Westminster Hall Private Members’ Debates
- Citizens Advice Bureaux (CABx) have a great deal of experience helping clients move to direct payment of benefits into bank accounts, and have helped many people choose the most appropriate method of payment for their circumstances during the migration from benefit books to direct payment.
- We have serious concerns about the lack of clarity on the future of the Post Office card account (POCA) when the current contract runs out in 2010, and are frustrated about the lack of clear information given by the Department for Work and Pensions (DWP) about its plans for the POCA. This frustration extends to the lack of consultation about the brief pilots that were run by DWP to test methods of encouraging POCA holders to migrate to bank accounts.
- Despite its limited functionality, the POCA has been incredibly popular. If the government decides not to renew the POCA contract, the Post Office should look into the commercial viability of redesigning the POCA so that it offers a wider range of features to those people who wish to continue to receive their benefits via the Post Office network.
- If this is not financially viable and the proposals to end the POCA contract in 2010 go ahead, then any proposals to migrate people to bank accounts should only go ahead if a number of conditions are met:
1. There must be significant investment in the process of migration since it is necessary to make sure people are offered appropriate accounts, that the accounts allow people to access their money at the most convenient location, and that people receive the support that they require when making any transition.
2. It is imperative that the process of opening basic bank accounts is made much easier. This must include the need for greater flexibility over acceptable identification documents and access to accounts for people in debt or undischarged bankrupts.
3. People should be able to open basic bank accounts in post office branches, and all current account holders should be able to withdraw cash over the counter at Post Offices.
Introduction
The Citizens Advice Bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets, ranging from GPs’ surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups.
The service has two equal aims:
- to ensure that individuals do not suffer through lack of knowledge of their rights and responsibilities or of the services available to them, or through an inability to express their needs effectively;
- and equally, to exercise a responsible influence on the development of social policies and services, both locally and nationally.
In 2004/5 the CAB service dealt with 5.2 million new enquiries. Of these enquiries nearly 1.2 million were debt or finance-related. Between April and September 2005, 73 bureaux submitting detailed statistics to Citizens Advice reported that over a third of their enquiries about bank accounts – and by far the largest number - related to problems with access.
CAB clients are likely to be on low incomes. Recent research for Citizens Advice by MORI shows that CAB clients are predominantly in social groups DE and more likely to be tenants of social housing than the population as a whole.
General comments
Citizens Advice Bureaux (CABx) have a great deal of experience helping clients move to direct payment of benefits into bank accounts, and have helped many people choose the most appropriate method of payment for their circumstances during the migration from benefit books to direct payment.
We have serious concerns about the lack of clarity on the future of the Post Office card account (POCA) when the current contract runs out in 2010, and are frustrated about the lack of clear information given by the Department for Work and Pensions (DWP) about its plans for the POCA.
Whilst the POCA offers very limited functionality, over 4.7 million POCAs had been opened for the receipt of benefits, pensions and tax credits (accounting for approximately 40% of benefit claimants invited to convert to direct payment). Evidence from Citizens Advice Bureaux shows that the POCA is popular with our clients because:
- People with POCAs can use their local post office to receive their benefit and pension;
- Many of our clients find it difficult to open, access and operate bank accounts, including basic bank accounts. These problems are detailed in our recent evidence report, Banking benefits.
Citizens Advice recognises that the POCA fulfils a useful role for many people, but its limited functionality renders it of limited use in fostering real financial inclusion. For instance, it offers no overdraft, direct debit or standing order facilities and can only accept electronic payment of state benefits, pensions and tax credits. Any re-negotiation of the POCA contract should seek to create an account with more features designed with the needs of those on low income or benefits in mind.
However, if the POCA contract comes to an end in 2010 then alternative ways of allowing POCA holders to receive their benefits must be found. One possibility would be to migrate people to bank accounts, but for this to occur a number of conditions must be met:
- the process of opening basic bank accounts should be made easier (including greater flexibility over ID);
- basic bank accounts should be made more suitable for people on benefits or low incomes;
- all bank accounts should be accessible free of charge at post office counters; and
- support should be available for people to open and use bank accounts. The CAB service would be happy to play a role in the delivery of this support.
Finally, if the contract for the POCA is not renewed after 2010 it will remove another important revenue stream for subpostmasters. This change will threaten the profitability of certain Post Office branches, particularly those in rural or urban deprived areas, at a time when the future of the subsidy for rural post offices is under review, and where the threat of a wave of branch closures cannot be ruled out.
