Paula Clancy: Last December, TASC organised a seminar on financial exclusion. The day before, Sean Fitzpatrick resigned as chairman of Anglo Irish Bank following revelations that, over a period of eight years to 2007, he had temporarily transferred loans with Anglo Irish Bank to another bank. Earlier, it had emerged that Mr. Fitzpatrick and his fellow directors had been granted loans totalling €150 million by Anglo.
The banking crisis which erupted towards the end of last year not only highlighted the crucial role played by financial institutions, both as providers of credit and as investment vehicles. It also showcased the manner in which those at the top of Ireland’s money pyramid reaped rewards from the financial sector during the good times.
Yet while those at the top were enjoying easy access to credit, not to mention generous bonuses for those working in the financial sector, many of those at the bottom of Ireland’s money pyramid were struggling to survive without a transaction bank account, a savings product or access to revolving credit (such as a credit card or overdraft).
They are the ‘financially excluded’, dependent’ for credit on legal and illegal moneylenders (there are currently 52 licensed moneylenders in Ireland, 36 of whom operate ‘doorstep collection’ businesses) charging exorbitant rates of interest. Without access to a bank account, they may rely on cheque-cashing operations for access to cash – at a price. Typically, cheque-cashers charge a percentage of the cheque’s value in addition to a handling fee.
Financial exclusion is a highly lucrative business for some.
Even at the height of the Celtic Tiger, business was also booming for 21st century pawnbrokers. One such operation – a global business with franchise outlets in Ireland - advertises its business in the following terms:
“[...] we provide today’s consumers with a modern, clean, professional and convenient environment in which to sell used or unwanted goods for instant cash. We also offer a great place to shop for pre-owned bargains plus a range of financial services catering for all sectors of the population including [those] who do not have access to bank accounts or mainstream credit facilities.”
And there’s no shortage of customers who have no choice but to avail of their services.
According to the most recent figures, 12 per cent of the Irish population suffers from financial exclusion – the fourth highest level in the EU-15. Financial exclusion is defined by the European Commission as “a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs”.
Estimates of the number of Irish adults who are ‘unbanked’ (without access to any form of bank account, whether transaction or deposit) range from 10 to 19 per cent. While the unbanked may not be financially excluded, since they may have access to non-bank financial products, those who are financially excluded are almost always unbanked.
As the recession bites further, Ireland’s levels of financial exclusion are set to rise.
Research carried out by the Combat Poverty Agency prior to its amalgamation into the Office of Social Inclusion at the end of June has shown that income inadequacy is one of the primary factors factor driving financial exclusion, while research carried out on behalf of the European Commission has found that labour market changes are among the key causes of financial exclusion.
So what can be done?
We need to ensure that the current debate surrounding the role played by our banks also focuses on the banking needs of people living in poverty. In a welcome move, the bank recapitalisation scheme announced by the Government last December included a clause obliging banks to promote basic bank accounts to low-income groups. However, little progress has been made since and, apart from the fact that they will include cash cards free of stamp duty, the minimum features which will be offered by these accounts have yet to be defined, made public and debated.
In accordance with European best practice, the key features of a basic bank account should, in addition to a cash card, include the following: no minimum opening or monthly balance; free transactions, and flexible account opening requirements.
The obligation to provide a basic bank account should apply to all retail banks operating in Ireland, rather than only to those banks being recapitalised – which, in effect, will mean that the financially excluded will be limited in their choice of service provider.
In the short term, there is also an urgent need to ensure that measures taken address the economic crisis do not further exclude those at the bottom of the money pyramid. In this regard, the Government decision not to pay the Christmas Social Welfare bonus this year, which will increase the financial pressures on low income households, is likely to force families to resort to moneylenders in order to meet seasonal expenses during what is generally a bumper month for the moneylending industry. Likewise, the social welfare cuts recommended by An Bord Snip Nua, if implemented, will increase the risk of financial exclusion for many social welfare recipients.
In the longer term, the challenge is to ensure that reducing economic inequality in all its manifestations becomes a cornerstone of public policy.
Originally published as an opinion piece in the Irish Examiner, August 3rd
Dr Paula Clancy was founding director of TASC. She served in that position from 2001 to 2010 and returned to it for a brief period from 2014 to 2015. She is a member of the Board of TASC and is Chair of the TASC Research and Policy Committee. Prior to 2001, Paula held senior academic and management posts in third level education. Paula is author/co-author of a range of major research projects in the fields of political analysis and democratic accountability. She has authored a number of articles on the consequences of austerity in Ireland since the crisis.