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Cash machine charges |
Adjournment Debate BriefingCitizens Advice is concerned about the growth of fee-charging cash machines over the past few years. We are particularly concerned that this growth is happening at the same time as the government’s move to pay benefits into bank accounts. Citizens Advice welcomes the moves made by Link since the Treasury Select Committee inquiry earlier this year to improve information to consumers on fee-charging ATMs. The announcement by Post Office Ltd to replace many of its fee-charging cash machines with free ones is also welcome. Citizens Advice believes that:
Citizens Advice is the national co-ordinating body for Citizens Advice Bureaux in England and Wales. We co-ordinate the largest independent network of free advice centres in Europe, providing advice from over 3,000 outlets, ranging from GPs’ surgeries, hospitals, community centres, county courts and magistrates courts. 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. Many of our clients are on low incomes or benefits, or are disadvantaged in some way. For this reason charges for ATM withdrawals are an important issue for our client group as it reduces the amount of money to live on. The issues of the prevalence, principle, practice and impact of cash machine charges should be viewed in the wide policy context of the Government's objectives to promote greater financial inclusion. Poverty and financial exclusion come together as people on the lowest incomes often pay more than they should to access goods and services or may have limited access to suitable financial services. For example available credit for borrowing may be very expensive and people on the lowest incomes may have more limited awareness or experience of dealing with financial matters, and thus miss out on entitlements to benefits and tax credits. We have welcomed initiatives to promote access to banking services for people hitherto financially excluded. However, we also identified the growth of charges for use of convenience cash machines as a new risk to financial inclusion. Charges for obtaining cash, particularly in small amounts, seem excessive and unfair. 1. The principle of charging and location of charging machinesThere are now approximately 53,000 cash machines in the UK, 20,000 of which are fee-charging. The growth of the fee-charging network appears to have been driven by bank branch closures. Cost-cutting measures launched by the banks to increase their profitability have led to a contraction of the bank branch network, with nearly 6,000 bank branches having closed since 1990. This has left nearly 1,000 mainly rural communities bankless,[1] with this trend looking set to continue.[2] Free or low cost access to cash is extremely important for consumers. For people living in deprived urban and rural areas, affordable credit, bank counter and bank ATM withdrawal of cash and cash back facilities are often far less easily available, due to the recent programmes of bank branch and post office closures.
In addition the government has introduced direct payment of benefits into accounts for virtually all benefit claimants. The aims of this programme included efficiency savings and promoting financial inclusion. One of the selling points used in DWP literature about switching to payment via a bank account was that claimants did not need to take out all of their benefit entitlement at one time: “And you won't have to get all your money out in one go – so you won't have to carry so much cash around” (DWP leaflet: ‘Direct Payment – giving it to you straight’). 2. The cost of fee-charging cash machinesConvenience cash machines are one source of extra cost which has particular impact on low-income households. For this significant section of society the charges are particularly inflexible and unfair. Charges are often levied at £1.50 regardless of whether a transaction sum is £10 or £100. By definition the proportion of an individual’s money which is spent on the charges will be higher if they tend to take out smaller amounts of money. This will disproportionately penalise families who have weekly low incomes (ie those on benefits or in the low pay economy) who cannot afford to withdraw money in lumps of £200. For this reason, Citizens Advice believes that charges should be restricted and possibly capped. All non-financial transactions should remain free. For example, a single person aged 25 or over in receipt of jobseekers allowance, a benefit for unemployed people looking for work, is entitled to £55.65 benefit per week. If they were to follow the DWP’s advice not to take out all their money in one go, but used a fee charging ATM to take it out in two or three withdrawals, they could face losing up to 8 per cent of their weekly benefit. Here are some recent examples reported by CABx:
3. The transparency of charges and changes in charging practicesBefore the Treasury Select Committee inquiry, convenience cash machines rarely had clear and noticeable external labelling to indicate that charging will follow all transactions. In some cases the labelling was ambiguous, e.g. “Free balance check”, whilst providing no information about the cost of actual cash withdrawal. In our submission to the Select Committee, Citizens Advice stated that all charges had to be clarified before the transaction is agreed by the customer. Citizens Advice welcomes the recent changes to the Link Code of Practice to provide clear information to consumers on charges. We hope to work with Link next year to see if cash machine operators are complying with the new requirements. However, we would like to see further changes to make it very clear which machines charge. Citizens Advice agrees with Nationwide Building Society that there should be a clear distinction between fee-charging and free cash machines by means of red and green signs. 4. The role of the Post Office networkThe post office network could provide an alternative means of free access to money for low-income consumers. Post Office Ltd has 14,609 branches in the UK (as at end March 2005), with around 8,037 of those situated in rural areas. The rural post office network serves approximately 12 million customer visits a week, with 84 per cent of people in rural areas living within one mile of a post office. In addition, over two-thirds of villages with between 500 and 1,000 inhabitants have a post office.[3] Moreover, while only four per cent of villages have a bank or building society, 60 per cent have a post office.[4] This large network of branches gives the Post Office a unique opportunity to make a positive contribution to tackling financial exclusion in both urban and rural areas through the provision of access to banking facilities. It is welcome that the government, Post Office Limited and the banks entered into an agreement to allow free withdrawals from basic bank accounts at post office counters. Recent research by the Banking Code Standards Board, who check banks’ compliance with the Banking Code, shows that many banks are now telling their customers about this facility. However not all banks have made an agreement with Post Office Ltd to allow their customers to access their current accounts at post office counters. Notably HBOS, HSBC and Royal Bank of Scotland Group have not been willing to negotiate with Post Office Ltd on this issue, despite lobbying by the National Federation of Sub-Postmasters and consumer groups. Citizens Advice recommends that all current account holders should be able to withdraw cash over the counter at Post Offices. We consider that Post Office Ltd should become a member of Link to enable this to happen. The income generated by this could help sustain the network of post offices which are a valuable community resource. At the time of giving evidence to the select committee, we were concerned at the number of fee-charging cash machines situated in the post-office network because this appeared to be contrary to the government’s policy goal of free cash withdrawal from post offices. Citizens Advice has welcomed Post Office Ltd’s recent announcement to convert 1,000 fee-charging machines in post offices to free ATMs. We urge POL to convert all its fee-charging machines. Social Policy contact: Tony Herbert tony.herbert@citizensadvice.org.uk Parliamentary contact: David Tinline david.tinline@citizensadvice.org.uk
[1] ‘Banks reject solution to branch closures’, Campaign for Community Banking Services, 9 May 2005 [2]A number of banks have recently announced branch closures. See, for example, http://news.bbc.co.uk/2/hi/business/4534909.stm [3] ‘The Three Rs: Research, Urban Reinvention, Rural Network - Postcomm's fifth annual report on the network of Post Offices, 2004-05, Postcomm, October 2005, p.74 [4]House of Commons Treasury Select Committee, Cash Machine Charges - Fifth Report of Session 2004–05, P.46 |