Detailed comments
Take-up of POCA
The POCA offers no overdraft, direct debit or standing order facilities and can only accept electronic payment of state benefits, pensions and tax credits. Moreover, the process for opening a POCA was so convoluted that it might have put some people off applying. Yet POCAs are very popular, with over 4.7 million POCAs having been opened for the receipt of benefits, pensions and tax credits (accounting for approximately 40% of benefit claimants invited to convert to direct payment).
Evidence from Citizens Advice Bureaux shows that the POCA is popular with our clients for two main reasons. Firstly, many people open a POCA because it allows them to use their local post office to receive their benefit and pension, and this is much more convenient for many people due to the respective size and reach of the networks: only four per cent of villages now have a bank or building society whereas 60 per cent currently have a post office. DWP figures suggest that roughly 70 per cent of POCA holders also possess a bank account but are signalling their preference for the Post Office over banks in receiving benefits payments into their POCA.
Secondly, many of our clients find it difficult to open, access and operate bank accounts, including basic bank accounts. These problems, detailed in our recent evidence report Banking benefits, include: use of credit scoring to determine eligibility to bank accounts; problems providing acceptable identification documents; long delays in opening accounts; and banks taking money out of accounts to pay other debts to the bank without checking the customer’s circumstances first.
Despite this popularity, the government has signalled its intention not to renew the contract with the Post Office to offer POCAs. The main driver for this is almost certainly financial, given that the cost per transaction to government for payments into a POCA is apparently 30p whereas payments into bank accounts cost 1p.
Citizens Advice recognises that the POCA offers limited functionality, but notes take-up of the POCA has far exceeded DWP’s initial estimates, with over 4.7 million people now possessing a POCA. We therefore suggest that one potential way forward would be for the Post Office to redevelop the POCA to offer an account with a wider range of features to those people who wish to continue to receive their benefits via the Post Office network.
If this is not financially viable, and the proposals to end the POCA contract in 2010 go ahead, then alternative methods of paying benefit income to people must be found. One possibility would be to migrate people to bank accounts but as we discuss below, for this to take place a number of conditions must be met.
Migrating POCA holders to basic bank accounts
If the option to have benefits payments paid into a POCA is removed from 2010, then an alternative solution must be found for the more than four million people who currently receive their benefits into a POCA. The most obvious answer, and one that DWP is favouring in its current small-scale pilots, is migration from POCAs to basic bank accounts.
For this to occur, it is essential that the basic bank account product meets the needs of its potential users, and that the process of migration is carefully managed. There needs to be significant investment in the process of migration because it is necessary to make sure people are offered appropriate accounts, that the accounts allow people to access their money at the most convenient location, and that people receive the support that they require when making the transition. Switching bank accounts remains rare even among people who have mainstream financial products, so in this setting - where many financially inexperienced people may be forced to move - it will be incredibly stressful, and require substantial support services. The CAB Service would be happy to play a role in the delivery of this support.
Given our willingness to assist with any process of migration it was particularly disappointing that DWP officials did not consult with Citizens Advice, or with other organisations that have a strong interest in this area, when they devised and ran three short-scale pilots which were intended to encourage POCA holders to migrate to bank accounts and to inform DWP’s future policy proposals.
Any process of migrating people from the POCA to bank accounts must also pay attention to the 700,000 people who receive their benefit payments through cheques rather than through the POCA or through a bank account of some kind. Many CABx help such people who are completely outside the banking system, people who have sometimes gone without essential benefit income for a very long time because they do not have a bank account and have not been able to deal with the administrative process of opening a POCA. Support services must also seek to provide help and assistance to these people, since they are often isolated and difficult to reach, so will need much more support not only in terms of joining the financial system but also in managing their financial affairs effectively once they have opened an account.
A CAB in Lancashire reported that it took a whole day for an elderly vulnerable woman to open a bank account for payment of her pension credit and Local Housing Allowance entitlements. The client was entitled to a substantial amount in backdated benefits, which could not be paid until a bank account had been opened. The CAB adviser had arranged to go with the client to open a basic account at a local building society branch and had organised an appointment. However the client had gone to the local DWP office instead to pick up a girocheque for some of the benefit owed to her.
