Firms were “poor at making customers aware of basic bank accounts”, with some application processes being far harder than others, the regulator found.
There are more than one million adults in the UK who are ‘unbanked’ (as of May 2022) meaning they do not have a payment account.
While some people may not wish to have an account, the Financial Conduct Authority (FCA) said being ‘unbanked’ can have “potentially harmful consequences for an individual’s cost of living”.
Examples include having to pay increased charges associated with other payment methods, no facility to receive income, with concerns over the overall ability to transact in an increasingly cashless society.
As part of its UK Payment Accounts Access and Closures: Update report, the FCA is urging account providers to do more to support those who want a bank account but don’t have one.
It said that basic bank accounts (BBA’s) support financial inclusion for individuals who are “significantly more likely to have a lower household income and to show signs of vulnerability”.
Basic bank account rejection rates
Following on from its initial de-banking review published in September last year in the wake of the Nigel Farage de-banking fiasco, the FCA found a “wide range of BBA application rejection rates”, raising concerns that some firms might be rejecting an “inappropriate number” of applications, while other were more accepting.
As part of its latest findings, the FCA said “customer journeys varied”, with some firms – they were not named – “poor at making customers aware of BBAs”.
The report noted: “Several BBA providers were not making the existence of BBAs clear to customers. We also found that the large difference in BBA decline rates between firms was, in large part attributable to how firms record data and structure customer journeys, rather than indicating that some firms were rejecting significantly more BBA applicants than others.”
It also stated that some customers in vulnerable circumstances “are experiencing worse outcomes” regarding account access.
Consumer groups and charities representing customers in vulnerable circumstances highlighted to the FCA several challenges these individuals faced in obtaining and maintaining an account.
These included, for example, some individuals with learning disabilities being denied an account because the firm assumed they needed a power of attorney, while others were denied an account because they could not show a common form of ID (such as a utility bill with their address on it).
The FCA stated: “Firms should have appropriate systems and controls in place to ensure their actions, policies and procedures are not resulting in systematically poor outcomes for any cohort of customers, paying particular attention to those customers with characteristics of vulnerability.
“For example, firms should be careful in arriving at a conclusion that a particular customer lacks capacity to operate their payment account. Firms should also ensure that customers without a permanent address are made aware that they have alternative options for meeting identification requirements to open an account.”
Further, the FCA is urging banks and other account providers to increase awareness of BBAs, which allow people to make and receive payments but without the availability of an overdraft.
‘Reputational risk’
Elsewhere, the FCA said it did not see evidence of political beliefs or other views lawfully expressed being used as a rationale for account denial, suspension or termination which is unchanged from the 2023 report.
However, it added that in some cases where a customer’s political beliefs or other views lawfully expressed were known to the account provider, “it did not form the reason for the account being denied or terminated”.
Meanwhile, providers can cite ‘reputational risk’ to deny or close accounts, and the FCA found a “lack of consistency” about when this is a relevant factor in an account access decision.
“We did not, however, identify any purported reputational risk-based denials or terminations where the basis for the decision was actually political beliefs or views lawfully expressed,” the FCA stated.
In light of its findings, it has asked account providers to review their approach to account denials and closures – and particularly to ensure that vulnerable consumers aren’t losing out. Providers should also ensure people aren’t denied access just because they can’t produce standard forms of ID, and make it clear which alternative forms of ID are acceptable.
Where accounts are closed or denied, the regulator reminds providers that they should act in line with their obligations under the Consumer Duty, including communicating in a way that is clear and helpful for customers.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “We’ve seen examples of really good practice – with account providers helping people access a product vital for financial inclusion – but also areas where there is room for improvement. By sharing both, we want to achieve more consistent outcomes, with people being aware of what accounts there are that might be right for them, more support for the vulnerable and people not being denied access without good reason.”
