Examination of Witnesses (Questions 760
- 768)
TUESDAY 19 JUNE 2007
MR MIKE
DAILLY, MS
SUSAN MCPHEE,
MR JOHN
PATTON, MS
LORETTA GAFFNEY
AND MR
CHRIS MALLON
Q760 Mr Davidson:
If there is anything else you want to send us about that because,
again, since Westminster is clearly our responsibility, we can
pick that up about other issues to do with the social fund. I
think we have generally understood that because it has come up
elsewhere. It is always difficult to say, "What's the bigger
problem, this or that?", but we have identified a number
of problems: lack of access to affordable credit, poor financial
literacy, lack of information about more suitable sources of credit;
or poor transparency on the part of lenders. Is there any one
of those that spring out as being far worse than the others, or
are they all pretty bad?
Ms McPhee: I think what stands
out is lack of affordable credit and poor transparency, the two
combined are the worst ones.
Q761 Ms Clark:
You will be aware that one of the Government's priorities in terms
of financial inclusion is to try to increase the number of people
who have bank accounts. I know that credit unions started developing
banking services in November last year. I just wondered if all
you had any comments to make in terms of that experience to date
in the short time that credit unions have been involved in banking.
Mr Patton: None of the credit
unions which I represent is involved with that policy, but Chris
will probably have something to say about that. As I said earlier,
I would like to see people coming into credit union who already
have bank accounts but who see a role for credit unions as part
of their saving habit as well.
Mr Mallon: There are ten credit
unions centres with that capacity: three of them are from Scotland,
two within Glasgow and one in the Lothians, the larger credit
unions. It has been funded very much through those credit unions
which have been involved in it and ourselves in ABCUL. It is to
produce a current account sort of approach, not with an overdraft,
but it will have facilities for direct debit, those sorts of facilities
on it, and access through ATM for cash withdrawal using the visa
network, which is widely received and is used by the Bank of Scotland
et cetera, so it is a very good network. There has been a lot
of uptake with the three credit unions: Scotwest, Capital and
Glasgow Credit Union, so those are the ones which are pushing
it through in Scotland at the moment. As I said, uptake has been
good, a lot of people are using it. The individual cost to the
account will be decided by the credit union, but it could be minimal,
it could be around pounds per month or something like that as
a cost to it. The idea is that for things such as a rejected direct
debit, et cetera, the penalties or the costs will be kept to a
minimum and that is where the savings will come in. Also, by allowing
people access to direct debit, et cetera, facilities for fuel
payments, that sort of idea, savings can be made and those savings
will come through with it. At the moment, outside those three
credit unions, once the pilot is done others will be invited to
join. The problem is there is a need for an infrastructure within
a credit union to do this and to become part of it, so a credit
union which is of a smaller size and dependent on volunteers would
find it quite difficult to be involved in it. The cost, and this
is an approximate, this is not the price, is around £120,000
for a credit union to get involved. I believe part of the growth
fund will have money set aside for credit unions that wish to
be involved with that, with maybe up to 50 per cent of costs.
As I say, it is in an early period, it is still part of a pilot
and once the pilot has gone through it can be rolled out. It is
very much a credit union initiative, it is credit unions that
are pushing this through using ourselves, ABCUL, as their trade
body. As I say, initial uptake has been very, very good.
Q762 Ms Clark:
A slightly different issue is access to money in many deprived
areas and cash machines. I just wonder what your views are in
terms of that whole issue?
Mr Mallon: One example widely
publicised last year was the Royal Bank of Scotland and Yoker
Credit Union where Yoker Credit Union offered for the cash machine
to put in. I think the next cash machine cost something like £1.80
for a withdrawal, so if you have got a tenner in your account,
you cannot take it out, it is as simple as that. If you have got
£100 in it and you take out £10, that is an 18 per cent
cost to take it out, it is expensive. This is a free withdrawal
machine so that access is there. I think Royal Bank are now willing
to work in conjunction with other credit unions in putting that
out there, because it has been trialled there, it has been seen
it does work, it is giving benefits to the credit union through
new members coming though who would not normally come in through
the door but now they are coming in to use the machine and then
ask about it. There are issues regarding security, having such
access to it, et cetera, but those issues have to be overcome
too. We hope through the Banking Services that credit union members
will be entitled to have that current account, so, therefore,
that should open up, through that network again, all ATM machines
for accessibility.
Q763 Ms Clark:
Obviously over quite a number of years now banks have been closing
down in lots of communities. How big a problem do you think this
remains, even though there have been some successful initiatives
in getting new machines?
Ms McPhee: I think it is a problem.
Last year we did research with Citizens Advice England and Wales
on ATMs and charging ATMs and what we found through an online
survey was that 25 per cent were use pay-charging cash machines
once a week. People on benefits, for instance, who may be only
taking out a withdrawal of £10 are paying £1.50 at a
time. We found that there were what we call "free ATM deserts",
areas of deprivation which simply have no free machines at all.
If people want to go to a free ATM they have to get a bus ride,
all of which will cost them more money to get there. Some of the
banks responded to that research report. The Royal Bank did do
something about that but still there are not enough free ATMs
as there should be.
Q764 Chairman:
You know the problems and misery caused by high classed lenders,
whether they are legal or illegal. In your view, what should we
be doing to help people so that creditors and banks do not charge
very high service charges? Can there be any mechanism, like energy
companies have social tariffs within the banks and building societies
can introduce social tariffs or is there anything else they should
be doing?
