TIME FOR CHANGE?
THE BENEFITS OF A FAIR BANKING ACT

FAIR FOR YOU

The music fan in me is tempted to say that the release of The Clash’s eponymous debut album was the best thing to happen in 1977. But putting my professional hat on, I must note another significant release that year: the Community Reinvestment Act, by the US Congress. A near half-century later, this federal law has inspired a new campaign designed to improve financial inclusion in the UK.

Fair for You, the social lender I lead, is pleased to have added its signature to the Fair Banking for All Campaign, alongside credit union body ABCUL, CDFI network Responsible Finance and others. The coalition is calling for a Fair Banking Act, mirroring much of that US law.

This would respond to the financial exclusion with which CCTA members will be familiar. Right now, banks’ refusal to provide services such as loans, overdrafts or even basic bank accounts to customers it considers ‘high risk’ is driving people towards loan sharks and other hardships.

Public polling for this Campaign confirms that most Britons see this as unfair, and that the majority would support a law tackling this.

The Community Reinvestment Act compels American banks to invest in community, non-profit or good cause organisations, including affordable credit. Initially seen by the banks as a simple ‘regulatory must-do’, they have since realised that it provides various reputational, customer and financial benefits.

A Fair Banking Act would require mainstream banks in the UK to report on their performance on financial exclusion, through a transparent, publicly available, framework. It would institute a system for clear ratings, showing which banks are doing well and which need to improve on this front. Investment in affordable credit providers would be one way for it to improve these ratings.

The Campaign is pleased that it has already attracted interest from various politicians and representatives from the banking sector. Momentum is building.

If enacted, the legislation should create opportunities for some CCTA members, such as Fair for You, to receive investment from banks, or to partner with or launch joint ventures with them. It would also create changes in the credit market, altering the volume or profile of customers coming to CCTA members.

I am aware that some CCTA members will raise their eyebrows at these potential developments, and my door is very much open to anyone wanting to discuss this campaign, and why we are part of it. But I make no apology for our overarching mission of ensuring affordable, ethical credit is as widespread as possible. And ultimately, I hope that all CCTA members would agree that a diverse, thriving credit market in which there is a healthy mix of different providers is good for consumers, society as a whole, and the credit industry itself. And this is exactly what a Fair Banking Act hopes to encourage.