Access to basic bank accounts
In terms of access to bank accounts, it is imperative that the process of opening the accounts is made much easier. This must include the need for greater flexibility over acceptable identification documents. Citizens Advice’s report, Banking benefits, found that bank staff are frequently not willing to be flexible in the type of documents they are willing to accept. This was a significant issue reported by bureaux, with nearly a third of the case studies used to compile the report concerning problems with banks not regarding customers’ documents as suitable or sufficient to prove identity and address. The impact of this can be substantial:
A Somerset CAB’s client had been offered a job and so needed to open a bank account to receive his wages. However, as he was homeless this proved impossible. The client found himself caught in a vicious circle in which he was unable to open a bank account without an address, he could not find a place to live without one month’s rent and deposit, and yet could not start work without opening a bank account to receive his wages.
Since most banks refuse to offer basic bank accounts to people who are in debt or who are undischarged bankrupts there is a significant risk that migration from POCAs (which have no restrictions on who can open an account as long as they are in receipt of a state pension or benefit) to bank accounts may create a new underclass of unbanked people. Banks’ refusal to open basic accounts for those in debt seems to stem from their use of credit scoring but is unwarranted since these accounts offer no credit. To counter this, full credit scoring should not be used to determine access to a basic bank account.
A CAB in Cumbria recommended that their client open a basic bank account. However, he was only allowed to open a savings account. When the bureau called to query this, they were informed that the bank submits all applications to credit scoring and credit reference agency checks.
A CAB in Wiltshire had a client who was experiencing debt problems so was given advice to open a basic bank account. However, he was refused an account as he had a bad credit history. This meant that the client was unable to take steps to deal with his debt – he did not wish to make payments to his existing account as the bank would use them to pay off his non-priority debts to the bank, at the expense of paying his other, more pressing creditors.
A Surrey CAB reported that a man who was too ill to work needed to claim incapacity benefit when he had used up all his savings. The Jobcentre told him to open a new basic account for payment of his benefits. The client sought advice when he was turned down by two banks because of a poor credit record.
A key factor in people’s decision to opt for a POCA instead of a bank account has been the ability to withdraw one’s benefit payment over the counter at a Post Office branch. DWP maintain that customers will still be able to collect their benefit or pension at the Post Office by using their bank or building society account there but at present some of the big banks – notably HSBC, HBOS and RBS group - do not offer this facility, meaning that about 60% of personal bank accounts are not accessible at the Post Office.
The Post Office is keen to move into provision of financial services to provide alternative income streams to replace the income lost by cashing benefit order books and girocheques. And enabling all bank customers to withdraw their money from the post office would not only provide greater convenience for bank customers but would potentially throw a lifeline to rural post office branches that have seen a major reduction in their business following the introduction of direct payment. Those that are offered this facility place great value on it: in research carried out for PostComm by Hall & Partners Europe Ltd., partner bank customers were asked whether they believed that the cash withdrawal service at the Post Office was a good thing, and “89 per cent were positive about the service; 48 per cent said the Post Office was more convenient than using a bank branch; 38 per cent said it was more convenient as they were using the Post Office for other reasons anyway; 36 per cent said that the Post Office is closer.” Citizens Advice recommends that people should be able to open basic bank accounts in post office branches, and that all current account holders should be able to withdraw cash over the counter at Post Offices. If individual banks are unwilling to reach an agreement with Post Office Ltd to allow their customers to withdraw cash from the post office network, then Post Office Ltd should become a member of the LINK network to enable this to happen. The income generated from this venture could help to make a significant contribution towards sustaining the network of rural post offices which are a valuable community resource.
Impact on Post Office network
Finally, if the contract for the POCA is not renewed after 2010 it will remove another important revenue stream for subpostmasters. This change will threaten the profitability of certain Post Office branches, particularly those in rural or urban deprived areas, at a time when the future of the subsidy for rural post offices is under review, and where the threat of a wave of branch closures cannot be ruled out. The impact of PO branch closure can be severe, as the cases below demonstrate:
A rural CAB in East Sussex reported that the closure of a local post office branch meant that their client - an 86 year old widower who looked after her semi-housebound sister, aged 91 - would have to travel over one mile to her nearest post office or banking facilities. The difficulties in accessing basic services was causing the client great inconvenience, worry and stress.
A CAB in Mid-Wales’ client found that following the closure of the village post office there was a severe downturn in passing trade at her discount store, so she had to close the business. As a result of this, the client had to go bankrupt and is now unemployed and in receipt of incapacity benefit.
Citizens Advice recommends that the future of the POCA, and the revenue streams it generates for subpostmasters, must be considered in any discussion of the future of the Post Office network.
For further information, please contact: parliamentary@citizensadvice.org.uk
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