The muddied waters of 'financial inclusion'
'Basic' accounts and credit unions have a long way to go when it comes to bringing banking to people on low incomes, finds Esther Shaw
Sunday 31 July 2005
Can you imagine managing your money without any sort of bank account - no debit card payments, ATM access, cheques or overdraft?
Nearly three million adults in the UK do; they include the unemployed, the retired, those in low-income jobs and part-time workers paid in cash. The National Consumer Council (NCC) says half of these people have been on benefits for over five years.
Since state financial support is channelled through the Post Office, many may not want or need a bank account. After all, handling cash is often better because you can't spend what you don't have.
But "financial inclusion" - the Government's buzz-phrase for bringing low earners into the mainstream - is high on the political agenda. During the Treasury's Spending Review last year, it was announced that ministers intended to tackle areas such as banking and affordable credit. So the rise and rise of "basic" bank accounts, first launched in 2000, should form a key part of their plans.
These accounts offer a stripped-down version of an ordinary current account. You can make cash deposits and withdrawals, and pay bills by direct debit or standing order.
But there is no chequebook or overdraft facility, so you can only take out or spend money if there is enough in your account.
You do get a basic Solo or Electron debit card, but these are not accepted at all shops or restaurants and won't work unless your balance is in credit.
On the surface, the initiative has been a success: between launch and December 2004, some 5.7 million basic accounts were opened. However, critics say the banks could do a lot better.
"Mystery shopper" surveys by the consumer arm of the Financial Services Authority (FSA), the City regulator, have exposed either a lack of staff knowledge or unsuitable attempts to open current accounts, and credit facilities, instead.
The NCC is now calling for a new basic-banking model that includes a small penalty-free overdraft (to act as a buffer zone) and weekly direct debits to aid budgeting.
Alongside basic accounts, there is growing demand for credit for those on low incomes.
The £150 average loan sought by these people is not catered for by mainstream lenders, and many also have a poor credit score, which rules them out of contention. That can leave the worst off (and often those most desperate for cash) with little choice but to turn to doorstep lenders and, worse, loan sharks.
A report in January by Paul Jones of Liverpool John Moores University showed that low-income consumers can pay an annual percentage rate (APR) of more than 1,000 to gain access to credit.
In less extreme but still expensive cases, a credit card with an APR of 60 is available through Vanquis, a subsidiary of Provident Financial, one of the biggest doorstep lenders.
The Joseph Rowntree Foundation, the social policy charity, wants to see a big expansion of the government-sponsored Social Fund. Administered by the Benefits Agency, this provides interest-free loans repaid through deductions from social security payments. But the current system isn't flexible enough, the foundation warns: monthly repayments for loans are still too high.
An alternative banking service for those in deprived areas is provided by credit unions. These are financial co-operatives, regulated by the FSA, which can take deposits, grant loans, receive benefits and provide bill-payment budgeting schemes.
By law, they can charge customers no more than 1 per cent a month for any product - equivalent to an APR of 12.7.
New figures from the Association of British Credit Unions Ltd (Abcul) suggest that as many as half a million people are benefiting from their services.
But despite government support, there are concerns that the unions still have some way to go in providing a credit service to the financially excluded.
A separate report from Liverpool John Moores University in February recommended they adopt a more "businesslike approach", with links to ATMs and direct debit facilities. Controversially, it suggested that APRs had to rise to bring in greater flexibility.
However, Mark Lyonette, Abcul's chief executive, stresses that its version of the basic bank account - which should be available next year - will prove a major boost.
Concern remains, though, as to whether credit unions can achieve the scale required to offer a solution to credit exclusion. The need for commercial involvement, says an NCC spokeswoman, must not be overlooked.
- 1 Woman 'suffocates newborn baby in plastic bag and puts it in her desk minutes after giving birth'
- 2 I've been called an abusive and dangerous parent, when all I did was listen to my transgender child
- 3 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 4 Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
- 5 Chinese student carries disabled friend to school every day for three years
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms