Banks are yet to deliver on financial inclusion, says Citizens Advice report
23rd January 2006
Banks are merely paying lip service to helping their most vulnerable customers and would-be customers, according to a report out today from national charity Citizens Advice.
Banking benefits, based on evidence from nearly 300 Citizens Advice Bureaux, shows how time and again banks are failing to meet the needs of those on the margins of the financial mainstream, by refusing to let them open basic bank accounts, or hitting them with high charges when they do.
And in evidence today to the Treasury Select Committee inquiry into financial exclusion, the charity will tell MPs that the behaviour of many banks is putting a range of government policy objectives at risk.
A bank account is now essential to everyday life, yet one in 12 households - 2.8 million adults - in the UK still don't have one. With all benefits and state pensions now having to be paid direct into bank accounts, banks have been under pressure to offer basic bank accounts with facilities for standing orders and direct debits but no overdrafts.
Despite commitments in the Banking Code to offer basic accounts, many banks continue to put unreasonable obstacles in the way of people opening accounts, insisting on certain forms of ID, or failing to provide any information about basic accounts
People refused bank accounts usually have to fall back on costly cheque cashing services charging an average 10% per transaction.
Some banks are doing better than others. For example, Barclays have recently made improvements including displaying basic bank account application forms in all their branches and modifying their rules on ID. Citizens Advice is urging all banks to follow their lead and get on board with financial inclusion.
Its report shows that vulnerable people who do succeed in opening a basic account can end up paying a high price for a second class service which becomes a cause of debt problems rather than a tool for helping them manage their money better.
Bank charges of up to £39 for a single failed direct debit - often triggered by late payment of benefits or tax credits - and the way banks siphon off money from accounts to pay outstanding debts can leave vulnerable customers with too little to live on.
And it often takes up to ten days to clear a cheque through a basic bank account instead of the standard three to four working days, putting customers at greater risk of any direct debits failure.
Banks also frequently take money out of accounts to pay off loans due to them first, without checking the customer has enough to pay other debts. Sometimes this puts low-income customers into rent arrears and facing the risk of eviction.
Citizens Advice Director of Policy Teresa Perchard said:
"These days a bank account is absolutely essential to function in everyday life, yet one in 12 households - 2.8 million adults - in the UK still don't have one. Many of the most vulnerable are denied access to a bank account in the first place, or unfairly penalised when they open one. Our evidence shows that the consequences and costs of this can be severe, including escalating debt and the threat of homelessness.
"Banks have made commitments to offer basic bank accounts but there is still a very long way to go to meet their ambitious target of halving the number of people without bank accounts by the end of 2006. The issue of access to bank accounts has become all the more urgent with the Government's announcement that from 2010 it will no longer fund Post Office Card Accounts, which are currently used to pay pensions and benefits to around four million people. At the moment many banks are just paying lip service to financial inclusion. Our recommendations can help them make it a reality."
The charity is calling on all banks to review their existing basic bank accounts against a set of key principles including:
- Making accounts available to people in financial difficulties
- Providing the same standards of service as those offered to current account holders
- Not taking money out of the account to pay debts to the bank first without agreement with the customer
- Capping charges for failed direct debits and standing orders to a reasonable amount
- Offering a buffer overdraft zone of £10
Citizens Advice also wants basic bank accounts to be better promoted, more flexibility about acceptable forms of ID for opening an account, and more co-operation between the banks and the Post Office so that people can use either to withdraw money from their account.
It is urging the Government's Financial Inclusion Task Force to make the business case to the banks to act on its recommendations.
Cases seen by Citizens Advice Bureaux:
An unemployed Somerset Mendip man was offered a job but was unable to open a bank account to receive his wages because he was homeless. He was caught in a vicious circle in which he was unable to open a bank account without an address, he could not find a place to live without one month's rent and deposit, and yet could not start work without opening a bank account to receive his wages.
A CAB in Cumbria advised a client with multiple debts to open a basic bank account and gave him information to help him choose one. Bank staff told him he could not have the basic account he’d applied for, but could have a full current account instead. When he told the bank he had been advised by the CAB to open a basic account and produced the FSA leaflet, the bank grudgingly agreed to open one.
A couple in North Yorkshire were unable to open a basic bank account because both were undischarged bankrupts. This led to the loss of a job offer because the employer insisted on paying by direct transfer. As a result, the couple were forced to remain on benefits.
A Staffordshire man Tamworth who was refused a bank account had to pay six per cent to cash his wages cheques at a cheque cashing shop, losing around £50 of his wages a month in fees.
A Somerset man working full time on low pay tried to open a bank account for his wages to be paid in but was turned down because he did not have a passport or driving licence. The bank refused to accept his NHS card from his doctor, his wage slips, a letter from his landlord and ID from work. As a result, he is currently being paid by cheque and has to use cheque-cashing facilities where he incurs large fees.
A woman in South West Wales was experiencing financial hardship and was in debt. The client had two young children and was in receipt of income support. Her bank had been accessing the client's account to meet some debt repayments, leaving the client with no money to live on. The client was left in a situation where she could not cover her rent and risked eviction.
An Oxfordshire Wallingford CAB's client, a lone parent, did not receive her
wages on time and so had insufficient funds in her account to pay her direct
debits. She was charged for each failed direct debit, at a total cost of £344.
Last updated: February 22, 2007