As 2014 draws to a close, there has been some welcome news from the British Banking Association (BBA) for those with poor credit,or have gone through bankruptcy and especially those without a bank account. The BBA has announced the introduction of a new fee-free bank account that hopefully will be operational by the end of 2015.
This move also has ramifications for those who have utilised the bankruptcy process, as most banks deny accounts to those who have gone through bankruptcy- only Barclays offer an account, whilst there is a specific Co-op account that those declaring bankruptcy can keep if already holders. Otherwise, there was nowhere to go, up to now – banks generally close your account once learning of a bankruptcy.
It is thought there are approximately a million adults in Great Britain without a bank account, many because of a poor or non-existent credit history,bankruptcy or even through personal choice. The government would prefer such people to have a basic bank account, not only because it complies with a new EU directive that states all European citizens must have access to banking facilities by 2016, but also because it will help with the government’s troubled Universal Credit roll-out.
This is good news for many as whilst there are basic bank accounts in existence already, they do not reward the holder at all. These accounts tend to come without debit cards and with high charges, so that those who can least afford it end up paying the most for basic services, as is often the way. A bankruptcy may be a sensible course of action for an individual to start the road towards a debt-free future, but the system can often punish bankruptcy users further along the way, or at least make life difficult.
So what is being proposed? Nine lenders, which includes all the high street banks, have signed up to the new account deal, which will allow customers to set up direct debits, have wages, benefits or pensions paid into it, let holders withdraw money from cash machines and also have a debit card, also usable online. An arranged overdraft will not be available.
To qualify, a potential customer must meet at least one of the following criteria:
- Have banked elsewhere, want to switch providers but are not eligible for a full account.
- Have no account with a bank and are not eligible for a full account.
- Those with an account but suffering financial difficulties who require an additional account but again are not eligible for a full account.
The short document that spells out the agreement made with the nine lenders spells out the reasons that they agreed to such a deal. They state that the first reason was to support the financial inclusion agenda by offering a product that helps the less affluent and more vulnerable in society, secondly to align with government policy, and finally to help rebuild trust and confidence in the sector. Banks will minimize the opportunity for unarranged overdrafts, whilst the basic accounts will be made visible to potential customers alongside full accounts. The document also confirms availability for undischarged bankrupts - those in the first year of a bankruptcy (the bankruptcy generally "discharged" after 12 months).
Mike O’Connor, Chief Executive of the StepChange debt charity, spoke about the news on the BBA website:
“Access to basic banking has become critical, not just to financial wellbeing and getting the best deal, but also sometimes to getting a job where employers want to pay salaries electronically.”
…for the clients of StepChange Debt Charity, a functioning bank account which is not being hit with unfair charges and deductions is at the heart of recovery from problem debt.”
….I would hope banks go beyond making a basic bank account “visible” as required by the agreement. Banks should also ensure that financial incentives to sign people up to other accounts do not get in the way of people being made aware of basic bank accounts when this is the best choice for them.
”The importance of access to modern financial services is such that banks are no longer good citizens if they simply abide by the law and pay their taxes. We now expect them to live up to a social duty as well, even if it costs them money…..”
BBA Chief Executive, Anthony Browne added:
“Banks in the UK lead the way when it comes to providing accessible banking and take their financial inclusion responsibilities seriously – the proportion of the population with no account at all is less than a third of that in the US and Europe. Now we will be helping even more people access banking services than ever before, and these basic accounts will make it easier for more people to manage their money. We are delighted that the banks will be offering this service to those who will really benefit.”
Finally, Gillian Guy, Chief Executive of Citizens Advice, commented:
“A good bank account is an essential ingredient to managing your money. Any barriers to essential banking services can make it even harder for people keep on top of their finances. Up until now, some basic bank account customers didn’t get a debit card, were afraid of being hit with fees for unpaid direct debits and some were shut out of banking altogether. “Citizens Advice has been at the forefront of the campaign for decent basic bank accounts, and is pleased that the Government and banks have listened to the problems experienced by our clients. We look forward to continuing to work with the Treasury as well as with banks to make sure these new standards meet the needs of customers.”