back to menuIn the course of research for its report "Vulnerable Consumers and Financial Services" the Office of Fair Trading has found that consumers from the following groups are most likely to lack access to basic financial services.
The OFT really does mean basic.
The research has shown that many of the people above do not have a current bank account, nor do they have access to high street credit, which is strongly linked to household income and a bank account. More than half very low income households do not have home contents insurance. Some live in vulnerable areas where burglaries are common and, in consequence, premiums are high.
Such people, says the OFT, are being left behind in the expanding market for financial services, where the choice is mainly aimed at the relatively well-off and low-risk consumer. At present many suppliers feel it is not worth their while selling a product with premiums of less than £50 per month. It is time new and very simple products for people who cannot save much but want to save something, are provided.
An NOP Financial Research Survey in 1996 (and it is probably the latest available) showed that, of 55,000 individuals surveyed, aged between 16 and 65, 26% had no ‘liquid’ savings at all and only 13% had savings of over £999, while at the other end of the scale only 6% had savings of £30,000 plus.
By ‘liquid’ the researchers mean bank and building society accounts, National Savings, stocks and shares, PEPs, Unit Trusts, Investment Bonds and Government Gilt Edged Stocks.
It is not all doom and gloom. There are many self help groups working in this field, particularly within ethnic minorities. They enable people to save when they can only afford to put by a small amount each week. Credit Unions also enable those people to save and, hopefully, prosper who cannot, or do not want to become involved with conventional financial institutions. They are to be encouraged.
Advice is available, if you look for it, without going into a bank, often provided by local authorities or development agencies. There is also a whole sophisticated financial world run by Muslims for Muslims.
The OFT points out that not having a bank account poses many problems. Wages are less and less likely to be paid in cash and anyone without an account may well have to pay a fee to have cheques cashed. If you are a low income consumer you are often forced to pay more for gas and electricity, through a key or coin meter, than if you could establish a quarterly billing or better still a direct debit account. [See Equigas - elsewhere in this issue]
Banks should set up, and publicise, basic low-cost current accounts, with no unauthorised overdraft facility, for those who do not fill their credit worthiness criteria for ordinary accounts. After all, suggests the OFT, all they want is an account into which to pay money and then be able to draw it out or transfer it electronically to suppliers. None of this need involve credit.
Now that Post Office services are being computerised and linked together, Post Office Counters should find itself ideally placed to provide such a banking system and, what is more, would fill the gap where bank branches have disappeared. These are often in areas where less well off people live.
One of the OFT ‘s main recommendations is that "greater weight should be given to vulnerable consumer considerations when applying cost benefit analysis to policy and regulatory initiatives affecting consumer welfare". You get the feeling that the OFT thinks the present regulatory system is a dog’s dinner, having grown up piecemeal under various authorities. The OFT certainly suggests that the advent of the new Financial Services Authority, the Super Regulator, is an opportunity to reform all personal financial regulation.
Gerry Lanchin, NfCG’s Personal Finance Network leader, suggests that now is the time for Groups and Individual Members to contact local organisations already active in the field of finance for vulnerable consumers - and there are several - to promote jointly such ideas as the simple, no-overdraft bank account. It is possible that the FSA will become involved and certainly it is time that NfCG nationally took a stand to help such consumers.
There is a workshop devoted to Personal Finance at the York Conference; this should be on the agenda.
J.F.B
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