Banks need to redeem themselves after contributing to the growth of the payday loan market, according to the head of a leading consumer charity.
Gillian Guy, the chief executive of Citizens Advice, said that banks needed to find low-interest solutions for struggling customers, who have had little choice but to turn towards high-cost loans in emergencies.
Banks have left the neediest with no better alternatives than expensive payday loans, which are continuing to fill an obvious gap in the market, she said.
And the switch to the monthly benefit system of Universal Credit could create a new series of cash-flow problems, pushing more people who rely on benefits into potential debt spirals.
But stemming the availability of credit could prove more damaging by pushing people towards more desperate alternatives, she said.
Instead, it is down to banks to restore their social usefulness and offer lower-cost alternatives.
While banks fear “reputational damage” for offering short-term loans, Guy called for a “responsible high-street challenger to the payday lending market.”
She also called upon taxpayer-supported banks to “recognise their public responsibility”.
“Banks risk becoming the dinosaurs of financial services”, she said in a statement.
“They can step up to the plate by offering responsible short-term loans that can be spread across a person's bank account so they can pay an urgent bill and still feed their family without being sent into a spiral of debt.”
Improvements to Retail Banking
The issue of low-cost loans is likely to feature when a comprehensive Consumer Panel convenes for its first meeting in the coming weeks to improve services in the retail banking sector.
The panel, assembled by the British Bankers Association (BBA) and to be chaired by Gillian Guy, is to discuss areas of high street banking which need to be changed for the benefit of consumers.
The BBA said that issues such as savings rate disclosures had already been raised, and that a taskforce of senior bankers, the Service Improvement Group, would be tasked with putting the agreed changes into action.
"This is a big step towards improving people's everyday experiences of the banking sector,” Gillian Guy said.
“Members of the panel will be able to bring the problems they see on the ground right to the heart of Britain's biggest banks.
“There will be some hard truths but also I hope some imagination, invention and collaboration to make banking work better for customers.”
Keith McDonald
Which4U Editor
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