New Clause 12 - Bank account portability

Financial Services (Banking Reform) Bill – in a Public Bill Committee am 4:00 pm ar 16 Ebrill 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

‘(1) Within six months of Royal Assent of this Act the Chancellor of the Exchequer shall lay before Parliament a report considering—

(a) the adequacy of the current account redirection service,

(b) legislative options for mandating the provision of a current account redirection service by UK ring-fenced bodies.’.—(Chris Leslie.)

Brought up, and read the First time.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I beg to move, That the clause be read a Second time.

Photo of Jimmy Hood Jimmy Hood Llafur, Lanark and Hamilton East

With this it will be convenient to discuss the following: New clause 13—Financial inclusion—

‘(1) In the Financial Services Act 2012 section 6 which inserts section 1B into FSMA 2000 after subsection (5)(b) insert—

“(c) the ease with which consumers can have access to financial services and products which are affordable and appropriate to their needs.”.’.

New clause 15—Basic bank account guarantee—

‘(1) All UK institutions providing the regulated activity of accepting deposits must—

(a) make a “basic bank account” available to all who request it, and

(b) offer a “basic bank account” to people denied access to a current account due to a poor credit score.

(2) The requirements in subsection (1) do not apply to people with a record of fraud.

(3) In this section “basic bank account” means a current account which—

(a) provides customers with a debit or ATM card,

(b) does not have an overdraft function,

(c) does not pay interest on deposits, and

(d) does not incur periodic fees.’.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

These new clauses raise a number of issues that again largely flow from the debate we had about competition. They focus on the customer experience in banking and the degree to which there is flexibility and convenience for customers as well as accessibility to basic banking services.

New clause 12 would lead to a report being laid before Parliament that properly dug into the adequacy of current account redirection services and whether legislative options were necessary for mandating the provision of a proper current account redirection service by ring-fenced banks. The Minister has highlighted the moves by the Payments Council to introduce the new current account switching service by September. The service is intended to give customers the ability to switch accounts in seven working days, which is a step in the right direction, but I am not yet convinced that that will be adequate.

The critical point is not just about coaxing a customer into believing that a switch of current account will not lose their direct debits and standing orders. People have lots of outgoings in their current accounts and many of them are wary of something being lost in the transfer from one bank to another. Technology these days should prevent any such thing from happening. The crucial point relates to income payments into a current account and the sheer hassle and inconvenience for the customer of having to give a new sort code and account number to their employer so that their salary can be redirected.

The Payments Council and the British Bankers Association say they will apply the new switching service to payments into an account, as well as to outgoings from it, but only for a limited number of months, so the question of bank account number portability comes to the fore. If our mobile phone is stolen or whatever, we can retain the same mobile phone number, and that is incredibly important to the functioning of that market. Having that telephone number is essential, and there are, similarly, good arguments for saying that an account number and sort code are central to people’s sense of ownership of their current account and their trust in it. For example, they may have a great aunt who deposits £5 in it every Christmas as a present. Similarly, they may not want to tell their employer the new details. If we are to make it easy for people to switch account, we must ensure that they do not have to go over a whole series of administrative hurdles to give everybody their new details.

I welcome the fact that there is some movement in the new switching service towards payments into accounts, but that redirection will operate for only 13 months from the date when the customer switches. That is something, but it does not go as far as I would like, and a review needs to be carried out. Some Members are very keen on account number portability, and that cuts across both sides of the House. Account number portability is so simple and has such appeal that I can see it eventually coming to pass. The Government need to give an indication that they will keep it on the agenda.

The Vickers Commission highlighted that, on average, customers move current accounts every 26 years, so there are clearly significant impediments to doing so. However, some banks and consumer groups are starting to talk much more about account portability. The consumer  group Which? has called for a proper cost-benefit analysis. Virgin Money’s chief executive has said that it is pushing for portable account numbers. There is therefore a sense that the mood is changing among specialists in the area, so I hope the Minister will look positively on new clause 12.

New clauses 13 and 15 relate to the accessibility of banking services. New clause 13 would compel the Financial Conduct Authority to have regard to access to affordable and simple financial services. It would amend the list of general duties in the Financial Services Act 2012. In parallel, new clause 15 would compel high street deposit takers to offer a basic bank account to all people who request one, with the exception of those with a conviction for fraud. A basic bank account is defined as one that comes with a debit or ATM card, but not with an overdraft facility, so I am talking about a simple, basic account, not a line of credit. With the advent of universal credit, such banking services will be especially important, and perhaps the Minister can tell us whether the Department for Work and Pensions has shown any interest in this issue. These days, it is a necessity for people to have such banking services.

