Why ATM charges prove financial inclusion is out of fashion

Basic bank accounts were made available for the poorest in our society, so why slap charges on them, asks Faisel Rahman
Cash being withdrawn from a bank ATM or cash machine
Cash being withdrawn from a bank ATM or cash machine. Photograph: Graham Turner for the Guardian

The basic account was introduced by banks almost a decade ago after coming under pressure from the Labour government to give financially excluded people access to banking services. It is a no-frills account without overdraft facilities that allows people to have their wages paid into a bank account and to set up direct debits to pay bills.

The Treasury estimates that between 2002 and 2008, nearly half of the 2.2 million people without bank accounts in the UK signed up to opening one – the vast majority, to basic accounts. Of these, 1.1 million – more than half – were from the lowest income quintile.

The short-term financial benefits of having a basic account have turned out to be limited, as savings made by moving to electronic banking have been offset by penalty payment charges if a direct debit bounces or the account goes into the red – basic bank account customers are not able to negotiate an agreed overdraft. But the longer term benefits of improved financial stability, security, inclusion, convenience and greater financial savings are not in doubt.

Yet last month, the Royal Bank of Scotland (RBS) sent a letter to its "trusted partners" (community and housing organisations that help it to target people without bank accounts) detailing how it intends to charge basic account holders when they withdraw their money from an ATM owned by a rival bank.

Lloyds basic account holders will even find they are charged when they use an HBOS cash machine, although the company is owned by the Lloyds Banking Group.

The banks argue in their defence that they incur a charge (24p-75p) per cash withdrawal if basic account customers use a rival cash machine. While this charge is true for all accounts, RBS and Lloyds argue that the basic accounts do not make them enough money to cover these costs. It is estimated that 5 million people will be affected (80% of all basic bank account holders).

Credit unions too have introduced a fee-charging current account developed with the Co-op. They charge £1 a week to their clients to allow them to use the ATM network and access direct debits.

It is unclear if other banks and building societies will follow suit, but it seems as though there is a move towards fee-paying accounts by stealth. At the moment only poor people are paying, but bankers are suggesting that the recent Vickers report on reforming the way banks operate may signal the end of free banking for all.

It is all part of a general growing trend away from financial inclusion. Community organisations that work with banks to open savings accounts for poor people report that a tightening of identification requirements and conditions is making it harder to open new accounts, while financial inclusion and community banking teams in most banks have been either disbanded or merged into other departments; in addition, recent reports show that bank and building society branch closures are continuing apace.

The government is following this closure trend. The financial inclusion taskforce was appointed by Labour in 2005 to independently monitor progress against government financial inclusion targets and encourage bank involvement in key areas: reducing the number of people without a bank account, encouraging access to affordable credit and providing free advice. The taskforce also monitored the impact of the government's financial inclusion fund which was used to achieve these targets.

This year, the coalition government decided not to continue with the taskforce; it disbanded the team set up within government to oversee policy and axed the financial inclusion fund.

It was expecting that the private sector would help to address the issues that the taskforce dealt with, but it now seems clear that it will not, with a notable exception – a loan from Société Générale, BNP Paribas and Santander to Fair Finance earlier this year to roll out the organisation's east London operation in other deprived UK areas.

In February, the government and the banks signed the Merlin agreement to rebuild trust. Ministers promised not to impose more taxes on banks or to regulate their pay. In exchange, banks promised to support the economic recovery by lending to small businesses. The document acknowledges banks' wider economic and societal commitment – and the banking community has continued charitable giving – but the government has been unwilling to apply further pressure on financial inclusion.

We cannot stop banks charging what they want and, as they are not charities, they of course need to cover their costs. However, charging poor people to help rebuild their balance sheets seems like a bad choice. It is estimated that more than a million people are still without a bank account. Making it more expensive to have one will only add to this number.
