Poorer people in Britain are being excluded from the financial system and forced to rely on expensive and substandard banking products, a report by British lawmakers published on Saturday showed.
There are 1.7 million adults in the country that do not have access to a bank account, the report said, raising the risk that they will turn to high-cost sources of credit such as payday loans, “doorstep” loans sold at a customer’s home and a system known as rent-to-own.
In rent-to-own, a company rents consumer goods to a customer at a high cost, with ownership not transferred until the final payment.
Usage of rent-to-own has more than doubled in the past five years to more than 400,000 households in Britain, Centre for the Study of Financial Innovation financial inclusion fellow Christine Allison said.
StepChange Debt Charity estimated that 2.6 million people in Britain are struggling with severe debt and another 8.8 million show some signs of financial difficulty.
Particularly at risk are those in the lowest income brackets, the report said, defined in British government data as having an average weekly household income of ￡130 to ￡240 (US$162.11 to US$299.28).
Regulation of short-term payday loan companies has been effective in curbing some of their practices, such as exorbitant interest rates, but other forms of high-cost credit have flourished instead, said British lawmaker Claire Tyler, who is chair of the Children and Family Court Advisory and Support Service.
“There is a poverty premium where the poor pay more for credit,” Tyler said in an interview.
The report called on the British Financial Conduct Authority to establish new rules requiring banks to have a duty of care toward their customers to address some of these problems, but left the definition of that duty up to the regulator.
The British Treasury and nine of Britain’s biggest banks in 2014 agreed to new guidelines stipulating that so-called basic bank accounts should be fee-free in an effort to widen access to banking.
Data were not yet available to show the impact of those new rules, Tyler said.
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