MPs suggest legal duty for banks to act in customers’ best interests

A legal duty of care may be needed to compel financial services firms to always act in customers’ best interests, a powerful committee of MPs has suggested.

In a wide-ranging report into people’s access to financial services, the Treasury Committee said banks should not be able to ignore the issue of financial inclusion.

For most people, having access to financial services is an important part of their everyday life.

But some vulnerable consumers, perhaps because they are older, have a disability, are less well off or lack digital skills, find themselves effectively excluded, the committee found.

It said bank branches and free-to-use ATMs should be preserved.

And when banks wave people towards the Post Office when their branches close, this should not be seen as a replacement.

In cases where the last bank in town is about to shut, banks should be required to cough up money for “banking hubs” in local Post Offices with adequately trained staff, the committee said.

Banks could also do more to help people with addictions which affect their finances, it was suggested.

More use could also be made of voluntary “spending blocks”, for example when people have a gambling problem and want to stop themselves using their money on this, the committee said.

And firms should also be required to publish more about the size of their “loyalty penalties” – the extra amounts that a customer often pays for services by sticking with their existing provider and not shopping around.

Citizens Advice has calculated this can add up to nearly £1,000 extra per year.

Nicky Morgan
Nicky Morgan said the basic level of financial services access is still not universal (Stefan Rousseau/PA)

Treasury Committee chairwoman Nicky Morgan said: “The financial inclusion of vulnerable consumers – and we can all be vulnerable at some point in our lives – should be of the utmost priority for financial services providers, the Government, and financial regulators.

“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.”

Financial Conduct Authority (FCA) figures show 1.3 million adults have no current account and no alternative e-money account.

Meanwhile, 3.1 million adults have high-cost loans. Nearly six in 10 (57%) UK adults have no cash savings or savings of less than £5,000.

The committee said retail financial services providers should always be acting in their customers’ best interests – but they are currently not required to do so.

It said if regulators cannot enforce such behaviour, it would support a duty of care, creating a legal obligation for firms to act in their customers’ best interests.

This would oblige firms to exercise reasonable care and skill when providing a product or service.

The committee said reasonable adjustments that financial service providers should make to stop people feeling left out include providing interpreters and tactile bank cards.

Meanwhile, bank branch closures are particularly likely to affect the elderly or people on lower incomes.

Preserving a branch network, therefore, should help financial inclusion, the committee said.

It said IT failures show why banks cannot rely on digital services to replace branches entirely.

Many banks are ushering customers towards the Post Office, which is a Government-owned company providing basic banking services to customers of many high street banks.

The Post Office provides this service at a loss and taxpayers should not be subsidising big banks’ lack of branches, the committee said.

It said the Post Office must receive adequate funding from banks for the services it provides on their behalf.

The committee said: “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 branch, but a complementary 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.”

The committee also said there is scope for banks to do more to help consumers set up spending blocks, but they are restricted by a lack of data.

The idea of providing more detailed data from retailers to financial services providers, with the informed consent of consumers, should be explored, the committee said.

Gillian Guy, chief executive of Citizens Advice, said: “It’s astounding that banks are not currently required to act in their customers’ best interests or pay attention to their specific circumstances.

“When they spot warning signs of financial difficulty, banks should provide support and set up a phone or face-to-face debt advice session.”

Stephen Jones, chief executive of UK Finance, said: “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.”

A Treasury spokeswoman said:  “Everyone must be able to access the financial services and products they need to participate in the economy. We are working closely with industry, regulators and the third sector to tackle financial exclusion.

“That means ensuring continuing access to cash and banking services via the post office when a local branch isn’t available.

“We are also helping those in vulnerable situations as well as those on low incomes to save, so more people can have financial security for the future.”

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