Lords report: Over half of UK citizens ‘financially vulnerable’

The House of Lords Liaison Committee has published its third follow-up report; Tackling Financial Exclusion: A country that works for everyone?

• Report: Tackling Financial Exclusion: A country that works for everyone (HTML)
• Report: Tackling Financial Exclusion: A country that works for everyone (PDF)
• Liaison Committee
• Select Committee on Financial Exclusion

This report examines the progress made by the Government in the implementation of the recommendations made by the Select Committee on Financial Exclusion in its 2017 report Tackling Financial Exclusion: A country that works for everyone?

In the Liaison Committee’s report Review of House of Lords Investigative and Scrutiny Committees: towards a new thematic committee structure published in July 2019, the Committee recommended that the Liaison Committee (on a case by case basis) could hold follow-up evidence sessions on a former special inquiry committee’s recommendations, followed by the publication of a report.

This is the third occasion on which this new procedure has been utilised.

The inquiry found that over half of the population are classed by the Financial Conduct Authority (FCA) as having characteristics of financial vulnerability.

This issue has been exacerbated by the COVID-19 pandemic with 14.2m people in the UK now estimated to have low financial resilience – characterised by over-indebtedness or with low levels of savings or low or erratic earnings.

Types of financial exclusion can include: not being able to open a bank account, not being able to access financial services due to bank branch and ATM closures, not being able to access affordable credit.

The report recommended that a clear Government strategy and increased FCA powers are brought forward in order to stop people experiencing financial exclusion.

The report calls on the Government to introduce a requirement for the FCA to establish a statutory Duty of Care that banks and other financial services providers must operate toward their customers. This should replace the current insufficient requirement to ‘treat customers fairly’.

Other recommendations in the Committee’s report, Tackling Financial Exclusion: A country that works for everyone? follow-up report are:

• The proposed legislation to protect access to cash should be brought forward without delay.
• The Government should publish the timescale and details on the no-interest loan pilot.
• The powers of the FCA to mitigate the trends in bank branch and free ATM closures should be reviewed and enhanced.
• The Government should continue to work with the Post Office and UK Finance to roll out a public information campaign about the banking services that the Post Office offers.

Baroness Tyler of Enfield, who was Chair of the Select Committee on Financial Exclusion, said: “It’s time for the financial services industry to recognise they have a fundamental duty to ensure that banks act in their customers’ best interests and that products and services are fair by design.

“That duty of care should now be established in law and overseen by the Financial Conduct Authority to ensure greater consumer protection and prevent banks and others from profiting from their customer’s vulnerability.

“The COVID crisis has laid bare the extent of financial exclusion across the UK. We continue have more than a million adults in the UK without access to a bank account and more than half the country now have characteristics of financial vulnerability.

“It is now more important than ever that Government come forward with a comprehensive financial inclusion strategy that will ensure access to cash, protect the public and end the scandal of the poorest being overcharged for financial and other services. The Government should publish that strategy within 12 months and allow Parliament to assess it and hold them to account for its delivery.”

Gareth Shaw, Which? Head of Money, said: “Millions of people rely on cash as they are not ready or able to take advantage of digital payments. However, rapid closures to the cash machine and bank branch networks in recent years mean that many of these consumers risk being abandoned by their banks.

“Our research has shown that people in some deprived areas have seen significant cuts to free ATMs in recent years, while a domino effect of bank branch closures has taken place without enough regard to whether suitable alternatives are in place.

“The government must urgently set out its vision for the future of cash, including its promised legislation to protect access to it. This should include putting the FCA in charge of the cash system so that it can take the steps that are needed to ensure cash remains a viable payment option for as long as it is needed.”