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Tuesday, 16 November, 1999, 18:25 GMT
Financial services plan for millions
Ministers want more people to have access to accounts

By BBC personal finance reporter Andrew Verity

Measures to help millions of people who are excluded from basic financial services have been announced by the Treasury.

Economic Secretary to the Treasury Melanie Johnson has announced a six-point plan to revive financial services in deprived neighbourhoods.

It includes relaxing the rules on credit unions, the not-for-profit associations that provide cheap savings and loans.

Banks will also be required to state what they are doing to ensure low-income groups get access to financial services.

Take for granted

"Financial exclusion limits the ability of many of the poorest in society to have the benefits of the ever-increasing range of financial services, like banks and building society accounts, access to affordable credit and insurance, that the rest of us take for granted," she said.

More than two million people have no bank account. It is believed that an even larger number are refused loans because they either live on benefits or have a bad credit record.

The six-point plan includes:

  • allowing credit unions to expand and be regulated by the Financial Services Authority, the City's main regulator

  • setting up a central services organisation, supported by banks and building societies, to advise voluntary staff at credit unions

  • encouraging the widespread introduction of "insurance with rent" schemes. These allow groups such as housing associations to arrange cheap contents insurance as part of rent payments.

  • considering whether to expand the role of the DSS Social Fund to arrange loans for those in low-paid employment

  • improving access to financial advice and counselling through the Money Advice Trust, a voluntary organisation

  • making banks disclose details of services like bank accounts with no overdraft facility

    The Treasury wants to encourage schemes such as the New Horizons Savings and Loans Scheme in Cambridge.

    This partnership between Cambridge Housing Society and Cambridge Building Society arranges low-interest loans at short notice, to give local people in urgent need of money an alternative to loan sharks.

    Rodney Martin found work after training
    Rodney Martin, a former businessman from Cambridge, was able to raise a crucial loan of 150 to allow him to attend a security guard training course in London.

    He had been unemployed for five years but after the course he found work.

    But critics say the Treasury's six-point plan is flawed.

    Marion Poole, head of the Association of Friendly Societies, said ministers were wrong to rely on the goodwill of high street banks.

    "The government has missed a major opportunity to allow those mutual organisations who have been working in this sector for generations to be able to compete effectively with the government's chums in the high street," she said.

    "The irony is that in the drive to widen the availability of financial services to those traditionally excluded, the government is relying on the same organisations that have been guilty of ignoring the market."

    City analysts predict that 3,000 bank branches will shut in the next five years. This week Barclays announced cuts which will reduce the number of branches by 200, while NatWest and Northern Rock are also planning cuts.

    New laws considered

    Tim Sweeney, the director of the British Bankers' Association, said the challenge was not for the banks alone.

    "It will be to get people in deprived areas to apply for basic bank accounts...Supply is one thing, demand is another."

    The Treasury rejected calls for legislation.

    Campaigners for local communities have been urging it to introduce laws on the model of the US Community Re-investment Act. This requires banks to re-invest a slice of their profits in the communities they serve.

    However, Miss Johnson said that if banks had not shown progress on the issue of exclusion within a year, the government would consider further measures, including legislation.

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    See also:
    16 Nov 99 |  Business
    Help for the 'financially excluded'

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