The Parliamentary Treasury Committee has published a report today that criticizes banks for effectively using the Post Office and taxpayer money to bail out their shrinking branch networks.
It also warns banks over the importance of vulnerable customers’ access to financial products and services.
The report admonishes the big banks for pushing customers towards using the Post Office to access banking services, a government-owned, loss-making venture.
The report criticizes banks for effectively forcing taxpayers to foot the bill of their bank closures: “Taxpayers should not be subsidising the big six banks’ lack of branches. The government must ensure that the Post Office receives adequate funding from banks for the services it provides on their behalf.
“The Post Office is not an optimum environment for customers, particularly vulnerable ones, for banking services as staff are typically not banking specialists. Rather, the service provided is comparable to that of an ATM.
“The Post Office should not be seen as a replacement for a bank branches, but a complimentary proposition where available. In cases where the ‘last bank in town’ is due to close, banks should be required to provide and fund ‘banking hubs’ in the local Post Office, with adequately trained staff.”
As such, the committee has called for the creation of a legal duty of care for financial services firms if the current financial watchdog, the Financial Conduct Authority (FCA), has no power to enforce such behaviour.
The legal duty of care would obligate financial services firms to act in the best interests of their customers and to exercise reasonable care and skill when providing a product or service.
None of the overseers of financial services, such as the FCA and the Financial Ombudsman Service (FOS), have the power currently to enforce such duty of care. The report is calling for this to change.
Nicky Morgan MP, chair of the Treasury Committee, says: “It can no longer be an option for banks to ignore financial inclusion.
“A patchwork of improvements and adjustments have been targeted at some groups of consumers, but the basic level of access is still not universal. There are significant areas of concern where vulnerable consumers are effectively excluded from participating with financial services providers.”
Other report recommendations
The report details several other key changes the committee believes should be enforced on financial firms.
The much-talked-about loyalty penalty, which is subject to a review from the Competition and Markets Authority (CMA) is one.
The report says that financial firms should be forced to publish the size of the loyalty penalty they are making customers pay.
Bank branch closures, another ongoing issue, is also targeted. The committee says maintaining a branch network should come under the mooted 'duty of care' rules.
David Clarke, head of policy at Positive Money, echoes the criticism: “A decade after they were bailed out by the taxpayer, Britain’s biggest banks are enjoying billions in public subsidies while posting bumper profits.
"But as the Treasury Committee’s report shows, they have repaid the favour by neglecting communities, closing branches and cutting our free cash machine network.
“Today’s report should be a final warning for the banks taking Britain for a ride. Proposals to give financial firms a legal duty of care and to preserve bank branches and free ATMs are welcome, but only a start.
"With two thirds of the British public believing that banks don’t work in the best interests of UK society, we need politicians and regulators to be much tougher in holding finance to account.”
The committee also calls for the maintenance of free-to-use cash machines to prevent the country from becoming inadvertently cashless. It says the government should implement the recommendations of the Access to Cash Review urgently.
Finally, challenger bank Monzo gets a mention for the implementation of gambling block technology in its banking app.
The committee says other banks should follow Monzo’s lead in implementing technology that can help customers create spending blocks on themselves.
Katie Evans from the Money and Mental Health Policy Institute comments: “We know of people who are using cash to manage spending when they are unwell because they cannot turn on clever settings on their cards.
“At best, I have heard of people literally putting their credit cards in a Tupperware full of water and putting it in the freezer, which is fantastic: how clever for someone to come up with that system for themselves, to try to put in place the friction they need when they are unwell.”
“There is scope for banks to do more to help consumers with other types of spending blocks, but they are restricted by a lack of data. For example, an alcohol purchasing block is possible. However, the current lack of data means that a supermarket cannot distinguish between an alcohol purchase and anything else.
“Retailers tend not to make the required granular data available to FSPs. Whilst there are concerns about the privacy of consumer data, the idea of providing such data to FSPs with the informed consent of consumers should be explored.”
Banking industry reply
Stephen Jones, chief executive of UK Finance, a representative body of the banking industry, has responded to the report.
He says: “The industry takes its societal responsibilities extremely seriously and is committed to looking after every customer, including those in vulnerable circumstances.
“The industry’s commitment to financial inclusion is best illustrated by the basic bank account which offers free if in credit banking to nearly 7.5 million customers and is designed specifically to ensure that the widest range of citizens can have free, safe access to the banking system, including the disadvantaged.
"We will continue to work closely with the government, regulators, the Treasury Committee and wider stakeholders to deliver better access and outcomes for all in our society.”