Select Committee on Treasury Written Evidence


Memorandum submitted by the Financial Inclusion Taskforce

(i)   Introduction

  1.  This is the response of the Financial Inclusion Taskforce to the Treasury Select Committee's three reports on financial inclusion, published in November 2006. The Taskforce has delayed its response to the Committee's reports until the Government's publication of its new financial inclusion document, Financial inclusion: the way forward (published 28 March 2007), which sets out a new framework for financial inclusion policy in the next spending period.

  2.  This response reproduces each of the Committee's recommendations for the Taskforce, and presents the Taskforce's responses following each recommendation or group of recommendations.

 (ii)   The role of the Financial Inclusion Taskforce

Text of the Committee's recommendations

    "We welcome the establishment of the Financial Inclusion Taskforce and its progress during the first 18 months of work. It has brought a much needed focus to the issue of financial inclusion and ensured wide consultation with those throughout the financial services industry and voluntary sectors who have a role to play in promoting financial inclusion. The Taskforce has made much progress in its work programme under the chairmanship of Brian Pomeroy. We believe its remit should be expanded to include access to savings and insurance. The Treasury should ensure that additional resources are provided to the Taskforce so that the expansion of its remit does not limit the ability of the Taskforce to complete its substantial programme of current work." (Paragraph 68; Third report: the roles of the Government and the FSA, and financial capability, 28 November 2006)

    "We welcome the action taken by the Government to promote financial inclusion and the progress that has been made on access to banking services, affordable credit and money advice. Longer term strategic planning and the involvement of all Government departments is vital in promoting financial inclusion. We recommend that, in consultation with key stakeholders and the Financial Inclusion Taskforce, the Government develop a long-term strategy for promoting financial inclusion. This should be published alongside the Comprehensive Spending Review. We recommend the Treasury take the lead in developing this strategy, although it is clear that, in order to be successful, policies aimed at improving financial inclusion will need to be implemented by all Government departments." (Paragraph 87; Third report: the roles of the Government and the FSA, and financial capability, 28 November 2006)

    "Sustained and predictable funding for work aimed at promoting financial inclusion is essential. For example, if long-term funding is not forthcoming then the increase in the availability of debt advice as a result of the money from the Financial Inclusion Fund will not be sustained. It would be a wasted opportunity if the debt advisers with valuable expertise recruited as part of this initiative were made redundant. We welcome the Economic Secretary to the Treasury's intention that financial inclusion should play an important part in the forthcoming Comprehensive Spending Review. We recommend that the Government initiate a wide-ranging debate about the key priorities for the Spending Review in terms of funding for financial inclusion programmes. This should involve full consultation with front-line professionals in the third sector and with the Financial Inclusion Taskforce." (Paragraph 92; Third report: the roles of the Government and the FSA, and financial capability, 28 November 2006)

Financial Inclusion Taskforce response:

  3.  The Financial Inclusion Taskforce welcomes these reports by the Treasury Select Committee, and is pleased that the Committee has come to such a positive assessment of the role of the Taskforce in promoting financial inclusion.

  4.  As set out in the Government's new financial inclusion strategy document (Financial inclusion: the way forward), the Taskforce will have significant responsibility for evidence gathering and analysis to inform the developing policy agenda in this area, for the remainder of the current spending period, and as a result of the continuation of the Taskforce until 2011, for the next spending period as well.

  5.  In particular, the Taskforce will be involved in development of the detailed action plan for deploying the new Financial Inclusion Fund, which the Government has committed to continue in the next spending period from 2008-11. In the longer-term, the Taskforce welcomes the Government's announcement that financial inclusion policy will be mainstreamed into departmental budgets after 2011.

