Government responds to Treasury Committee’s Consumers’ Access to Financial Services report

The Treasury Committee published its Consumers’ Access to Financial Services report on 13 May 2019. Its recommendations included:

• Firms should be required to always act in customers’ best interests – a legal duty of care may be necessary
• EHRC needs better resources to enforce Equality Act
• Enforcement of banks’ compliance with Equality Act should be transferred to FCA
• Firms should be required to publish loyalty penalty
• Bank branches and free-to-use ATMs should be preserved
• Post Office must stop subsidising big six banks’ lack of branches
• Banks must fund shared hubs to prevent loss of ‘last bank in town’
• Voluntary spending blocks should be explored

The Committee has today published the Government’s response to the report. Commenting on the response, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:

“The Government’s support of the FCA and the EHRC working together to properly protect consumers’ rights under the Equality Act is welcome.

“The Government’s commitment to undertake a review of the wording of payment request letters – to ensure that they are clear and understandable for an individual with a low level of literacy – is timely and necessary.

“The Post Office provides basic banking services to the customers of many high street banks at a loss. The Committee is supportive, therefore, that from next year the fees charged to banks to provide such services will increase.

“It’s disappointing, however, that the Government refuses to ensure that small towns and rural areas aren’t left without high street banking services.

“The Post Office is not able to provide some key banking services, such as direct debits, even though commercial banks promised customers that they could use Post Offices when they shut down branches. 

“The Government would not be intervening in the commercial decisions of banks by requiring them to fund fully functioning banking hubs in post offices; it would be holding them to their own promises.”

--Ends--

Notes to Editors

• The Committee published the FCA’s response to the report on 21 June 2019 here. Commenting at the time, Mrs Morgan said:

“The Treasury Committee’s report made a series of wide-ranging recommendations for the regulator and the Government to consider; recommendations for how consumers’ access to financial services can be improved.

“But the vast majority of the FCA’s reply to our recommendations appears to be a holding response or lacking in desire to effect any change.

“For example, we recommended that in addition to the EHRC, the FCA should be given responsibility for the enforcement of the Equality Act. Yet the FCA said that it does not have the expertise as a financial services regulator to carry out enforcement.

“Why could the FCA not acquire the expertise required to ensure that the Equality Act is enforced and protect vulnerable consumers?

“The FCA should have another go at responding to our report and approach our recommendations with a far more inquisitive and curious attitude.”

• The Treasury Committee’s Consumers’ Access to Financial Services report is here, and summarised below:

• Access to financial services and financial inclusion are issues of fundamental importance to the Treasury Committee, UK consumers, and also the functioning of the economy. Everyone can be vulnerable at some point, so financial inclusion matters to everybody, not just the disadvantaged.

• A duty of care is an obligation to exercise reasonable care and skill when providing a product or service. All retail financial services providers (FSPs) should always be acting in their customers’ best interests, but they are currently not required to do so. If the Financial Conduct Authority (FCA) can’t enforce such behaviour, the Committee would support a legal duty of care, creating a legal obligation for firms to act in their customers’ best interests.

• The Equality and Human Rights Commission (EHRC) has a range of enforcement powers for Equality Act 2010, which requires service providers to make reasonable adjustments for individuals covered by the Act. Reasonable adjustments that FSPs should make include providing interpreters, tactile bank cards and Braille or Moon tactile font communications. Eleanor Southwood from the RNIB told the Committee about the importance of such adjustments:

“The other day I got into a taxi and had to pay on my card. It was a touchscreen. I just had to give the driver my PIN. That is a deeply unsatisfactory arrangement. Why on earth should somebody who cannot see be putting themselves at that level of risk of financial crime, just because it is not accessible? That is a huge area of concern.”

• The FCA should make it clear to FSPs that such adjustments are expected of them under its principle of treating customers fairly. The EHRC has decided that enforcing access to financial services is not one of its strategic priorities, and that it is unable to take on individual cases due to a lack of resources. Either the FCA or the Financial Ombudsman Service (FOS) (who do have the resources and expertise) must be given the legal power to take on such cases on behalf of consumers.

• The loyalty penalty is the cost of being a long-standing customer, compared to a new customer receiving the same product or service. Citizens Advice has calculated that this could be nearly £1,000 extra per year. The Competitions and Market Authority (CMA) has said vulnerable people may be more at risk of paying the loyalty penalty. In line with the CMA’s recommendation, the FCA should make it mandatory for firms to publish the size of their loyalty penalties to consumers so that they are fully informed.

• Vulnerable people, such as the elderly or those on lower incomes, are more likely to be impacted by bank branch closures as they often rely on branches to carry out their banking needs. Preserving a branch network, therefore, should help preserve financial inclusion. The increasing number of IT failures within banks, and the inability of FSPs to serve their customers digitally during such service failures, shows why banks can’t rely solely on their digital channels to replace branches entirely.

