Poorest borrowers 'need access to basic bank accounts'
Enabling people to pay off credit union loans direct from payroll, and access to basic bank accounts for the poorest borrowers, are among a series of recommendations contained in a new report on tackling financial exclusion.
The Carnegie UK Trust's Affordable Credit Working Group has called for a 'step-change' in Scotland's credit industry after its members spent a year analysing financial inequality in the country.
It found credit is the most expensive for those who can least afford it.
Jeremy Peat, co-chairman of the group, former chief economist of RBS and a visiting professor at the University of Strathclyde's International Public Policy Institute, said: 'Access to credit in Scotland is not a level playing field.While the regulation of payday loans has reduced the supply of expensive credit, it has done little to affect demand for short term borrowing amongst the poorest members of society or to stimulate alternative sources of supply of credit. A step-change is needed because that demand is not going away.'
The group called for high street banks to allow borrowers to access basic bank accounts via local credit unions or community development financial institutions, and for employers in Scotland to partner with credit unions to make repaying credit union loans via payroll a standard workplace benefit.
It also wants the Scottish Government to assign ministerial responsibility for financial inclusion, and more investment to be made in community finance initiatives.
Mr Peat said: 'Basic bank accounts offer people access to a mainstream financial product and build their level of financial inclusion. With nine mainstream banks now offering free basic bank accounts, we would like to see them all accept applications from local community finance organisations who have assessed the appropriateness of the applicant and verified their identification.'
He added: 'Enabling Scotland's poorest people to repay credit union loans via payroll will provide the structure and support required to help them access more affordable loan products and improve their financial position. It would also grow the membership base of credit unions, helping them to expand their loan book and become more competitive as credit providers to disadvantaged groups.'
Social Justice Secretary Alex Neil said: 'The Scottish Government welcomes the publication of the Carnegie report on affordable credit as we recognise financial inclusion and accessibility plays an important role in our efforts to reduce inequalities and create a fairer, more prosperous society. We want to ensure that people are able to borrow affordably and treated fairly, that they can access good financial and debt advice, that they have access to basic bank accounts, where appropriate, and are assisted with financial management. We are strongly supportive of community finance providers, and are already providing leadership in this area, including work to promote the credit union sector and grow their capacity in Scotland.'
Rev John Chalmers, principal clerk to the General Assembly of the Church of Scotland, has been appointed chairman of the new action group which will push forward the changes.