Both new clauses aim to tackle financial exclusion, particularly where poor or disadvantaged communities cannot access bank account facilities or simple products in the way that many other parts of the country can. It is not as easy as saying, “Let competition sort all these things out,” because certain margins and rates of return will not be as high on such basic services, so there needs to be a social requirement. The universal service obligation is an important principle, and the former financial inclusion taskforce at the Treasury did prioritise these issues, but things have slipped back badly, particularly given the chipping away at the LINK ATM cash machine network, with some of the main banks starting to withdraw support for it. The Minister must firmly draw a line in the sand and state that basic bank account services should be available for poor or disadvantaged communities.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

As we have discussed, access and competition are both important, as are switching and portability. Switching is necessary—it was recommended by the Vickers Commission—but it is not sufficient, which is why we propose to go beyond what the Vickers Commission recommended and bring payment systems within regulation. The switching service will begin in September, and the Payments Council is minded to run a substantial promotional campaign to bring to the attention of people who might benefit—including my hon. Friend the Member for Chelsea and Fulham—the fact that they can switch bank accounts. We look to the industry to make people aware of how straightforward and simple the process should be. From September, 99% of personal current accounts will be covered by the switching regime, and we will monitor its impact.

There is a strong case for account portability, and one feature of our proposals for a payments regulator is that such a regulator will have the power to require full account portability. We expect the payments regulator to be up and running by late 2014, and it will be in a position to carry out the type of review that is proposed as soon as is expedient. Subject to the consultation, the payments regulator will be well placed to conduct and enact decisions at more or less the time outlined in the  new clause. I hope and expect that, in practice, we will be able to go beyond what the new clause would require by setting up a regulatory power to enforce the provisions rather than simply to review them.

New clause 15 concerns basic bank accounts. Access to financial services is crucial, as the hon. Member for Nottingham East says, and having a bank account is increasingly essential to modern life. It is important for everyone to be able to manage their money securely, confidently and effectively. The new clause is intended to guarantee access to basic bank accounts in statute, but the major UK banks have, in fact, voluntarily agreed to offer such accounts.

The number of adults who do not have access to a bank account has fallen from 3.6 million in 2002-03 to 1.5 million. That is still 1.5 million too many, but basic bank accounts are now available to everyone apart from those people with whom, as the hon. Gentleman recognised, there are more difficulties—those who have a record of fraud or money laundering. Only one bank offers basic bank accounts to undischarged bankrupts, but the Insolvency Service will propose legislation to address that and to widen availability in that area. We agree strongly with the aim behind the new clause, but when we have such comprehensive coverage that mirrors the proposals in the new clause, we do not need to legislate so much as to drive take-up.

New clause 13 would insert a new “have regard” provision by requiring the Financial Conduct Authority to have regard to

“the ease with which consumers can have access to financial services and products which are affordable and appropriate to their needs.”

In the debates on the Financial Services Act 2012, we agreed to provide the FCA with a requirement to have regard to access to advance its objective of

“promoting effecting competition in the interests of consumers.”

In particular, the FCA

“may have regard to the ease with which consumers who may wish to use those services, including in areas of social and economic deprivation, can access them.”

That was included to put it beyond doubt that we expect the FCA to play a role in promoting access and inclusion specifically in deprived communities.

The language in the new clause and the 2012 Act is very similar. That reflects the fact that the intention is the same. The only difference is that the “have regard” provision in the Act is in the context of promoting effective competition in the interests of meeting consumers’ needs. That is an important distinction. We should not expect the regulator to direct pricing or whether a bank operates in a particular geographical area, for example. I do not think the regulator can order a bank to operate in a particular area. Its function is to ensure that the market serves these areas, not to direct individual commercial firms to do so. Where creating the right competitive environment does not deliver—this refers back to our previous discussions—it is for the Government to step in, not the regulator. The means through which that can happen is support for credit unions, for example, and the provision of bank accounts to support the universal credit. Again, the intention behind the new clause is very much shared, but I do not think its  provisions are the best way of addressing the matter. I hope that the Committee has been able to take a clear view of the Government’s intention on these important matters.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 4:15, 16 Ebrill 2013

The Minister has been very helpful in setting out the Government’s policy on these issues. He understands that many of our constituents find it difficult to access basic banking facilities. The figure of 1.5 million people struggling to get basic bank account services is quite shocking, particularly given the imminent changes to social security and universal credit.

I am not quite sure that I share the Minister’s emphasis on the role and duties of the Financial Conduct Authority. It should not just be a market arbiter. It should be a consumer champion. We are looking to the FCA to take a much more proactive role, particularly by standing up for customers who are not able to vocalise or bang the table in the way that others can. That means ensuring that there is a basic utility service for all parts of the country.

We feel strongly about these issues. They go hand in hand with the downstream issues of competition and customers’ ability to choose, vote with their feet and have a better choice of current accounts. I am glad to hear that the Treasury believes there is a strong case for account portability. I look forward to the outcome of the discussions and reviews the Minister has set in train with the changes to the payment account and the payment system more broadly. It is important to emphasise that the regulator should play a role in many of these matters, particularly affordable and accessible financial services. It is useful to have had the opportunity to put those points on the record. I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.