Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): Sam, thank you very much for joining us. If you are able and up for it, please give us a brief opening statement, and we will then ask you questions. Thanks very much for making some time for us.

Ms Sam Rex-Edwards (Finance Innovation Lab): Hello, everyone. Thank you for inviting me to meet you this afternoon. Thanks, too, to Charlie Fisher at Development Trusts NI (DTNI), who made the link for us. I could not join you in person — I am really sorry — so it has to be a Zoom call from north-east Wales. I job-share, with Kay Polley, the role of head of movement building and campaigns at the Finance Innovation Lab. The Finance Innovation Lab is a charity, and our work follows a vision of having a financial system that works for people and planet in that it is democratic, sustainable, just and resilient. We focus on two main areas of work: economic justice and environmental justice. Kay and I work on the economic justice side of things, and it is within that that we coordinate the Fair Banking for All campaign. The campaign has 32 member organisations, including DTNI, and we welcome the Irish League of Credit Unions, which sits alongside and takes an observer role as the campaign develops.

The campaign is focused on gaining a fair banking Act for the UK. We take inspiration from the Community Reinvestment Act that was implemented in the United States in 1977. I will outline the premise before explaining the key features of a fair banking Act. As others have illustrated in their submissions, there are many aspects to financial exclusion, and some of the ways in which it plays out are unique and particular to Northern Ireland. Lack of access to affordable, responsible and ethical credit is among the factors that give rise to financial vulnerability, and the proposal for a fair banking Act focuses on access to affordable credit.

Across the UK, the demand for affordable credit is significant and growing, and that is what we propose that a fair banking Act should focus on, at least to start with. The fair banking Act would apply to retail banking institutions with a banking licence in the UK, including challenger banks and building societies, and institutions would be categorised as large, medium or small, according to their UK asset size.

We propose that a fair banking Act would do three things. First, mainstream institutions would be required to disclose their performance on providing access to affordable credit. Secondly, there would be a system of clear and published ratings linked to that disclosure that show which institutions are doing well and which need to improve. Thirdly, mainstream institutions would be able to improve their rating by expanding their provision of affordable and ethical lending to underserved communities and by creating partnerships with purpose-driven, community-based banking institutions such as credit unions and community development financial institutions (CDFIs) so that they can expand and strengthen their services and support. The Financial Conduct Authority (FCA) would play a key role in that.

We are advocating that a fair banking Act should be a key feature of the Westminster Government's national financial inclusion strategy. I know that the make-up of that committee — representation from Northern Ireland and the devolved nations as a whole — is a live issue.

Last September, we published research on the potential impact of a fair banking Act in the UK. I am afraid that the figures are not broken down by nation or region, but, for the UK overall, it could mean that the credit union and CDFI lending sectors could increase their annual lending for individuals and businesses thirteenfold, from about £250 million to £3·3 billion annually, and, for SMEs, it could lead to an increase in turnover of £3·9 billion and create or maintain just under 10,000 jobs over five years.

There are a few ways in which a fair banking Act could be of use or applicable in Northern Ireland. Of course, as we know, the credit union sector here is different from that in Wales, Scotland and England. They are anchor institutions, and it is a sector that has a unique position, challenges and opportunities. Similarly, the picture around lending for social enterprises and SMEs differs too. Therefore, it would be sensible to assume that, should we be successful in achieving commitment from Westminster for a fair banking Act or similar, thought would need to be given to how it would operate appropriately in Northern Ireland.

I have probably said enough for now, so I will finish. I look forward to your questions. Thank you.

The Chairperson (Mr O'Toole): That is really helpful. Thank you very much, Sam. I will open it up for members' questions, and I will go first to Diane Forsythe.

Ms Forsythe: Thanks very much, Sam, for joining us today. We really appreciate your input.

You talked about the Fair Banking for All campaign. Have you done any work on the debanking of people due to their political or religious beliefs?

