Poor people who get access to credit pay the highest charges for it, says Treasury Select Committee chairman John McFall.
The MP says early action is needed to tackle high-cost credit and illegal lending if the government is to make serious progress in combating financial exclusion.
McFall’s warning comes after the publication of a committee report analysing the challenges of financial inclusion.
The report identifies priority areas for action in relation to credit, savings and financial advice which meets the needs of low-income consumers and is not linked to a sales process.
McFall says: “The committee concluded that poor people end up paying proportionally more for their money.
“This is something that has been highlighted throughout our inquiry.
“Many of the financial services that most people take for granted are either not available to many of the most vulnerable in our society, or are only available at a premium.
“The burden of debt blights the lives of far too many people in our society.”
The committee report identifies five key areas for priority Government action on credit markets to tackle financial exclusion.
They comprise of a clampdown on illegal money lending, increased competition in the home credit market, better data-sharing among and for lenders, new legislation to allow credit unions to diversify, raise capital and reduce their costs, and making the government’s own Social Fund a more effective lender.
McFall says: 0“In the last Parliament, in our work on credit cards, we highlighted the importance of data-sharing. I am disappointed that the government has not taken a clearer lead in this area.
“Our report highlights the importance of involvement in data sharing by housing associations and local authorities.
“It is now time for the government to knock heads together and ensure that real progress is made.”
He adds: “Credit unions have a crucial role to play in promoting financial inclusion, but some are prevented from expanding into areas such as insurance and mortgages and the provision of Child Trust Funds.
“An early government commitment to a new Credit Unions Act would help assure those in the third sector that there is public sector support for them to play a greater role in future.”
McFall also criticizes the market for not yet making sure cost-effective generic financial advice is available to all, and the problem of financial advice linked to the commission-driven model and the sales process.
He says: “There is a compelling need to develop a system for providing financial advice to those who need it most—those with little money, little or no savings and limited experience of financial products.
“In time, such people can become full players in the financial services markets and profitable customers, and it is in the interests of the financial services industry as well as the government that such generic financial advice is available.
“Progress on this issue under the Financial Services Authority’s leadership has not been as rapid as the issue warrants, and we call for the Treasury to assume lead responsibility for brokering an agreement on a national financial advice network.”