High-street lenders 'pay lip service' to needs of the poor

High-street banks are failing to provide accounts for the poor, forcing those on low incomes into the arms of loan sharks, a think-tank has claimed.

According to the New Economics Foundation, the big banks are focusing their attention on winning customers for premium accounts while ignoring the needs of those on low incomes. And the foundation is calling for the banks to be governed by a universal service obligation, similar to the Post Office and utility companies.

Whitni Thomas, the head of access to finance at NEF, said: "The banks are cherry-picking the most profitable customers, only paying lip service to tackling financial exclusion."

The no-frills bank accounts introduced by the banks in 2003 are unsuitable for those on low incomes and the banks are failing to promote them, the foundation claims.

Around 11 per cent of adults in Britain do not have a bank account, compared to between 1 and 4 per cent in other European countries, NEF claims. But in some of the most deprived areas, one in three adults do not have an account. "In the same way that utilities, postal services and telecommunications are a basic right, a bank account is essential to function effectively in society," said Ms Thomas. "A universal service obligation would guarantee this right for all."

According to the foundation, those on a low income without a bank account are penalised, as cash-only transactions can be more costly. They lose out on discounts available for those that pay by direct debit and other electronic methods.

The banks are also criticised for entering the "sub-prime" lending market, providing loans to customers with poor credit histories. The foundation believes that this further compounds the banks' failures.

At a time when the high street banks are making record profits, Ms Thomas said, a service obligation would be "a simple quid pro quo for the licence to operate in a lucrative and well protected market".

NEF also wants what it calls predatory lending stamped out, with a ban on unsolicited credit offers, clearer definitions of lending and the introduction of league tables to measure the high street banks' performance on basic accounts. Currently, the banks have no obligation to comply with government targets on financial inclusion.

However, the sector has long defended its position, with the British Bankers' Association recently pointing out that banks were opening 150,000 basic accounts every quarter.