PUBLIC POLICIES FOR

BANKING INCLUSION

AND OVERINDEBTED-

NESS PREVENTION

Communication to the Finance Committee of the Senate

June 2017

3

Summary

In France, the process of increasing access to banking services has been at work for

some forty years and has made banking services an essential part of integrating

individuals into society. Starting in the 1980s, the increased use of cheques and

bank transfers for payments of wages and social security benefits made having a

bank account essential to participate in economic and social life.

This drove the public authorities to take measures to improve access to a bank

account and means of payment for customers considered by financial institutions

to be the least profitable. These measures have grown since the end of the 1990s,

reflecting the public authorities’ will to require the banking sector to help achieve

an objective of social integration.

The definition of banking inclusion applied in this present report is the definition

adopted by the French observatory for banking inclusion (OIB)

1

: “

Banking inclu-

sion contributes to the process of inclusion in economic and social life. It provides

individuals with long-term access to banking products and services adapted to

their non-professional needs for their personal use

”

2

.

Banking inclusion therefore aims not only to enable access to an account and

means of payment adapted to the needs of individuals, but also to prevent

their possible misuse. To that end, it also covers public policies to regulate the

distribution of consumer credit and support financially vulnerable individuals in

order to better prevent overindebtedness or limit its consequences.

An expanded legal arsenal to guarantee everyone’s access to a bank

account and suitable means of payment

Significant efforts have been made in recent years to strengthen the

effectiveness of legal measures in support of banking inclusion. These efforts

include the multi-year poverty and social inclusion programme of 21 January

2013, which includes a specific component devoted to this theme, and the law

of 26 July 2013 on the separation and regulation of banking activities, which

ontains several provisions translating measures announced in this programme.

1

The OIB was created by the law of 26 July 2013.

2

See the OIB’s 2015 annual report (released in October 2016).

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Summary

Today, the public policies for banking inclusion are based on many varied tools.

The main ones are:

- the “right to a bank account” procedure, which must provide access for all to a

bank account with free basic banking services;

- the offering of specific banking services, which aims to combat the accumulation

of bank charges for customers in a precarious financial situation by, for example,

placing limits on payment incident charges;

- the banking accessibility mission, a public service mission entrusted to La

Banque Postale, which seeks to use Livret A accounts to provide access to a

bank account substitute without any means of payments but permitting cash

withdrawals from very small amounts as well as certain transfer and debit

transactions.

These various measures, which compare favourably with measures existing in

other European countries, guarantee a high level of banking inclusion in France

(banking service access rate above 96%).

Room for improvement in implementing legal measures

supporting banking inclusion

Today, the issue is less about supplementing the existing measures than

improving their conditions of implementation and ensuring the overall

consistency of the banking inclusion policy in order to have instruments that are

flexible and effective enough to meet the variety of expressed needs.

The current measures are juxtaposed with one another, without any

clear hierarchy, and partly overlap. The result is a lack of clarity for those

directly concerned, for the volunteers and social action professionals who

support them, and for the credit institutions responsible for implementing these

measures. The unsuitability of the services offered in response to the needs also

constitutes a risk for the banking inclusion policy.

The right to a bank account: a limited number of beneficiaries, an inherently

complex procedure

The right to a bank account now allows anyone who does not have a deposit

account and has been refused an account by a bank to have Banque de France

appoint an institution that will be required to open an account and provide a

number of “basic” banking services free of charge

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. The right to a bank account

is aimed at individuals and legal entities domiciled in France (without any condition

of nationality) as well as French nationals residing abroad.

3

These services include account opening, account keeping, payments by bank transfer and

direct debit, and a payment card requiring the bank’s authorisation for each use. These services

do not include overdraft facilities or chequebooks.

5

Summary

While this measure, created in 1984, is seeing growing use, its implementation

concerns only a relatively small fraction of the population. In 2015, there were only

143,478 active accounts opened under the “right to a bank account” procedure.

This residual character of the “right to a bank account” procedure is consistent

with the high rate of access to banking services in France. However, it is also

partly due to the fact that this procedure is still complicated and long for

applicants. Progress in overseeing the measure could be made to improve the

current situation, where Banque de France appoints credit institutions to open a

bank account but is not informed of what happens after these appointments (an

account is actually opened, the opening of an account is refused, or no account

is opened due to the person’s failure to visit the bank branch). However, what is

important for the applicant is less the appointment of a bank than the practical

consequences of this appointment: the actual opening of an account.

Specific banking service offering: beneficiaries still modest in number, room for

manoeuvre to improve its distribution

The act of 26 July 2013 requires credit institutions to propose to individuals in

a precarious financial situation a specific offering that includes banking services

very similar in content to basic banking services for a fee of no more than €3 per

month and a limit on fees charged to the customer in the event of a payment

incident.

