Consumers' Access to Financial Services
Building Societies Association Response

14 December 2018	

Introduction 
1	The Building Societies Association (BSA) represents all 43 UK building societies and four larger credit unions. Building societies are primarily savings and mortgage institutions, and are owned by their customers (the members). They are required by law to obtain at least 50% of their funding from retail savings and carry out at least 75% of their lending on prime residential mortgages. Building societies serve around 25 million members across the UK.
2	Building societies have total assets of over £400 billion and, together with their subsidiaries, hold residential mortgages of over £315 billion, 23% of the total outstanding in the UK. They hold almost £280 billion of retail deposits, accounting for 19% of all such deposits in the UK. They employ approximately 42,500 full and part-time staff and operate through around 1,470 branches.
3	There have been a large number of consultations covering the area of consumer access recently, all from different angles and bodies. These include the series of FCA studies and papers, the CAB supercomplaint to the CMA, and the Lords Committee on Financial Exclusion. There appears to be no overarching view of the issues and ultimately there is a risk to consumers that different recommendations may compete and even conflict with each other.
1. How should financial service providers define ‘vulnerability’?
a. Examine how financial services firms define ‘vulnerability’ and assess how practical the Financial Conduct Authority’s definition of vulnerability is. 
4	The FCA definition of a vulnerable customer is “someone who, due to their personal circumstances, is essentially susceptible to detriment, particularly where a firm is not acting with appropriate levels of care”. Financial services firms supported this definition as it is simple to understand and focuses on the customer’s needs. 
5	The FCA has concluded that all customers are potentially vulnerable and identified four categories of potential vulnerability:
•	Physical or mental health problems
•	Low financial resilience
•	Low financial capability
•	Impact of life events
6	We are concerned that this new approach moves away from focusing on consumers’ needs as individuals towards a broader consumer protection-based agenda. An example of this is the call by mental health charities that there should be more intervention where individuals make unwise spending decisions while affected by their mental health condition. This pushes firms to make value judgements as to what is “unwise” against the principles of the Mental Capacity Act.  
7	It is also unhelpful that the FCA’s categorisation does not cover vulnerability to crime, although regulators, such as the PSR, are focusing on this 
b. Evaluate the training and practices in place at financial services firms in relation to vulnerable consumers.
8	The mutual model puts the onus on societies to run themselves for the benefit of their members. The sector has invested significantly in providing a supportive environment for customers in vulnerable circumstances but recognises that there is more to do. 

9	The basics of support provision for customers who may be vulnerable are not fundamentally different from the service that any customer would want and any organisation would want to deliver. The Vulnerability Taskforce summarised these basics as:
•	An environment where customers are comfortable discussing their circumstances
•	Trained employees who recognise customers requiring help
•	Systems that allow the customer proposition to be tailored to the customer 
•	Easy access to specialist advice/support for the customer and employee
•	Products and services design that includes consideration of the non-standard customer 
•	A balance between supporting the customer’s autonomy to run their own affairs and protecting them and their assets from crime
•	Options for third parties to support the customer in running their financial affairs where the customer wants additional help 
•	A legislative and regulatory framework that supports both the customer and the organisation allowing the above customer service regime to flourish 
10	Employee training is important. It makes it easier to recognise vulnerable circumstances, the solutions that can be offered and understand the emotional pressure that the customer and their family may be experiencing.  
11	Building societies often collaborate with organisations to help train their employees on consumer vulnerability, e.g. the Alzheimer’s Society, Macmillan Cancer Support, Trading Standards and MIND. The most challenging areas to train staff on are those involving judgements about an individual’s mental health or social conditions such as spotting and supporting loneliness or reducing/fluctuating mental capacity.
c. Consider the merits of having a ‘duty of care’ for financial services providers and examine whether this would increase protection for vulnerable customers.
12	The BSA’s view on the benefits of introducing a duty of care is that, since there are already a significant number of rules, laws and duties to protect UK financial service customers, there is no need for an additional duty of care. 
13	We are concerned that introduction of a duty of care could have a number of unintended consequences, including a more judgemental, adversarial relationship between consumers and firms, and the stifling of flexibility and innovation. 
14	This would be a particularly bad outcome for customers who are already under pressure. Obtaining and retaining the customer’s trust is vital to giving them the support they need. Anything that pushed both parties into an adversarial relationship could significantly undermine this. It would also be unfair to impose a legal-style dispute resolution process on customers who are already under pressure.
15	The best course involves a flexible, largely non-rules based, approach, i.e. continuation of current work and initiatives. Where firms or senior individuals in firms are responsible for unfair treatment of customers, those consumers need a conduct regulator that deals with the situation fairly, proportionately, robustly and effectively, rather than an inflexible and legalistic approach like a duty of care.
16	The FCA has shown itself to be a strong regulator and it has all the tools it could reasonably require for the task, including the means to make relevant senior individuals accountable.

