Banks should have a new statutory duty of care towards their customers, preventing financial institutions profiting from people’s vulnerabilities, a committee has urged.
The House of Lords Liaison Committee said the change must reflect the power imbalance between banks and the public.
It said the Government should introduce a new requirement for the Financial Conduct Authority (FCA) to establish a statutory duty of care that banks and other financial services providers must operate towards their customers.
The duty should include making options for consumers to put controls on their accounts widely available.
For example, some banks have enabled customers with spending addiction issues to put gambling blocks on their accounts.
It's time for the financial services industry to recognise they have a fundamental duty to ensure that banks act in their customers' best interests and that products and services are fair by designBaroness Tyler of Enfield
The committee said it welcomed the developments on gambling blocks and more progress is needed on control options.
It recommended that the Government works with the FCA and others to ensure that all retail banks operating in the UK make control options available to their customers.
The statutory duty of care should form part of a new comprehensive strategy to tackle financial exclusion, the committee said.
It said the suggested changes will be vital to protect the 14.2 million people in the UK that are now estimated to have low financial resilience, characterised by over-indebtedness or with low levels of savings or low or erratic earnings.
The total is up by a third since the start of 2020 as the coronavirus pandemic has impacted the country, it said.
Other recommendations from the committee to improve financial inclusion in the UK include protecting access to cash without delay and responsibility for this being given to the FCA.
The Government has already said it will legislate to protect access to cash.
The report said 5.4 million adults still rely on cash to a great extent in their everyday lives.
The committee said it is also concerned about the decline in free-to-use ATMs, particularly in poorer areas.
In 2018, two areas of Birmingham in the top 10% of deprived areas in England, Hall Green and Hodge Hill, saw a 44% and 40% decline in free ATMs, it said.
The report said this is an example of the “poverty premium”.
It recommended that the Government formally review the powers available to the FCA, to deal with the negative effects of bank branch and free ATM closures.
The Post Office plays a role in filling the gap in access to cash and other banking services.
The committee said an existing agreement between the Post Office and some banks to give customers access to everyday banking services via Post Office branches should potentially be made compulsory for all UK retail banks.
A public information campaign to tell people about the service could also be rolled out, it suggested.
The Government should also ensure access to non-digital services remains possible, through free telephone lines and face-to-face meetings where appropriate, it said.
The committee said it also welcomed news that buy now, pay later products such as Klarna and Clearpay will be regulated.
It is calling on the Government to ensure that the legislation should be brought forward without delay and the situation be kept under review by the FCA and the Government.
Baroness Tyler of Enfield who chaired the House of Lords Financial Exclusion Committee, which released a report in 2017, said: “It’s time for the financial services industry to recognise they have a fundamental duty to ensure that banks act in their customers’ best interests and that products and services are fair by design.
“That duty of care should now be established in law and overseen by the Financial Conduct Authority to ensure greater consumer protection and prevent banks and others from profiting from their customer’s vulnerability.
“The Covid crisis has laid bare the extent of financial exclusion across the UK.
“We continue have more than a million adults in the UK without access to a bank account and more than half the country now have characteristics of financial vulnerability.
“It is now more important than ever that Government come forward with a comprehensive financial inclusion strategy that will ensure access to cash, protect the public and end the scandal of the poorest being overcharged for financial and other services.
“The Government should publish that strategy within 12 months and allow Parliament to assess it and hold them to account for its delivery.”