fair banking for all
The UK needs a Fair Banking Act to tackle financial exclusion
The UK has some of the worst levels of financial exclusion in relation to comparable economies. Millions of people do not have access to the financial services they need for day-to-day living. This is a serious, but hidden part of the cost of living crisis and is the result of years of government failure.
- Even before the pandemic, over 10 million people could not access affordable credit, forcing over 3 million people to turn to very high-cost providers like pay-day lenders where interest rates can be over 1,000%.
- One estimate puts the number of people in England who, in 2022, were accessing dangerous illegal money lenders like loan sharks, at around 1 million.
- Small and medium sized enterprises (SMEs) receive a tiny share of bank lending and face a multi-billion pound financing gap, holding back economic development particularly affecting under-served regions outside London and the South East, and marginalised communities.
A fair banking act
The Act would:
- Require mainstream banking institutions to disclose their performance on financial exclusion, in a transparent, publicly available, data disclosure framework.
- Create a system for clear ratings, that show which banks are doing well and which need to improve.
Mainstream banking institutions would be able to improve their rating by:
- Expanding the provision of affordable and ethical lending to underserved communities, giving fair access to credit regardless of people’s backgrounds or where they live.
- Providing fair services to those who are underserved and excluded, either directly or via a partnership (see below).
- Creating partnerships with co-operative or other purpose-driven banking institutions to enable these specialised organisations to expand their services and support for financially excluded people and businesses.
If I go to a bank I can only open a basic account, I can’t get an overdraft or a credit card… But [local CDFI] is great because they speak to you like a human being, they understand that things happen… It’s given me more confidence within myself to deal with things financially, without feeling like I was failing at being an adult
Workshop participant with experience of financial exclusion, January 2023.
Similar legislation in the US is attributed with a massive increase in bank funding of financial institutions such as credit unions and Community Development Finance Institutions (CDFIs). As a result, in 2020, US banks provided $271 billion to low and moderate income communities, and in 2019, CDFIs and credit unions managed more than $150 billion, including lending to SMEs.
This would mean:
- Millions of people across the UK would be able to access financial services such as affordable credit, preventing families spiralling into bad debt and financial crisis.
- People on low incomes would no longer be forced to pay more for credit from high-cost credit providers, reducing the poverty premium.
- SMEs would be able to better access the finance they need.
A Fair Banking Act has the potential to transform our financial system, as well as the lives of millions of people in the UK. We believe it should be a key commitment in manifestos ahead of the next general election.
The Finance Innovation Lab is part of the Fair Banking for All Campaign, a coalition of purpose-driven finance institutions, organisations working to tackle financial exclusion, civil society organisations and academics. We would welcome your involvement.
68% of people would support a new law that forces banks to report on how equally they provide services to people from different backgrounds or status.
Polling by Opinium of 2,000 UK adults, March 23
A Fair Banking Act has the potential to transform our financial system, as well as the lives of millions of people in the UK. We believe it should be a key commitment in manifestos ahead of the next general election.
The Finance Innovation Lab is part of the Fair Banking for All Campaign, a coalition of purpose-driven finance institutions, organisations working to tackle financial exclusion, civil society organisations and academics. We would welcome your involvement.
Get involved
Contact our job-share Heads of Movement Building and Campaigns to find out more.