• Many banks are ushering customers towards the Post Office, which is a Government-owned company providing basic banking services to customers of many high street banks. The Post Office provides this service at a loss. Taxpayers should not be subsidising the big six banks’ lack of branches. The Government must ensure that the Post Office receives adequate funding from banks for the services it provides on their behalf. The Post Office is not an optimum environment for customers, particularly vulnerable ones, for banking services as staff are typically not banking specialists. Rather, the service provided is comparable to that of an ATM. The Post Office should not be seen as a replacement for a bank branches, but a complimentary proposition where available. In cases where the ‘last bank in town’ is due to close, banks should be required to provide and fund ‘banking hubs’ in the local Post Office, with adequately trained staff.

• To protect the freedom of consumers to pay for goods and services how they choose, free access to cash must be maintained for those who need it. This includes free-to-use ATMs. The Government should implement the recommendations of the independent Access to CashReview urgently. Failure from the Government to intervene risks the UK inadvertently becoming a cashless society. For the most vulnerable in society, this would have stark consequences.

• Banks should follow Monzo’s lead on its voluntary block on gambling transactions. Some customers, as described to the Committee by Katie Evans from the Money and Mental Health Policy Institute, have imposed blocks upon themselves:

“We know of people who are using cash to manage spending when they are unwell because they cannot turn on clever settings on their cards. At best, I have heard of people literally putting their credit cards in a Tupperware full of water and putting it in the freezer, which is fantastic: how clever for someone to come up with that system for themselves, to try to put in place the friction they need when they are unwell.”

• There is scope for banks to do more to help consumers with other types of spending blocks, but they are restricted by a lack of data. For example, an alcohol purchasing block is possible. However, the current lack of data means that a supermarket cannot distinguish between an alcohol purchase and anything else. Retailers tend not to make the required granular data available to FSPs. Whilst there are concerns about the privacy of consumer data, the idea of providing such data to FSPs with the informed consent of consumers should be explored.

• The Creditworthiness Assessment Bill proposed including rental payments into a consumer’s credit score, which would provide access to cheaper credit for about 80 per cent of rent payers. The Government’s alternative to the Bill – the Rent Recognition Challenge – has not delivered in the interest of consumers. Evidence has shown that including rental data improved the credit scores of a third of tenants and made no material difference to the remainder. Therefore, the Government should support the Creditworthiness Assessment Bill through Parliament.

• Carers play a vital role in assisting vulnerable consumers to access financial services. For data protection and privacy reasons, however, this can prove difficult. Power of attorney rules have been used as a way around this. In 2018-19, 749,000 Lasting Power of Attorneys were registered with the Office of Public Guardian. This was a 63 per cent increase in annual registrations since 2016-17, when 459,000 were registered. In total, as of May 2019, there were 3,998,000 Lasting Power of Attorneys registered. The Power of Attorney process was criticised to the Committee, so the FCA should consult on how they work in practice and whether they are fit for purpose.

• An exception in the Equality Act enables insurance companies to treat disabled people differently. The EHRC, however, said that it does not have the relevant resources to investigate whether companies’ treatment of customers with disabilities is compliant with the Act. It’s concerning that the EHRC said that this issue is not a strategic priority. If the EHRC needs more resources to fulfil its duty of enforcing non-compliance, it should request them, not just ignore its responsibilities.

• Basic bank accounts offer basic functionality to consumers, even to those with a sub-optimal credit score. These accounts are not commercially advantageous to the banks. A House of Lords report on financial inclusion stated that banks should do more to promote basic bank accounts. The FCA should mandate banks to relax their opening restrictions on these accounts to make them accessible to all consumers.

• Identifying which of their customers require additional support may be difficult for FSPs as consumers may not want to disclose their particular circumstances. Nonetheless, it is beholden on firms to know their customers and create a culture where consumers feel comfortable discussing what their specific needs might be, in the knowledge that those needs will be met. A lack of disclosure should not be used as an excuse not to provide the support required. Firms should design their interactions with customers to enable them to identify their customers’ vulnerabilities. 

• Commenting at the time of publication, Mrs Morgan said:

“The importance of financial inclusion cannot be understated. As the World Bank said recently, there can be no end to poverty without financial inclusion. And as Eleanor Southwood from the RNIB told the Committee, financial inclusion is about independence, protection from financial abuse, and confidence.

“The financial inclusion of vulnerable consumers – and we can all be vulnerable at some point in our lives – should be of the utmost priority for financial services providers, the Government, and financial regulators.

“It can no longer be an option for banks to ignore financial inclusion.

“A patchwork of improvements and adjustments have been targeted at some groups of consumers, but the basic level of access is still not universal. There are significant areas of concern where vulnerable consumers are effectively excluded from participating with financial services providers.

“This report makes a series of recommendations to Government and the regulator for how consumers’ access to financial services can be improved.”