Ms Rex-Edwards: We have not. It is on our radar. When we first started to develop the proposal around the fair banking Act, we initially thought that it should include an element around service levels, whether that is access to cash, bank branch opening hours, bank branches themselves or accessibility. You could argue that debanking would potentially come under that kind of remit. We did a review of the policy proposal at the start of last year and took a step back from that service element. The basis for that is that initiatives and policies around banking hubs, access to cash and so on should be given a chance to work and to be fully implemented first, before they come under the remit of a fair banking Act; otherwise, it will be duplicating ongoing work. In effect, we have kind of boxed that service aspect off, which is why I said in my opening statement that, for now, it should focus on access to affordable credit. Affordable credit is one of the knottiest problems to solve when it comes to financial exclusion. I guess that a fair banking Act could provide an umbrella for all the good work that is already going on in that regard — that umbrella plus the push to move things forward. That is a long answer to your question. I see the debanking aspect coming in under that service element at a potential review point, if needed.

Ms Forsythe: Thank you. A concern that is raised with me as a political representative is that a bank can just take a view on that and write to you without speaking to you.

You spoke about the availability of credit. Have you looked at the impact of loan sharks, especially on regionalisation?

Ms Rex-Edwards: Yes, we looked at the impact of loan sharks. It is really difficult to quantify and get a solid figure on the number of people across the UK who are impacted on by loan-sharking. Figures vary depending on how research is constructed. The FCA's 'Financial Lives' survey, which came out at the end of last week, puts the number of folk who are impacted on by loan-sharking at maybe fewer than other research has found. However, what the FCA survey did find was that the number of people impacted on has increased over the past three years.

What we recognise in the policy proposal is that it can be complicated. It is not a straight path from being refused access to credit to then accessing a loan shark. There are many twists and turns within that. However, it is a problem that affects many hundreds of thousands if not millions of people. I understand that it has a particular nuance in Northern Ireland. Therefore, the proposal for a fair banking Act looks at strengthening the role of credit unions and other responsible alternative finance providers for them to be able to leapfrog the illegal moneylending sector. The research that we did found that the increase in lending that credit unions and CDFIs would be able to achieve with a fair banking Act would more than match the size of the illegal moneylending sector as it was at the time.

Ms Forsythe: Thank you. The numbers are difficult to capture in statistics, because people, for their own community reasons, are often not likely to come forward to say that they were subject to illegal lending. As you said, it is important to make it clear to people what is legal lending and what is available and to have fair banking and inclusion in the right way.

Thank you very much, Sam.

Miss Dolan: Thank you, Sam. You mentioned credit unions. Have you had much engagement with them, and did they give you feedback on this?

Ms Rex-Edwards: Yes. The Association of British Credit Unions Limited (ABCUL) is a member of the campaign, as is UK Credit Unions (UKCU). We speak relatively often to representatives of the Irish League of Credit Unions (ILCU). They come to our campaign meetings, and we have had in-depth conversations with them about how the fair banking Act could apply in Northern Ireland and the complexities that might arise for the credit union sector in Northern Ireland that might not be the same in England, Wales and Scotland.

Thinking about credit unions as — for want of a better term — beneficiaries of a fair banking Act, that would apply to the credit union sector in Northern Ireland in three ways in particular. For example, mainstream institutions could partner with credit unions on supporting their integration of digital infrastructure. They could invest in or support credit union service organisations, and, particularly importantly, as I understand it, for credit unions in Northern Ireland, there could be work on adjusting what credit unions are charged for accessing bank services. When we look at rating a banking institution on its performance on providing access to credit and supporting credit unions and CDFIs in the rest of the UK, we see that adjusting what credit unions are charged for accessing bank services is a key way in which mainstream institutions could work in partnership with credit unions in Northern Ireland.

One of the other discussion points to which we come back quite regularly with the Irish League of Credit Unions is the size of the credit union sector and individual credit unions in relation to the size of what would be obligated institutions under the Act. There is some concern and wariness about whether credit unions in Northern Ireland would come under the scope of "obligated institutions" because of their size, relative to the rest of the sector in the UK. The proposal is that the Act would categorise banking institutions by their asset size as large, medium or small. From my understanding, if you compare one of the larger credit unions in Northern Ireland with the smallest building society in the UK, which I understand is Penrith Building Society, you will find that even that smallest building society has larger assets. I am getting into a bit of detail about the discussions that we have had so far. The principle is that the greater number of obligations and expectations would be placed on larger-asset-size institutions, and that credit unions and CDFIs would be supported, so that the balance would be tipped a bit and there would be more of a level playing field for credit unions, CDFIs and, potentially, regional mutual banks, if they ever get started across the UK. That would mean that they are better able to meet the lending needs that they know are out there but which, for various reasons, and because of the various barriers that apply to those sectors, they cannot quite meet just yet.

