Treasury Committee inquiry into access to financial services and products for vulnerable customers.

The Treasury Committee has launched a new inquiry. Chaired by MP Nicky Morgan, it will look into consumers’ access to financial services.  Whether certain groups of consumers are excluded, both in terms of obtaining a basic level of service from financial services providers as well as access to products including insurance. The inquiry will have a particular focus on the provision of financial products and services for vulnerable consumers.

Treasury Committee will examine how regulators hold companies to account.

The Treasury Committee will look into whether certain groups of consumers are excluded from a basic level of service from financial services providers. It will also examine whether vulnerable consumers pay more for financial services.

The Treasury committee said it would like to see evidence of how regulators hold financial firms to account. How they treat vulnerable customers and how regulators instruct firms to comply with equalities legislation.

It would also like to see evidence of how service providers define ‘vulnerable’, as well as evidence on the controls in place for power of attorney. The deadline for submissions is 14 December.

Commenting on the launch of the inquiry, Nicky Morgan said:

“Vulnerability, as defined by the Financial Conduct Authority, is where someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”

“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 will examine the practicality of the FCA’s definition. The effectiveness of attempts by financial services providers to prevent increased financial exclusion. [And] whether a premium is placed on products such as travel insurance for vulnerable consumers.

“As part of this inquiry, we’ll be holding sessions outside of Parliament to hear from vulnerable consumers who have interacted with financial services providers.”

The Pensions Advisory Services commented

Michelle Cracknell, chief executive of The Pensions Advisory Services welcomed the inquiry:

“We do need to ensure that financial services treat vulnerable people with a duty of care. We also think that consideration needs to be given to people that are temporarily vulnerable. Due to circumstances, such as the members of British Steel pension scheme and people making decisions on pension pots.”

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On the 16^th October, the Treasury Committee met to hear oral evidence from expert witnesses, at, according to Nicky Morgan, “the start of what we hope will be a wide-ranging inquiry on consumers’ access to financial services.”

The two expert witnesses present were Matthew Upton, who is Head of Consumer and Public Policy, at Citizens Advice. [And] Sian Williams, Director of Financial Health Exchange, Toynbee Hall. Toynbee Hall is a charity based in the east end of London and aims to tackle the causes and impacts of poverty on people and communities.

 Nicky Morgan opened the Treasury Committee inquiry.

Nicky Morgan opened the inquiry by asking: –

“I want to start with a broader question for both of you.  What do you think are the top three issues affecting consumers’ access to financial services?  I mean financial services in the broadest sense.  We tend to think particularly about banks. We are also going to ask about insurance companies at some point.  What are the barriers to access to financial services?”

Matthew Upton answered the Treasury Committee first saying: –

“To start with, I would split access very quickly into two parts.  There is technical access to services, which is being able to use ATMs, access to credit and things like that.  There is then what you would think of as reasonable access to services. Are those services for vulnerable consumers worse than perhaps I would get?  I am going to focus mainly on the latter.”

Access to credit should be made easier.

“In terms of technical access. One of my three biggest ones would be access to credit.  I probably should not, but I will constantly draw this analogy between myself and our clients. I can access credit very cheaply and easily. Our clients continually have to go to payday lenders and rent-to-own firms and so on.”  “

The Committee has heard evidence before about the harm that can be caused by those firms.  There are still unanswered questions there about protections from products, since the FCA’s announcement about a possible rent-to-own cap.”

“There is more that can be done in other markets, such as doorstep lending.  There are other questions about alternatives for more vulnerable consumers as well, that stop them getting into spirals of debt.  One is access to credit.”

Society’s vulnerable pay more for essentials.

“My other two would probably be on the reasonable access side.  My second big challenge or problem would be around the prices that vulnerable consumers pay for their everyday essentials, as compared with someone like myself.  When I am shopping around for insurance, energy or mobile phones, I get brilliant deals subsidised by the most vulnerable in society, because they are much more likely to be hit by what we call the loyalty penalty, which is the price you pay once your initial contract jumps up.”

“This may sound like a trite issue, but we worked out that the average consumer, if they are paying a loyalty penalty in each of six essential markets that we looked at, could be paying nearly £1,000 extra per year.  If you look at the lowest 10% of the income decile, that can be about 8% of their expenditure.  It is huge amounts of money that people are being ripped off, very knowingly, by firms.  That should be looked at as a priority.”

“That is why we made a super-complaint to the Competition and Markets Authority a couple of weeks ago, highlighting this issue.  That should be looked at.  A good issue for the Treasury Committee to look at is what genuine alternatives there are to stop people being ripped off by the loyalty penalty.”

People who are struggling ‘chased aggressively’ for payment

“A third point that would fall under the definition of reasonable access to financial services is the difference between when someone like myself gets into difficulty and one of our clients.  I will focus on collections.  When you do fall behind on your essential bills, our clients, the people we see, are that much more likely to be chased aggressively, often by Government but still by utility and financial services firms.  The use of bailiffs is that much more likely as well.”

“Again, we have given evidence to the Treasury Committee in the past about the damage that bailiffs can cause to people’s lives when they are pursued.”

“My three would be access to credit, the prices that people pay and collections with bailiffs.”

Sian Williams replied to the Treasury Committee: –

“I will frame it slightly differently so that you are not hearing the same thing twice.  Thinking of it from the consumer’s perspective, the first thing is that to access financial services I need to know what I need.  It is around the fact that products are too complex, the information and language around them is not helpful and products are not necessarily framed to meet people’s needs, as opposed to, “How can I bundle up the most number of consumers for this product?”  Because then, of course, my product gets to the most number of consumers and earns me, as the financial services sector, money.  Products are too complex, they are not explained carefully and clearly, and they are not necessarily nuanced enough to meet people’s real needs.”

‘Unpredictability of life’ can be an issue.

“When I am thinking about what I need and how to take all of that information, I also need to understand how my life might work.  If it is insurance, for example, I need to be able to have some ability to predict my own future.  There is also a sense of education.  Literacy is an issue but it is not the central issue.  The second thing would be around unpredictability of life. Increasingly we are seeing people’s circumstances become unpredictable.  Employment, healthcare, insurance and housing all make life quite difficult to predict.  That is the first thing.”

“The second thing is the products provided.  As I said, they are too complex and they are not meeting people’s needs, but also, they are not really changing over time.  For example, if you take payments. There are parts of the financial services sector that are just stuck.  It took a huge amount of work and the regulator to say, “Something is not working here”, and setting up the Payments Strategy Forum, to solve the problem. Around, for example, direct debits or access to markets in order to increase competition.  Somehow, we need to recognise that competition alone is not driving the right set of products in all circumstances.”

Data Collection also causes issues.

“The third issue is around what the financial services system—Government, regulator and firms—have decided that they need to know about me in order to be able to give me the product that I am asking for.  That is around ID and address verification, making sure that I am not fraudulent or money laundering, for example.  That is very hard for some people.  We can talk about that in more detail.”

“The second thing is around the data that you, as a financial services firm, want to have on me before you will let me have your product.  Matt has already talked about access to credit, which is definitely there, but there is insurance as well and the kind of data that I need to disclose.  How do I know what data I need to disclose?  How is data used well and fairly across the system, so that we are not necessarily offered unfair prices or unfair products?”  Continue to read more here.

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