Basic bank accounts failing poorest people

Basic bank accounts are failing to meet the needs of many of the UK’s poorest people, a new survey has reported.

The study of 1,520 people on low incomes, conducted by the National Consumer Council and social and economic research consultancy, Policis, found that around half of them still preferred to manage their money in cash, because basic accounts did not meet their needs.

The basic ‘no frills’ bank accounts were introduced five years ago. They allow customers to save and withdraw money and pay bills via direct debits. However, they do not offer other facilities such as chequebooks and overdrafts.

There are now almost six million of the accounts in the UK. However, the NCC expressed concerns that people’s financial needs were not being met by the accounts. Research showed that those with the bank accounts were more likely to lose control of their finances and be in arrears with their household bills than their counterparts without bank accounts.

Claire Whyley, NCC deputy head of policy, said: “There is a mismatch between the needs of the poorest to keep close track of their income and spending and to avoid debt and existing basic bank account design, which doesn’t help them achieve this.

“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.”

The research also found that many low-income consumers use high cost lenders in order to borrow money. Around eight million low-income consumers can get mainstream credit and one in five applications for Social Fund loans is refused, the NCC said. They estimate that one in four people refused loans turns to either high cost doorstep lenders of unlicensed loan sharks. Every year it is estimated that people on benefits borrow £330 million from doorstep loan companies.

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-income consumers borrow from high-cost lenders to fund discretionary spending as much as essentials or cash crises. So ideas for alternative forms of affordable credit need to recognise low-income consumers’ behaviour, respect their needs and build on what works for them.”

The NCC has called for more flexible basic bank accounts, including weekly direct debit facilities, a small free overdraft and automated payment systems, as well as more affordable credit that offers low-value short-term cash loans for any purpose with flexible, reliable and convenient repayment methods.

(KMcA)