Financial services such as bank accounts and insurance policies are part of the essential architecture of our lives. Many people, however, lack access to financial services, and therefore have to rely on other forms of credit such as doorstep lenders, typically at much higher prices.
Financial exclusion, whereby people lack access to financial services, often affects the most vulnerable consumers in society, but attempting to define vulnerability in this context has proven difficult. Regulator the Financial Conduct Authority (FCA) defines it as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.’
This definition, as well as the term itself, is hotly debated. Should the definition cast as wide a net as possible? Given that everyone is susceptible to mental health problems, which can lead to vulnerability, is everyone a potentially vulnerable customer? Or should the definition be narrowed?
These were some of the questions raised in the Treasury Committee’s scoping evidence session for our new inquiry: consumers’ access to financial services. With customers expected to take more responsibility for their financial planning and resilience, bank branches closing, and the number of free-to-use ATMs falling, it’s becoming increasingly difficult for vulnerable customers to access certain financial services.
The Committee has decided, therefore, to take a closer look at the interaction between vulnerable consumers and financial services firms. We’ll examine the practicality of the FCA’s definition of vulnerability, whether it’s the right term to be using, and if firms should have a duty of care requirement to protect vulnerable customers.
There are two key questions that we’ll attempt to answer: are certain groups of consumers excluded from obtaining a basic level of service from financial firms, and do vulnerable consumers pay more for financial products?
Reports published by the FCA have noted barriers that can exist for vulnerable consumers trying to access financial services, including that just under half of adults in the UK have a numeracy age of 11 or below, 3.8 million UK households are without the internet, and one in four adults experience at least one mental health illness in any given year.
So how are firms ensuring that vulnerable customers can access their services? The FCA has said that financial services, products and systems often ‘streamline’ consumers, and aren’t designed to meet non-standard needs of those who don’t fit into a set mould. There appears to be a certain level of rigidity in the system making situations more difficult.
If there is a risk of increased levels of financial exclusion, the Government may be required to intervene. We’ll look at whether equality legislation is up to scratch and evaluate how regulators hold financial services providers to account.
Another issue raised in our scoping session is the additional cost on financial products, such as travel or home insurance, for vulnerable consumers, known as the poverty premium. For low income people in rural communities, if they cannot access their cash for free via a bank, free-to-use ATM or Post Office, and the only option is an ATM that charges, everything that is bought with cash becomes more, potentially prohibitively, expensive.
In addition to the evidence sessions that we’ll hold, the Committee will hold a series of outreach events and visits around the country to hear about the difficulties people have faced when interacting with financial services providers.
For too long and for too many people, basic financial services have been out of reach. At the end of this inquiry, we’ll make a series of recommendations to Government, which will be based on our outreach events, oral evidence sessions, and written evidence. If you or someone you know has any experience raised by the issues raised in the terms of reference, please do get in touch.