Basic bank accounts ‘failing’
Basic ‘no frills’ bank accounts have failed to meet the basic financial needs of the poorest in society, new research shows.
Nearly half of low-income consumers still prefer to manage their money in cash because basic bank accounts are not meeting their needs, according to a report by the National Consumer Council (NCC) and social and economic research consultancy Policis.
Basic bank accounts were created five years ago in an attempt to promote financial inclusion of poor people by persuading them to receive both pension and state benefit payments directly.
But the research shows that the six million consumers who have basic bank accounts are more likely to lose control of their finances and be in arrears with their household bills than those still relying on cash.
The study of 1,520 people on low incomes also suggests that people on low incomes continue to rely on high-cost borrowing.
The NCC wants to see basic bank accounts become more flexible, offering weekly rather than monthly direct debits, a small free overdraft and automated payment systems that offer occasional payment holidays and do incur financial penalties.
Claire Whyley, NCC deputy head of policy said: “Making sure people get the benefits of access to financial services isn’t just about how many people have bank accounts – it’s about designing services that meet their needs.
“Financial inclusion is more than a numbers game.”
But Eric Leeders of the British Bankers’ Association (BBA), told BBC Radio Five Live that the current system was adequate.
“What the basic bank account was designed to provide was literally basic banking for those on lower incomes who weren’t perhaps able to access the mainstream banking service,” he said.
“The simple premise of this account is maintaining it in credit and you won’t be charged. It’s straightforward to use and some of the facilities, perhaps where the NCC feel the account is lacking, are in fact available.”
The research also shows that the eight million consumers who are unable to get mainstream credit are not being adequately supported by the government’s social fund loans and are forced to use high cost lenders.
One in five applications for social fund loans is refused, and one in four of these turn to high cost doorstep lenders or unlicensed loan sharks.
Anna Ellison of Policis said: “The poor often pay more for credit simply because high-cost home credit suits their weekly budgets and money management strategies.”
Low value short-term cash loans with flexible, reliable and convenient repayment methods are among the solutions the NCC would like to see.
