Low income groups face credit exclusion

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The trend towards building society conversions could deny people in lower income groups access to conventional forms of credit, according to a survey out today. Lea Paterson finds pressure is growing for the Government to plug the gap.

A survey by the New Policy Institute (NPI), a left-of-centre think tank, argues that the rash of building society conversions could lead to "a crisis of financial exclusion". Nine million people, or one in five adults, do not have a bank or building society current account, according to the survey. The decision of many leading building societies to shed their mutual status could make matters worse, according to Dr Peter Kenway, co-founder and director of the NPI.

"Mutuals have historically been more sympathetic towards the smaller customer and towards those on lower incomes," explained a spokesperson yesterday. Demutualisation could lead to the building society service becoming "less personalised and more centralised", making it harder for those in lower income groups to gain access to traditional financial services.

The NPI estimates that at least four million people are already denied access to conventional forms of credit because they score too low on the centralised credit scoring scales used by the big financial institutions.

"Some of these people may have perfectly healthy financial records," said the NPI spokesperson, "but are simply too far down on the income scale." People who are financially excluded in this way are forced to turn either to loan sharks or to specialist credit companies, which can charge as much as 300 per cent annual interest.

Last week's move by Helen Liddell, Economic Secretary to the Treasury, to make it harder for a small number of carpet-baggers to force building societies to abandon their mutual status was seen by the NPI as insufficient to plug the gap left by the recent conversions. The spokesperson said: "She [Helen Liddell] is trying to preserve diversity in the market, and that's good. But at best this move will maintain the status quo. More needs to be done".

Last Thursday, Ms Liddell ruled that building societies could only vote to drop their mutual status and convert to banks at general meetings where at least 50 per cent of members were present.