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Banking Benefits

24 January 2006

Financial services evidence cover

CAB evidence on payment of benefits into bank accounts

Banking benefits [Adobe Acrobat Document 420 KB]

Banking benefits summary [Adobe Acrobat Document 46 KB]

Banking benefits - welsh summary [Adobe Acrobat Document 46 KB]

Access to bank accounts is crucial if financial exclusion is to be takled successfully.  Having a bank account enables people to obtain cheaper deals on fuel, insurance and credit.  Basic bank accounts can also help prevent over indebtedness since they do not offer overdraft facilities.

Payment of state benefits directly into accounts has boosted take-up bank accounts.  Yet CAB evidence shows that not everyone can open a bank account.  The processes for opening and operating bank accounts, including basic accounts, continue to leave people financially excluded, and threaten the successful rollout of reforms to Housing Benefit.

Background

About one in 12 households in the UK has no bank account of any kind.  The banking industry was encouraged to develop basic bank accounts to support the government policy of paying benefits direct into accounts.  Since April 2003 over 1.5 million basic accounts have been opened, and 96 per cent of claimants now receive their benefit by payment into some form of account.

Reforms to housing benefit which are currently being piloted in 18 local authority areas to introduce a local housing allowance also depend on access to bank accounts, as Housing Benefit will usually be paid into the claimant's bank account.

CAB evidence demonstrates that there is a poor fit between the government's policy to paying benefits direct into bank accounts and some of the banking industry's practices.  Consequently mnay of the most vulnerable people are denied access to a bank account, or are unfairly penalised when they open one.

Main findings

CAB clients experience problems with payment of benefits into bank accounts in two main areas:

1.  Opening an account

CAB clients experience particularly acute problems opening bank accounts because they may not have acceptable evidence of their identity and address, which banks must check to comply with money laundering legislation.

Although there is government guidance ablout have financially excluded people can prove their identity and address, CAB clients find that bank staff are frequently not willing to follow it.  Our evidence reveals that the people who are most affected include discharged prisoners, non-UK citizens, people on benefits and homeless people.

Other difficulties include:

2.  Using an account

CAB evidence suggests that access to banking is not enough to bring people into the financial mainstream; the design and features of both basic and current accounts are also important.


Recommendations

All banks should review their existing basic bank accounts against the following principles:

The Banking Code should require banks to:

In addition, we also recommend that:

Social Policy contact: email Tony Herbert or email Francesca Hopwood-Road

Banking benefits [Adobe Acrobat Document 420 KB]

Banking benefits summary [Adobe Acrobat Document 46 KB]

Banking benefits - welsh summary [Adobe Acrobat Document 46 KB]