there is a danger in straying
into regulated advice territory. It should also be noted that
the Resolution Foundation initiative does not necessarily pose
the full and final solution to the issue of generic advice. In
particular the hand-off from generic advice to product specific
advice needs more consideration and debate.
10. These issues must be resolved if generic
advice provision is to achieve the best possible outcomes. The
Panel is also pleased that the financial healthcheck available
on the BBC website is being updated and that "the debt test"
has now been launched—again hosted on the BBC website.
11. However, the biggest issue with the
provision of generic financial advice is funding. Thus far no
real solution has been proposed as to how such a scheme will be
funded, and without this, the initiative is unlikely to be implemented.
THE ROLE
OF GOVERNMENT
AND OTHER
BODIES
12. The role of the FSA does not specifically
include any remit towards the financially excluded. Therefore,
the Government must take a lead role in ensuring that financial
inclusion issues are addressed. And these issues should not be
considered merely a central Government responsibility. There is
a general requirement placed on other public agencies expressly
to consider and cater for the needs of financially excluded groups
in all their relevant activities.
13. The FSA can, through its regulatory
activities make significant strides in ensuring that product disclosure
is clear, fair and not misleading and takes adequate account of
the needs of the consumer groups being targeted by firms. Similarly
the Treating Customers Fairly initiative could well be used to
address issues surrounding financial inclusion. However, as regulator,
there is only so much the FSA will be able to achieve. The FSA
does not regulate products themselves, and may not be in a position
to act beyond encouraging firms to ensure adequate provision of
products and services which meet the needs of the financially
excluded.
14. The Panel believes the only real solutions
to financial exclusion must be initiated by Government. Many of
the problems can only be addressed by implementing changes that
the financial services sector will not make of its own volition.
The fact that the basic bank account is now available was largely
as a result of the change to the benefit structure which removed
the ability to withdraw benefits in cash directly. Similar initiatives
may be needed before the problems associated with financial exclusion
can be properly addressed. The Financial Inclusion Task Force
is the right place to begin to tackle these issues.
January 2006
124 Survey of Subscribers Providing Basic Bank Accounts,
Banking Code Standards Board, November 2005. Back
125
Basic Bank Accounts-your questions answered, Financial
Services Authority, October 2005. Back
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