Fair banking needed for all
SEVEN out of 10 people think it’s unfair that some get different levels of service from banks because of their status and background. And they want the Government to take action to tackle this disparity.
The same numbers would support a new law that forces banks to report on how equally they provide services to everyone, whatever their background or status, and a rating system showing which banks are doing well and which need to improve.
The research, from the newly formed Fair Banking For All coalition, comes as the group published a policy paper Fair Banking For All: Why the UK Needs a Fair Banking Act.
The coalition is made up of organisations such as credit unions, Community Development Finance Institutions, mutual banks, ethical banks and building societies, charities fighting financial exclusion and academics.
Its report reveals evidence of the growing financial exclusion crisis which is leaving millions of people unable to access affordable lending, cash and local bank branches.
Financial exclusion also means people can have difficulty accessing financial services, face unrealistic assessments and have a lack of awareness of financial products.
It also includes being subject to the poverty premium, whereby those on the lowest incomes pay more for essential services than those who are better off. It affects some 14 million people in the UK.
A lack of ethical and affordable lending forces many to turn to borrowing from lenders charging extortionate rates of interest. This is unacceptable when it is usually the poorest who get shunned by the main banks, the very ones who can least afford to pay the highest rates of interest.
It is estimated that in 2022 more than a million were forced to use dangerous illegal lenders like loan sharks because they had no other options available to them.
Martin Coppack, director of Fair By Design, a movement dedicated to ending the poverty premium paid by the poorest in society, said: “It costs more to be poor. And this is certainly the case when it comes to accessing credit. Small scale solutions are not enough. We need solutions that lift everyone out of paying the poverty premium. Exploring how a Fair Banking Act could tackle this problem is a good place to start.”
The cost of living crisis is adding to an already critical situation, leaving many more people having to turn to credit to help make ends meet. So anything that can help everyone have access to fair financial products is vital – and needs to be addressed now.
As well as individuals, people can’t get the services they need to start or grow small or medium sized businesses or social enterprises. That has a significant knock-on impact on local economies, given that small firms count for most of the private sector employment in the UK.
The impact of current financial exclusion mirrors and intensifies many fault lines in wider UK society, with people of colour finding it more difficult to access banking services.
Efforts to tackle financial exclusion have increased in recent years, with voluntary schemes introduced by banks, and government initiatives. But it continues to become an even greater issue affecting the everyday lives of millions.
Kay Polley, co-head of campaigns at the Finance Innovation Lab, a charity working to building a financial system that serves people and the planet, and a member of the Fair Banking for All campaign, said: “Everyone deserves equal access to advice, fair lending, and services like cash or local bank branches, regardless of their background. It’s basic fairness, and the public clearly agrees.
“It’s shocking that we don’t even require banks to measure the impact of their actions on individuals and communities, particularly those already disadvantaged. We urgently need a Fair Banking Act to change this picture.”
The Fair Banking For All coalition is running a campaign to drive the Act up the political agenda this year and to get politicians of all backgrounds to take action, starting with the introduction of a Fair Banking Act.
The call for the Act was inspired by a similar piece of legislation in the United States – The Community Reinvestment Act. Enacted in 1977, the CRA is credited with creating a massive increase in bank funding of financial institutions that specialise in supporting lower-income communities and small businesses, such as credit unions and Community Development Finance Institutions. In 2020, US banks provided around £220billion to low and moderate income communities, and in 2019, US CDFIs and credit unions managed more than £120bn, including lending to small businesses.
Dawn Vear, chief executive of UKCreditUnions Ltd, said: “UKCreditUnions fully supports the Fair Banking Act for the UK. As a trade association for credit unions, we see first hand what financial exclusion means to individuals in our communities.
“A Fair Banking Act could help to transform the banking and credit needs for underserved communities and it could build a stronger purpose-driven banking sector to provide services to those who would otherwise be financially excluded.
“But we need mainstream banking institutions on our side, and that means the Government needs to act to make that happen.”
‘‘ A lack of affordable lending forces people into the hands of loan sharks