Community Reinvestment Disclosure (Hansard, 15 July 1998)

§ Mr. Tony Colman (Putney)

I beg to move, That leave be given to bring in a Bill to require financial institutions to maintain and to publish details of their lending and financial services to individuals, businesses and organisations by postcode; to ensure that redlining of neighbourhoods does not take place; and to ensure that regeneration objectives are met through a public-private partnership of the financial institutions together with central and local government. In seeking support for the Bill, I have spoken to several financial institutions, including banks, the Bank of England and the Financial Services Authority. I pay tribute to the research and advocacy of the New Economics Foundation and its executive directive, Ed Mayo. I pay particular tribute to the inspirational leadership of the Citizen's bank in New England in the United States, by Larry Fish and Scott Kisting, who first drew my attention to the great opportunities that lie in community reinvestment disclosure. None the less, I must make it clear that the views that I now express are mine alone.

I believe that there is a real economic injustice in the United Kingdom at the moment, whereby, simply because of where they live and work, individuals, businesses and organisations cannot access credit or other financial services.

The evidence is patchy and anecdotal, but the Office of Fair Trading review of financial services for vulnerable consumers, due in the autumn, will add to our knowledge of the problem. Individual financial institutions have told me about other financial institutions "red-lining". Nobody knows the full situation, only that it exists. That is why I am bringing forward my proposal for disclosure.

The concept of the Bill is built on the success in the United States of the Community Reinvestment Act and the associated Home Mortgage Disclosure Act. The United States Treasury estimates that, because of those two Acts, US retail banks have committed about $300 billion to low or moderate-income neighbourhoods, and discovered that such lending can be profitable.

Those two Acts have within them the sanction of withdrawal of the US banking charter should the American regulator not be satisfied with the performance of individual banks in fulfilling the requirements of the Acts. I do not propose such a power for any regulator in the United Kingdom. However, my research leads me to believe that banks and financial institutions want a legal framework to require them to disclose any red-lining—that is, any areas where they have chosen not to offer loans and other financial instruments. I envisage self-certification with a light touch of regulation or investigation by the FSA on an exception basis.

There are practical options for developing disclosure so that it is affordable—for example, by covering only a selected range of key financial products—and appropriate, which may mean, for example, enabling creative and responsible partnerships to emerge, which can promote reinvestment and regeneration. It should also be fair, and apply on a self-certification basis to all relevant financial institutions.

Like the American Act, the Bill proposes that any lending or other financial instruments so offered be "within prudential requirements". I do not suggest that 428 those who cannot afford it be given such credit. We are talking about under-served markets. We are not asking banks to act as charities, simply not to discriminate in their activity as banks.

My concern is to ensure that people who can afford credit are not deemed unworthy simply because of where they live. The closure of bank branches has been justified on the basis of cost and the alternative availability of telephone banking, but that has meant that people in disadvantaged neighbourhoods have lost their local knowledgeable managers, who knew to whom to give credit. Instead, they have been given, in telephone banking, a system whose first question is, "What is your address and postcode?" If people answer that question "wrongly", the conversation is terminated, whatever their financial situation may be. I believe that credit scoring by area is also rife in banking circles.

I know the difficulty that people in my constituency have in obtaining a mortgage on former council properties in certain areas. Over the past 10 years, the proportion of low-income households in the United Kingdom able to obtain home contents insurance has dropped from 70 to 40 per cent.

However, if we scratch the surface of any low-income community in the United Kingdom, we find a surprising level of economic activity. Low-income households patch together income from a variety of sources. They can make good use of credit and financial services. Indeed, there is increasing evidence from groups such as the New Economics Foundation that low-income communities have demonstrated the capacity to create jobs and economic activity. The withdrawal of financial services is therefore detrimental to all the efforts of the Government, as well as of the people themselves, to promote economic opportunity for employment and regeneration.

Excellent models exist of community finance initiatives, ranging from credit unions to community loan funds, operating in low-income areas. Yet, even with regulatory change, those are small in relation to the need, and, in any case, can often develop only in partnership with outside financiers. The Bill would improve the prospect of that happening, to the benefit of the people whom such initiatives serve.

I do not know the full extent of red-lining in the United Kingdom. I believe that it is in the interests of the United Kingdom economy that we should know. There is a commitment to private-public partnerships to regenerate disadvantaged areas. Here is a way in which banks and financial institutions can play their part in ensuring that regeneration takes place, and is not held up because of a flaw in the market availability of credit and financial instruments.

Yesterday, my right hon. Friend the Chancellor of the Exchequer announced the £800 million new deal for communities. As part of the public-private partnership for those communities, I hope that the Bill will go forward with the support of the banks and financial institutions of the UK. At this point in the parliamentary Session, a miracle would be needed for the Bill to be passed into law. I hope that the considerable support that the Bill has could lead to the Government taking the matter forward. If not, I will be back next Session.

I commend the Bill to the House.