Miss Dolan: Thank you very much, Sam.

The Chairperson (Mr O'Toole): Sam, what do you think of the view that the mutual bank model is less appropriate for Northern Ireland, in part because we have such a high take-up of credit unions? That is an argument that we have heard.

Ms Rex-Edwards: I cannot have a view on that. I referenced regional mutual banks because, as you know, there have been several attempts to establish them across the UK and because I know that there is a live discussion and effort on that in Northern Ireland. From the campaign's point of view, we look at the potential of regional mutual banks, particularly, on the SME lending side of things and as part of the wider mix of purpose-driven, ethical banking institutions across the UK. We should scale up that ecosystem. It has been proven elsewhere, including in Germany and Switzerland, that having a more diverse banking system not only meets more people's needs but, in times of economic stress, such as recession and so on, leads to a more resilient economy.

That is a long answer to your question. We consider the potential of regional mutual banks in that larger picture, but I do not feel confident or knowledgeable enough to make a call on how that relates to Northern Ireland.

The Chairperson (Mr O'Toole): OK, that is helpful. You mentioned the specific context here of the very high, certainly relative to GB, cut-through presence of credit unions. Does that mean that, in one particular part of provision, we are ahead of "across the water" — to use that term for GB — on financial inclusion, because of the greater presence of credit unions, or is that a simplistic way of looking at it?

Ms Rex-Edwards: From what I have read and what I understand, there is — it depends on whom you talk to — a perception that the credit union sector in Northern Ireland is strong and prolific, that they are anchor institutions and that awareness of credit unions in Northern Ireland is much greater than it is in the rest of the UK. Therefore, they are fine — on you go, crack on, financial inclusion solved. As I also understand it, there is a persistent issue with illegal moneylending, and there are a whole load of other financial exclusion issues. My understanding is that the credit union sector in Northern Ireland is having to battle the impact of wider financial exclusion issues such as bank branch closures, access to cash and so on. In a sense, they are themselves subject to experiencing financial exclusion, and that will impact on their members. There are a number of ways in which to look at it. I am also aware that credit unions in Northern Ireland have received much less financial grant support from the Government and other initiatives than those in Wales, Scotland and England. Again, that will impact on what they want to do and what they know needs to be done to meet the needs of their members and wider communities.

The Chairperson (Mr O'Toole): OK. How much involvement have you had in the UK Government's financial inclusion task force work? Would you like more involvement? I presume that you would.

Ms Rex-Edwards: Yes, more involvement is always welcome. A couple of members of the Fair Banking for All campaign sit on the access to credit subcommittee: Responsible Finance and ABCUL. The campaign has representation from that point of view. We asked to meet the access to credit subcommittee, and we heard earlier this week that we will be able to do that, which is really good news. We understand that, as part of wider proposals, the proposal for a fair banking Act will be put forward to that subcommittee. All the subcommittees and the overall committee feature a number of organisations that would be impacted on by a fair banking Act in different ways.

The Chairperson (Mr O'Toole): Do you have a sense yet of whether the Financial Inclusion Committee will recommend that there be a fair banking Act?

Ms Rex-Edwards: As you can imagine, it is really hard with any campaign to take an accurate sense of the political temperature in how a policy is being received. From what we hear, our understanding is that there is good knowledge of the proposal across Westminster. There is support from the Co-operative Party. We understand that the position of the Lib Dems is supportive. It helped that a documentary in March raised the issue of affordable credit, with a particularly Welsh focus. The fair banking Act was a key proposal in the documentary. Sometimes it feels as though the door is open and we just have to push it a bit more, and sometimes it feels as though there are many more barriers that we need to cross to get the legislation through.

The Chairperson (Mr O'Toole): That is useful.

No further members have indicated that they wish to ask a question. Sam, thank you very much. That has been useful. We will release you. Thank you for Zooming in from north Wales. I hope that it is sunny there.

Ms Rex-Edwards: It is.

The Chairperson (Mr O'Toole): It is always sunny in north Wales. We will have to visit. That is great. If members are content, we will include the Hansard report of Sam's evidence in our evidence base, and we will use that for the production of our final report. Thank you very much, Sam.

Ms Rex-Edwards: Thank you very much, everybody.