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Branches must grow in deprived areas

Farepak’s collapse has generated a huge am-ount of publicity over the practices of the company, its directors and the effect on the people who lost out. But it also raises questions about the way the financial services sector serves people on low incomes.

The Farepak business model was simple enough. Customers would pay the company a certain sum each month and then, just in time for Christmas they would be issued with vouchers equivalent to the sums that had been saved. These vouchers could be redeemed at stores such as Argos and Woolworth. Clients could also buy food hampers.

It is estimated that the company had as many as 150,000 clients and that each has lost an average of £400. Some lost up to £2,000. For most people affected £400 represents a significant amount of money – an amount they could not afford to lose.

But what’s most depressing about the story is the popularity of such schemes. When I was a child growing up in an economically depressed area, the Christmas Club was an accepted part of life. Almost all local retailers offered such a facility, allowing people the chance to set aside a little each week for use at Christmas.

It’s hard to imagine, 30 years on, that such schemes are still popular. After all, we are supposed to be sophisticated, taking advantage of the competitive financial services market to get the best deals to ensure our money works as hard as we do to earn it.

But despite this, many continue to invest in zero-interest schemes unregulated by the Financial Services Authority. The defenders of such schemes point out that many of their clients find financial services hard to access.

For people on low incomes denied access to mainstream financial institutions, such arrangements are the only opportunity to set a little aside each month.

Research undertaken earlier this year by the University of Nottingham showed that most bank branch closures are in poor areas where such saving schemes prosper. For all the talk of telephone, internet and text message banking, the poorer you are, the more likely you are to use banks’ branches for your financial needs.

So forget going after the Farepak board, MPs would better serve the interests of the poor by looking at how banks can be encouraged to return branches to such areas.

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