 (iii)   Data sharing and affordable credit

Text of the Committee's recommendation:

    "Our current inquiry has demonstrated both the importance of effective data-sharing in enhancing access to affordable credit and the potential benefits of data-sharing beyond the traditional lending industries. We are disappointed that there is insufficient evidence as yet of concrete progress arising out of the proposals of our predecessors for increased data-sharing. We recommend that the DTI and the Financial Inclusion Taskforce investigate as a matter of urgency the benefits of wider data-sharing in increasing access to affordable credit and the barriers to such data-sharing. We further recommend that the DTI actively promote measures involving lenders and non-financial services organisations such as housing associations and local authorities to ensure the development of more comprehensive data-sharing." (Paragraph 35; First report: credit, savings, advice and insurance, 16 November 2006).

Financial Inclusion Taskforce response:

  6.  The Taskforce agrees that data-sharing is a potentially important issue in increasing the availability of affordable credit. However, the Taskforce points out that data-sharing may have the result of entrenching lack of access to affordable credit for those who are most excluded, as there will be no data on credit use for such customers. The Taskforce believes, therefore, that the use of data-sharing should be "financial exclusion proofed" to ensure it does not increase the access to affordable credit of those consumers already using credit at the expense of those who are not.

  7.  The Taskforce will accordingly liaise with the DTI to consider the results of the consultation exercise into data-sharing that the Department has recently concluded, as part of its own ongoing consideration of the role of data-sharing.

  8.  The Taskforce also notes with interest the decision by the Competition Commission's inquiry into the home credit market, which reported in December last year, to institute a requirement for home credit providers above a threshold operational scale to share client data through at least two credit reference agencies.

  9.  A number of providers of mainstream consumer credit have, in meetings with the Taskforce, questioned the usefulness of data from home credit providers as a guide to the creditworthiness of potential mainstream consumer credit customers, given the wide differences between the home credit and mainstream consumer credit models. Nevertheless, we will follow these developments with interest.

 (iv)   Banking issues—engagement by the banks

Text of the Committee's recommendation:

    "Although we do not see a case at present for the introduction of legislation comparable to the US Community Reinvestment Act, we recommend that the Government, the banks and the Financial Inclusion Taskforce work together to prepare and then publish measures of engagement by the individual banks with the socially excluded, provided on a standard basis no later than the middle of 2007. More generally, the adequacy of the provision by banks of information which enables full and effective monitoring to be carried out will be an important criterion in determining the overall success of the voluntary partnership approach to combating financial exclusion in banking services." (Paragraph 20; Second report: banking services, the Post Office Card Account, and financial inclusion, 19 November 2006)

Financial Inclusion Taskforce response:

  10.  The Taskforce will continue to work with the banks and the Government to consider ways in which the banking sector is engaging with financially excluded consumers across the range of product markets.

  11.  As set out in Financial inclusion: the way forward this will include working with the Government and the banks to understand, gather evidence on, and develop options for addressing the following issues:

    —  the number of people who are unbanked (the latest FRS data shows that in 2005-06 there were two million adults living in 1.3 million households without access to a bank account);

    —  the extent to which basic bank account customers are making effective use of their accounts;

    —  the role of banking as a route for consumers into wider financial inclusion;

    —  the role of the banks in supporting customers in financial distress; and

    —  the potential role of banks in supporting a national expansion of the coverage and capacity of third-sector lenders.

  12.  As part of this process, the Taskforce will consider with the banks and the Government the case for standard, reported measures of banks' engagement with financially excluded customers.

 (v)   Banking issues—the shared goal and reporting

Text of the Committee's recommendation:

    "There is evidence to indicate that steady progress has been made so far towards the target of halving the number of people without access to a bank account. Banks are collectively accountable for progress so far and in the future. However, it is also vital that each bank can be held to account individually for its contribution to meeting this target. This is not possible at the moment. Individual banks need to accept this responsibility, and accordingly we recommend that the Government, the Financial Inclusion Taskforce and the banks reach agreement enabling each individual bank regularly to publish figures for the numbers of basic bank accounts it has opened in each year. We would expect each bank to develop strategies for ensuring that it makes a proportional and appropriate contribution towards meeting the target, and we would also expect such strategies to take due account of the analysis which follows on the issues surrounding the opening of basic bank accounts." (Paragraph 26; Second report: banking services, the Post Office Card Account, and financial inclusion, 19 November 2006)

Financial Inclusion Taskforce response:

  13.  The Taskforce has, in its role as monitor of progress towards the shared goal, been provided with data on the levels of basic bank accounts opened by each bank, and has discussed these data with them individually. Data at the level of the individual banks is, necessarily, commercially sensitive, and the Taskforce has therefore agreed to treat this information as commercial in confidence. The Taskforce notes, however, that the Treasury Select Committee has published individual bank-level data on basic bank account opening as part of the evidence from its inquiry.