Ms McPhee: I think something which
would be useful would be what they have in America, which is the
Community Reinvestment Act. What it does is it forces banks to
disclose the lending practices in local areas so that they have
to disclose who they are lending to and what they are lending
on. It allows people to then compare banks and compare what is
going on in local areas of deprivation. For instance, the Royal
Bank, who operate in America, are forced to disclose all of this
information but they are not here. I think those would be really
useful statistics to allow us to look at what is going on in local
areas.
Q765 Chairman:
You think naming them and shaming them might help?
Ms McPhee: There is some evidence.
The New Economics Foundation have done a research report on this
and in their experience, certainly, by naming and shaming them
it has an impact and it also allows banks to display good practice
and shame the others. It is not always a bad thing, it can show
how well you are operating.
Mr Dailly: In parts of America
banks then put money into their local community where there are
not a lot of services available, so it seems there is a social
responsibility, charitable payment. Obviously that could be done
in Scotland working with credit unions. I appreciate, from listening
to John, that the credit union is quite happy with the way they
have built up, but there must be ways to think about delivering
that without upsetting the credit unions.
Q766 Chairman:
I want to know, and I am sure Committee members would like to
know, your words of wisdom. What are the two significant things
can the Government do to alleviate poverty?
Mr Mallon: In general, I was thinking
more about savings vehicles, make sure they are regulated. At
Christmas we had the example of a hamper system where you can
lose your savings and those savings need to be regulated. Ourselves
and credit unions, they are regulated and I think there is something
going through at the moment to do that. That is very important
because if you lose your savings coming up to Christmas and that
is what you have put them there for, you are going to be turning
around to whoever can lend you the money to make up for that.
Ms Gaffney: Surprisingly, increase
the minimum wage and look at the benefit system and how complicated
it is and how it impacts in terms of the means testing.
Mr Patton: I think it is an impossible
task for the Government to end debt and the dependence upon debt,
but it can certainly take steps to regulate the interest charges
on debt, by banks, and I know under John McFall there is certainly
a lot of work happening in that area. I would like to see some
of the private sector Home Credit agencies who operate outwith
regulation more regulated. Credit unions are very heavily regulated
by the Financial Services Authority, but it certainly seems to
me that the Home Credit agencies do not enjoy, if that is the
word, that same level of regulation nor is there that same transparency
in the lending to consumers.
Ms McPhee: Obviously I agree with
John, regulate charges and interest rates and impose penalties.
For instance, under the Consumer Credit Act people can apply for
alternative dispute resolution to look at unfair practices, if
that was opened up to include interest rates and charges that
would help with heavy penalties.
Mr Dailly: I think we have got
to tackle the fact that there is not a lot of genuine competition
in the financial services sector. Recently the European Commission
was concerned about the lack of competition between banks. Although
they say there is a lot of competition, in actual fact they all
have the exact same sorts of practices. If we try and tackle that,
and that is certainly a big issue, then it could be done
by way of state intervention, whether it is through credit unions
or other kinds of Community initiatives, I think that could kill
two birds with one stone. It could open up competition but also
tackle the people who cannot access credit. I think that could
be done. The second thing is, as I said to Mr MacNeill earlier,
I do think we need to have legislation in the House of Commons
dealing with bank charges. I say that because there are judges
in London who have said, "We need a test case. This is an
intolerable situation. We have got the biggest consumer revolution
in the UK ever with people claiming back their bank charges".
I am involved in instructing a QC at Hull County Court in July
where a judge has issued something like 40 to 60 striking-out
orders and we are trying to stop that happening. We have got this
complete uncertainty across the UK from the courts as to can people
claim back their charges and I think that surely gives a message
which is that really it is time for Parliament in London to deal
with this issue.
Q767 Mr MacNeil:
Chairman, I have got a small personal interest question, or maybe
it is wider. The evidence and what you have said this morning
and this afternoon has been very useful. How often do you get
in the face of politicians? I know you will be busy and you have
got jobs to do, but quite a lot of what you have said this morning,
you may be dealing with things that politicians have never got
around to sorting out, so I would like to know how often you get
in the face of politicians, and that is politicians of all parties.
Certainly politicians compete between the parties and they could
probably serve you a wee bit better than they are?
Mr Dailly: I think you might have
picked some of the wrong people because obviously people like
myself and Susan do get involved with politicians quite a lot,
and I help politicians draft legislation, private Member's bills.
I should say for all political parties, the SNP, Liberals, Labour,
Socialist, so I have been involved with all of them. I think the
only one party I have not helped is the Conservative Party, but
I am sure you will forgive me!
Ms McPhee: We have been involved
in extensive lobbying, particularly with the Scottish Parliament.
We will have debt bills going through the Scottish Parliament
and we will be getting involved in all of them.
Mr Patton: In the Scottish Administration
certainly there is cross-party support for credit union, I assume
that is also reflected in Westminster and that is something I
welcome. I am happy to work with any politician of any party who
supports the idea of credit union as long as they recognise that
the Credit Union movement is an independent co-operative where
it determines its own policies.
Ms Gaffney: I work locally with
my MSP quite often who has always been very supportive of local
issues and the council as well and councillors, we are all working
together.
Mr Mallon: I think we find that
the access is very open. As John said, we do get a lot of cross-party
support for anything which comes through the Scottish Parliament.
Q768 Chairman:
Can I thank the witnesses for their attendance this morning. Before
I declare the meeting closed, would any of you like to say anything
in conclusion, perhaps on an area which we have not covered in
our questions?
Mr Dailly: I would like to say
it is quite refreshing that the Scottish Affairs Committee has
come to Govan today in the heart of the community, so I would
like to thank the Committee for coming to Govan today.
Chairman: Thank you very much. I am sure
all my Committees members would agree that this was a very, very
useful session and your evidence will be very useful to us when
we compile our report and make our recommendations to Government.
Thank you very much.
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