2. Are certain groups of consumers excluded from obtaining a basic level of service from financial services providers?
a. Examine which customers can be most disadvantaged when bank branches close and consider whether there is evidence to suggest that bank branch closure leads to increased financial exclusion.
17	Building societies are legally required to focus on savings and mortgages and the majority do not provide current accounts. Branches are changing and offer a place for members to access support.
18	With no shareholders, building societies can make different choices in order to serve their members. Some choose to continue to keep a branch open and may reduce hours and increase the processing in branch to make it sustainable, while other societies may choose to open branches in areas that are underserved, e.g. Nationwide in Glastonbury.
19	Within the sector, a number of branches have been opened, providing increased access to communities. Examples of these are Newcastle’s branch in Yarm, co-located with the local library, which resulted in the library staying open, the Nottingham’s increased branch network (from 32 in 2013 to 67 in 2018), and the Swansea’s new branch in Cowbridge. 

b. Consider how financial services providers plan to cater for customers who will no longer have easy access to a bank branch.
c. Examine how providers ensure that their marketing, communications and support services are accessible to vulnerable consumers, including consumers who have low literacy levels. 
20	The most effective approach to making marketing, product information and support services available to individuals with lower literacy rates is the option to talk directly to a suitably trained and qualified employee in a branch or by telephone. Building societies also routinely provide large print, braille or audio copies of product information, account statements and other support literature on request. A member can bring in a third party to help them with the purchase decision if they want to.
21	Application of innovative web and app design also allows firms to provide customers with different, non-traditional formats for providing product and service information and support services in formats that are more helpful to customers with lower literacy. However, there are times when the circumstances behind a lack of access to information are not in the gift of service providers to sort out. The issue for many individuals affected by a serious physical or mental health condition or caring for someone else in those circumstances is a lack of time to spend on finances, not appropriate access to marketing, communications and support services. 
Consider the trends on the use of the Post Office services in areas where bank branches have closed and examine what role the government could play in maintaining the Post Office network to provide shared services.
22	Post offices have an important role in providing basic transaction services for current account customers when banks no longer do so. However, being shared service hubs, post offices are not well-equipped to substitute for the pastoral care activity provided by a branch to support customers – particularly more vulnerable customers. 
23	Post office staff are not given the same degree of training to recognise potential vulnerability. They typically have a counter-based layout and lack the privacy for individuals to discuss their personal circumstances. 
e. Consider whether there are barriers to participation which lead to consumers not having a bank account. 
24	Lack of identification needed to pass the customer due diligence checks required on opening an account under the Proceeds of Crime Act 2002 can be a significant barrier if consumers do not have access to recognised ID documents, e.g. a passport, photo driving licence or proof of a permanent address. Certain types of consumers are less likely to have one or both of these:
•	Passport / Driving licence – older consumers, consumers unable to travel.
•	Proof of permanent address – consumers living with friends, homeless consumers.
25	Responsibility for setting identification requirements for customer due diligence checks lies with the Joint Money Laundering Steering Group (JMLSG). Their guidance does provide alternative permissible types of ID verification, but frontline staff do not consistently use these. The BSA has asked the JMLSG to undertake a review of alternative forms of identification verification in 2019 to determine if their guidance is up to date and how the current policy/practice gap can be addressed.
26	Coercive control by others within a family or relationship can also be a factor preventing individuals from having their own account. Other barriers include low literacy and English language skills, which can be used as an opportunity for coercive control. 
f. Evaluate the systems and controls in place for Power of Attorney at financial services providers. 
27	Financial services providers have been fairly criticised for inconsistent service on registration of Power of Attorney (POA). The BSA led the development of the cross-sector policy document “A framework for authorising people wanting to operate a bank account for someone else” in 2015 to improve consistency of service from building societies and banks to attorneys and other third party mandate holders. The latest feedback from the Office of the Public Guardian in 2018 is that service is improving. However, there is more to do.
28	The BSA has also covered POA in its guide “Need support with your finances from a friend or family member?”.
29	Once the POA has been registered, firms’ systems and controls focus on two areas:
•	Helping the donor continue to run those parts of their finances that they are still able to manage. This may include carrying out simple transactions themselves, such as withdrawing small amounts of cash for everyday spending under the Attorney’s supervision. Under Principle 3 of the Mental Capacity Act 2005, financial services firms need to support customers to do this. This could be by setting cash withdrawal limits.
•	Identifying and reporting suspicions of Attorneys abusing their mandate. Our members’ role is to identify activity that causes a suspicion that the Attorney is not running the donor’s finances in the donor’s best interests and report this to the Office of the Public Guardian (OPG) who will investigate and take any appropriate action.
30	In both areas, we are working with OPG and other interested parties to improve our service.
g. Examine how financial services providers comply with equality legislation and the mechanisms for enforcement. 
h. Evaluate how regulators hold financial services providers to account for how they treat vulnerable customers, and how regulators instruct financial services companies to comply with equalities legislation.
i. Evaluate how fintech and technological innovation could help those who cannot easily access physical financial services branches.  
31	Technology can be a highly successful substitute for branch facilities for some basic transactions. These include payments, new account opening, transfers between accounts and non-financial amendments to the account. These can be carried out securely via telephone, online banking or via a banking app. However, transactions involving paying in or withdrawing cash would remain a challenge for consumers who cannot access branch, post office or ATM facilities.
32	Technology also allows face-to-face interaction between employee and customer via Skype. This gives the customer without easy branch access the opportunity to have a conversation about their finances.
33	Fintech, in the form of Open Banking and artificial intelligence, has the potential to develop this further. Digital comparison tools can help match consumers with the service provider that can best meet their particular needs at a point in time;  aggregation can help simplify running finances and use of artificial intelligence can alert providers to behaviour that suggests that the consumer is in difficulties. 
34	However, technological innovation is not always the right solution. Customers who depend on cash but cannot get to a branch or ATM themselves need human support. Many customers do not trust using technology for financial transactions and prefer human help. Sometimes pushing customers to use technology can facilitate financial abuse when the account holder becomes dependent on a more technology-literate person.
35	It is therefore important that firms should have processes and controls to help account holders bring in human support in a way that is safe, private and ensures that they retain control while giving the supporter legitimacy and protection from suspicions of taking advantage. The BSA leaflet “Need support with your finances from a friend or family member?” sets out the options that building societies can offer.