  14.  The Taskforce suggests that recent evidence from the latest FRS, confirming that steady progress is being made towards the shared goal, indicates that compulsory individual bank-level reporting may not be a requisite for progress with reducing the number of unbanked adults. The Taskforce will however, as stated above, continue to work with Government and banks on developing frameworks for engagement, and will accept any further monitoring and evaluation responsibility which is agreed by all stakeholders.

 (vi)   Banking issues—commercial sustainability

Text of the Committee's recommendation:

    "While the provision of basic bank accounts will not be immediately profitable, we welcome recognition by the banks that they have a responsibility to provide such a service and that, in the longer term, bringing more people into the financial services sector will be profitable for the banks. We also welcome the fact that banks are upgrading consumers to full service accounts where this is appropriate for the individual. It is important that the Financial Inclusion Taskforce, in cooperation with the BBA and individual banks, assesses evidence concerning the business case for banks to provide basic bank accounts." (Paragraph 30; Second report: banking services, the Post Office Card Account, and financial inclusion, 19 November 2006)

Financial Inclusion Taskforce response:

  15.  The Taskforce has, in its meetings with banks—both individually and collectively—discussed the economics of basic banking products at length. The Taskforce welcomes the ongoing commitment of the banks to offering the basic bank account. Discussion with the banks on the economics of basic banking products is ongoing.

  The Taskforce will also, as detailed in Financial inclusion: the way forward, be considering the medium- to long-term impact of developments—technological, commercial or demographic—in the banking market that may impact on the ways in which banks offer products for the financially excluded. We will, of course, consult closely with the banks in conducting this work.

 (vii)   Banking issues—commercial sustainability

Text of the Committee's recommendation:

    "Financial inclusion will require more than the achievement of numerical targets for numbers of accounts opened. Survey evidence indicates that a significant proportion of basic bank account holders withdraw all their money in cash on the day it is credited and gain little benefit from operating a basic bank account. There needs to be a greater focus on ensuring that the terms and conditions of basic bank accounts are appropriate and useful for those on low incomes. We make a number of recommendations below and expect the Treasury, the Financial Inclusion Taskforce and the banks to discuss and take forward appropriate measures for their implementation." (Paragraph 65; Second report: banking services, the Post Office Card Account, and financial inclusion, 19 November 2006)

Financial Inclusion Taskforce response:

  16.  The Taskforce agrees that usage of accounts is an increasingly important issue for the financial inclusion agenda, and as detailed above, will be working with the Government and the banks to gather evidence and develop options for addressing this issue in the context of the developing financial inclusion strategy over the coming months.

  17.  The Committee's report into banking identifies a number of specific areas relating to usage. The Taskforce considers each of these in turn below:

    a.  Penalty charges: the Taskforce recognises the disproportionate impact that penalty charges have on low-income customers. The Taskforce understands that this issue is now being considered by the Office of Fair Trading, and awaits the findings of the OFT's investigations.

    b.  Buffer zone: research evidence from financially excluded people collected by the Taskforce shows that a buffer zone is a useful feature of bank accounts designed for use by low-income and newly-banked customers. The Taskforce notes that a small number of basic bank accounts currently offer a buffer zone.

    c.  Direct debits: the Taskforce has been carrying out discussions with the banks, utilities, and BACS on ways in which direct debit can be made a more relevant and appropriate service for those on low incomes and operating basic bank accounts. We will continue with this work.

    d.  Branch access: The Taskforce, like the Committee, would prefer that banks did not restrict counter access for basic bank account customers, and has made this clear to those banks that do so.

    e.  Cheque clearing: the Taskforce understands that the OFT-chaired Payment Systems Taskforce has delivered an agreement by the banks to bring the cheque clearing cycle for basic bank accounts in line with the standard cycle, with a commitment from the banks to implement changes from November 2007.

    f.  The right of set-off: the Taskforce considers that the right of set-off, where applied, should be used in a way that is consistent with the principle of the Banking Code, which requires subscribers to treat customers in financial difficulty sympathetically and positively.

