The Blog

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Gillian Guy Headshot

The Government Must Make Financial Services Work for Vulnerable People

Posted: Updated:

With financial services such a vital part of everyone's daily life in the UK today, access to banking and payment services are essential. However, in 2009/10 the Family Resources Survey found that 7% of adults in the UK didn't have a bank account. Almost one fifth of people over 65 with a bank account use someone else to access their day-to-day spending money, and a quarter find it difficult to get to a bank branch.

So, without access to a bank account, basic tasks such as receiving your wages or benefit income, or paying bills, become huge and costly obstacles for people (often vulnerable) who are often already struggling in the first place. And yet, in stark contrast to the universal service obligations to meet the needs of consumers found in the energy, water and telecomms industries, financial services firms are under no such obligations.

At the same time, families are increasingly expected to engage with more complex financial products as a result of social policy changes: they must save for a pension or a child's university education; even insuring a car calls for certain legal requirements they must meet. But who is making sure that consumers can access suitable and often complex financial products and services?

As MPs scrutinise the Financial Services Bill today, they will debate what the objectives, and duties and responsibilities the new Financial Conduct Authority (FCA), which replaces the Financial Services Authority, should be to ensure that competition in financial markets delivers positive outcomes for all consumers, including the most vulnerable.

This is important because competition among firms to win the custom of consumers with greater spending power has very often led to worse outcomes for the less commercially attractive customers. For example, so-called "free" current accounts for wealthy customers are subsidised by hefty overdraft charges. These are most often levied on those who can least afford to pay them. And firms looking for ways to subsidise low headline mortgage interest rates contributed substantially to the widespread mis-selling of PPI. In situations like these the regulator must be able to step in. There is a danger that as the Financial Services Bill is currently drafted, when competition fails to deliver for consumers, the only remedy the FCA can prescribe, is more competition. It must therefore be empowered to respond effectively to market failure and it should set out, right from the start the approach it will take when such circumstances arise.

Competition is good for consumers, and it's good for firms. But by itself it can't ensure that the needs of all consumers are met, especially the most disadvantaged, who lack purchasing power. Last year the Payment Council U-turned on its decision to end the use of cheques - not because market forces responded to demand from consumers, but because of the political pressure to ensure that a service relied on by many vulnerable consumers - particularly the elderly and digitally excluded - was maintained.

The government is, and should be, responsible for policy decisions. But the regulator must be empowered to make sure firms comply with the government's social policy objectives such as financial inclusion. If this collaborative and effective approach isn't taken, the government will have to rely on voluntary agreements with the industry to ensure that consumers' essential needs are met - an approach that has many limitations. In 2005 the government launched the Financial Inclusion Taskforce to increase access to banking services for low-income consumers. And yet today, seven years later, over one million adults still live in a household where no one has access to a bank account.

Consumers need access to products which are safe and which meet their needs - and they need a regulator with the power to make that happen.

Around the Web

Government publishes Financial Services Bill | Accountancy Live

UK Parliament Publishes Financial Services Bill – Martindale.com

Sector supports social investment amendments to Financial Services Bill