3. Do vulnerable consumers pay more for financial services products? 
a. Examine the effectiveness of procedures deployed by financial services providers to ensure that customers properly understand the products that they are purchasing, including those who have low literacy levels. 
36	See answer to question 2c.
37	Procedures to ensure that the customer understands the products they are purchasing are designed around the Mental Capacity Act 2008, s.3.  Interview and online application scripts have prompts built in to check that the applicant understands, retains relevant information, and can communicate back how they have made their decision.
38	The industry has worked with the Royal College of Psychiatrists (2014) and the University of Bristol (2017) to research how best to engage with customers who have learning or mental health difficulties.
b. Examine whether vulnerable consumers pay prohibitively more for certain financial services products, including travel and home insurance. 
c. Consider whether vulnerable consumers have access to appropriate and affordable credit.
39	Credit unions provide access to appropriate credit for consumers at reasonable costs. Their purpose is to help consumers access affordable financial services. However, credit unions are limited by size and not all consumers will have access to one. In these areas, vulnerable consumers may not have access to affordable credit.
d. Evaluate the impact of reducing the number of free-to-use ATMs on vulnerable consumers. 
e. Evaluate how regulators assess whether financial services providers are providing products to consumers at a fair price.
40	The FCA is considering supply-side remedies to address the perceived challenges of consumer inertia and front book versus back book pricing following their Cash Savings Market Study. Its favoured approach is a new basic savings rate, possibly linked to a new ‘sunlight’ remedy. However, only certain parts of the savings market are not working well and any remedy should focus on those areas to avoid unintended consequences. 
41	Earlier this year the FCA, as part of its interim market study into competition in the mortgage market, identified that there were a number of borrowers trapped on a reversion rate/standard variable rate (SVR) as they no longer met the affordability criteria changed by the regulator in 2014. The industry has worked with the FCA and 65 lenders representing 93% of the market with a regulated active lender have signed up to a voluntary agreement to ensure there are no barriers for existing customers to switch their product from a reversion rate to another product. In terms of customers trapped with inactive lenders or unregulated entities, there are regulatory barriers to helping these customers, particularly the Mortgage Credit Directive (MCD) affordability rules. The BSA is working closely with the FCA and other key stakeholders to explore a solution for this cohort of customers. Building societies actively prompt their customers to remortgage, and will continue, through the annual mortgage statement and associated communications, to remind any customers that do move onto the SVR.

		
	
By Kate Creagh
Public Affairs Manager
kate.creagh@bsa.org.uk
0207 520 5905

York House
23 Kingsway
London WC2B 6UJ

020 7520 5900
@BSABuildingSocs
www.bsa.org.uk

BSA EU Transparency Register No: 924933110421-64	
	www.bsa.org.uk

The Building Societies Association (BSA) is the voice of the UK’s building societies and also 
represents a number of credit unions.

We fulfil two key roles. We provide our members with information to help them run their 
businesses. We also represent their interests to audiences including the Financial Conduct 
Authority, Prudential Regulation Authority and other regulators, the Government and 
Parliament, the Bank of England, the media and other opinion formers, 
and the general public.

Our members have total assets of over £387 billion, and account for 22% 
of the UK mortgage market and 18% of the UK savings market.