Banks are failing people on low incomes by blocking access to accounts or lumbering them with high charges, according to a damning Citizens Advice report.
Banks have been under pressure to offer basic accounts with facilities for standing orders and direct debits, but no overdraft. All benefits and state pensions must now be paid into a bank or building society account, but one in 12 UK households – or 2.8 million adults – still don’t have one.
Citizens Advice says banks fail to provide information on basic accounts, and insist on certain forms of identification which can bar low-income consumers from opening one. And even when they do, there are further obstacles.
‘Up to ten days’ to clear cheques
Banks can take up to ten days to clear a cheque through a basic account instead of the standard three to four working days, putting customers at greater risk of having too little to cover direct debits.
Bank charges of up to GBP 39 for one failed direct debit – often triggered by late payment of benefits or tax credits – can leave vulnerable people with too little to live on. So can the way banks siphon off money from accounts to pay outstanding debts, including loans payable to themselves.
People refused bank accounts usually have to fall back on costly cheque-cashing services, which charge an average fee of 10 per cent per transaction.
Citizens Advice Director of Policy Teresa Perchard said: ‘Our evidence shows that the consequences and costs [of banks’ behaviour] can be severe, including escalating debt and the threat of homelessness. At the moment many banks are just paying lip-service to financial inclusion. Our recommendations can help them make it a reality.’
The charity is calling for banks to make basic accounts available to people in financial difficulty and to provide the same standards of service that they offer current account customers.
It also wants them to cap the charges for failed direct debits and standing orders to a ‘reasonable amount’, offer a buffer overdraft of GBP 10 and cease taking money from accounts to pay debts without first agreeing it with the customer.
Citizens Advice also wants banks to promote the accounts better and be more flexible about the forms of identification they accept from people opening a basic account.
Ashleye Gunn, Head of Money Research at Which?, said:’These accounts were created to offer low-income consumers access to the banking facilities that everyone else has. The banks need to operate cheque-clearing and other charges in exactly the same way that they do on standard accounts and not penalise those who can least afford it.’