Sam Dunn: Banks fail the poor as they fatten their profits
Sunday 26 February 2006
Are you a moneyspinner for your bank? If you can tick all the boxes on the "product" list - current account, mortgage, credit card, home insurance - and aren't horribly in debt, you can count yourself as a profitable customer for the bank's bottom line.
This relationship isn't just one way, though. While the banks will have worked out every way to make money from your custom, you too can benefit.
Savvy savers hunting the best interest rates will prosper, as will shoppers with cashback credit cards who never fail to pay off their bills each month.
Hail the credit card "rate tarts", too, who follow 0 per cent deals and pay no interest.
And let's not forget the borrowers with enough savings to use an offset mortgage that cuts the cost of their home loan.
This list of how to be clever with your cash goes on, but you can join it only if banks and other lenders let you become a customer in the first place.
For the poorest members of society, it is getting harder than ever, as highlighted last week by a report on bank branch closures (see News, page 25) from the University of Nottingham.
It found that branches closed in greater numbers in inner-city and old manufacturing areas than in affluent parts of the UK.
Lack of branch profitability was cited as a reason - no surprise when a community hasn't much money to save or invest.
The growing popularity of internet and telephone banking was also blamed. These are cheaper "channels" for the banks, and some of the savings made on operating costs do make their way into better deals for consumers. However, the elderly and other people on low incomes in poor communities are often unable or unwilling to bank in this way. Nor do many have easy access to public or private transport to get them to a branch.
Hard-headed business types brand these branch closures as protecting the bottom line.
Those more interested in the social impact and concerned about "financial exclusion" might instead call it protecting profits from the poor.
Happily, the way that banks and other financial institutions treat low-income communities is under scrutiny. The Treasury Select Committee, led by the irrepressible John McFall, is investigating financial exclusion and whether banks fail the poor.
During a committee hearing last month, Citizens Advice attacked high-street banks for making it difficult for vulnerable customers to open "basic" accounts (usually the first step in encouraging members of deprived communities to join the mainstream finance world).
Many failed to display or offer account information, it said, and demanded evidence of identity such as passports that some people don't have.
Meanwhile, the Government's own Financial Inclusion Taskforce is spending £120m over the next two years to bring the estimated 2.8 million households without a bank account "in from the cold".
The Treasury is also holding a summit on the spread of ATMs that charge between £1.50 and £2 to withdraw your cash. It is concerned at the siting of these machines in deprived and low-income areas, particularly where post offices that offered free over-the-counter cash withdrawals are closing and high- street banks are pulling out.
For too long, Britain's great financial underclass has wrongly been ignored on the grounds of being "unprofitable".
As banks unveil fresh rounds of gargantuan earnings, it's time they spent more on low-income customers - to attract and then keep them with decent offers.
One day, these people will be profitable too.
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