 (viii)   Banking issues—innovative technologies

Text of the Committee's recommendation:

    "Basic bank accounts should contain features that help people monitor their day-today expenses. These could include regular statements or the ability to check balances at Post Offices. We recommend that research be undertaken by the Financial Inclusion Taskforce into methods of helping communicate to basic bank account users the amount of money left in their account and any impending direct debits. We further recommend that the banks investigate innovative ways of accomplishing this through mechanisms such as text message banking." (Paragraph 74; Second report: banking services, the Post Office Card Account, and financial inclusion, 19 November 2006)

Financial Inclusion Taskforce Response:

  18.  As indicated above, the Taskforce is reviewing developments in the banking market, and as part of this work will consider ways in which account information can be made more accessible to customers.

 (ix)   Banking issues: access to branches

Text of the Committee's recommendation:

    "Lack of access to a bank branch can be an important source of geographical financial exclusion. Some vulnerable groups, particularly the elderly, are heavier users of bank branches than younger people. While we note that since 2000-01 large scale bank branch closures have been avoided, we recommend that the Financial Inclusion Taskforce undertake a mapping exercise to determine the problem of lack of access to branches and explore with the high street banks the possibility of innovative models of delivery such as shared or mobile branches." (Paragraph 90; Second report: banking services, the Post Office Card Account, and financial inclusion, 19 November 2006)

Financial Inclusion Taskforce Response:

  19.  The Taskforce is currently investigating the options for conducting a widespread mapping exercise in line with the Committee's recommendation. As part of our work into developments in the banking market, the Taskforce will also consider the role of innovative distribution mechanisms such as shared or mobile branches.

 (x)   Financial capability and demand for financial products

Text of the Committee's recommendation:

    "We welcome the limited steps the FSA has taken to improve financial capability amongst the financially excluded, such as some of the projects funded by the Financial Capability Innovation Fund. However, we are concerned that the FSA's National Strategy for Financial Capability does not adequately address the needs of the financially excluded. We recommend that the FSA set and achieve targets to reach such individuals as part of its strategy. Reaching the financially excluded will require much more active engagement rather than just distributing leaflets or putting information on a web-site. We further recommend that the action undertaken by the FSA be coordinated with work by the Financial Inclusion Taskforce aimed at stimulating demand for financial services amongst previously excluded individuals." (Paragraph 13; Third report: the roles of the Government and the FSA, and financial capability, 28 November 2006)

Financial Inclusion Taskforce Response:

  20.  In developing its proposals for a campaign to stimulate greater demand for financial services amongst hard-to-reach groups, the Taskforce discussed ideas and opportunities for coordination with the FSA. This campaign, entitled "now let's talk money" was launched in January this year.

  21.  The Taskforce understands that the DWP, which is responsible for implementing the campaign, and the FSA are coordinating work in their respective areas. Furthermore, the FSA has provided representation to a Stakeholder Advisory Group which is providing the DWP with wider stakeholder feedback on its plans for the initiative.

 (xi)   Financial Inclusion Taskforce engagement with stakeholders

Text of the Committee's recommendation:

    "While we recognise the need to keep the Financial Inclusion Taskforce at a workable size, the Taskforce needs to engage with other partners that can help promote financial inclusion, such as the Post Office and housing associations." (Paragraph 69; Third report: the roles of the Government and the FSA, and financial capability, 28 November 2006)

Financial Inclusion Taskforce Response:

  The Taskforce has engaged with a wide variety of stakeholders, including the social housing sector and the Post Office, and will continue to do so.

April 2007





 
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