Up until now, few people have taken advantage of this offering

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because of its

recent implementation within credit institutions, but probably also because of the

very nature of the services available (in particular, the lack of a chequebook and

often a ban on overdraft facilities). While it is still early to draw firm conclusions

regarding the future development of this offering, there is room for manoeuvre

to improve its distribution: on the one hand, the banking networks could be

more active in proposing this offering to their customers in a precarious financial

situation, and, on the other hand, the specific offering could benefit from a better

relay within key players in social work, as they can raise awareness among the

vulnerable customers they support.

La Banque Postale’s banking accessibility mission: a long-standing measure with

benefits that are uncertain today in terms of access to banking services

Unlike other collection networks, La Banque Postale is obliged to open a Livret A

account for anyone who requests one, including access to a number of features

allowing it to be used like a quasi-current account (cash withdrawals and depo-

sits starting from €1.50, possibility of direct deposits of social security benefits

and direct debits of certain taxes as well as rents payable to low-income housing

organisations, etc.) with free and unlimited access. For this public service mis-

sion, La Banque Postale receives financial compensation (€225 million in 2016).

The amount of this compensation represents a significant financial stake for it.

4

As of 31 December 2015, only 244,979 customers identified as financially vulnerable out of a

total of around 3 million have taken advantage of this measure.

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Summary

Use of the Livret A as a bank account substitute is concentrated on approxi-

mately two million holders, who use their Livret A accounts to make numerous

transfers and debits and many cash withdrawals and deposits at La Banque

Postale branches. Yet, among these very active users of the Livret A, a large

number of customers already have an account and means of payment. These

users are therefore not the core target of the mission, although it is likely that

the most modest of them will encounter cash flow difficulties forcing them to

rely on the Livret A account to cope with them (bearing no cost in the event of

payment incidents).

For these vulnerable or precarious customers, La Banque Postale also serves

a social support function via its branches. However, this function goes beyond

the scope of the banking accessibility mission in the strict sense, since it tar-

gets Livret A account holders as well as postal current account holders, who

also make significant use of La Banque Postale branches for cash withdrawals

or deposits. Based on this finding, better knowledge of the profiles of La Banque

Postale’s customers and their needs is necessary, as no typological study has

been conducted to date. The results of such a study would make it possible to

consider, as part of the mission reform expected for 2020, refocusing the “Livret

A tool” on its role of introduction of access to banking services and redefining

the banking accessibility mission around the needs observed in the field.

The need to better ensure consistency among the various legal

measures

The objectives assigned to each of the tools of the banking inclusion policy need

to be clarified. The option favoured by the Cour des comptes is to affirm the

primacy of the right to a bank account in order to gain access to a bank account

and suitable means of payment. Compared with basic banking services, asso-

ciated with the right to a bank account, and the specific banking service offering

intended for vulnerable customers, the Livret A account has limited features and

does not provide access to any means of payment other than cash.

Nevertheless, it seems wise to maintain a mission of introduction of access to

banking services based on the Livret A refocused on its core target alongside

a “right to a bank account”, which should be improved in its functioning. This

change would mean, in the future, an ability to use La Banque Postale’s Livret A

as a quasi-current account only for new customers who are temporarily unable

to have a current account, including by applying the “right to a bank account”

procedure (for example, migrants who do not have the required supporting

documents). However, La Banque Postale’s would continue to have the obligation

to open a Livret A for anyone person who requests it for saving purposes.

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Summary

In view of the typological study of customers, the first step could also be supplemented

by a process of reducing the stock of current beneficiaries of the mission, who use

their Livret A accounts as a quasi-current account although they have a bank account

elsewhere. This process could involve proposing to these users the specific offering,

which is destined to become more widespread and seems more suited to their needs.

Lastly, discussions should be initiated for a broader redefinition of the banking

accessibility mission, regardless of the “Livret A tool”. These discussions should

determine, on the basis of a study of the characteristics and needs of La Banque

Postale’s customers making heavy use of the branches, whether free access

to a financial branch, to carry out a number of transactions, could be akin to a

public service mission, particularly on certain territories, such as the new priority

neighbourhoods in the city’s policy or certain rural areas where there is little or no

competing offering.

Preventing overindebtedness: progress to be continued

The aim of public policies for banking inclusion is not only to permit access to

an account and means of payment suitable for the needs of individuals, but also

to prevent certain excesses likely to lead consumers to a situation of financial or

social exclusion.

Improvement of conditions on the consumer credit market and a sharp decline

in the number of cases of overindebtedness over the past five years

Several reforms have been made in recent years to restrict the distribution of

consumer credit and contain the risks of overindebtedness related to overly easy

access to credit. These measures have helped to improve the revolving credit

market. Since 2012, there has been a downturn in the number of new cases of

overindebtedness filed, coupled with a sharp decline in the share of consumer

credit, and especially revolving credit, in these cases. This downturn would seem

to indicate the tangible impact of tighter consumer lending conditions on ove-

rindebtedness and therefore the effectiveness of public action in this area.

A persistently high number of cases of overindebtedness involving a great deal

of consumer credit

Despite this downturn, the number of consumer credits per case remains high.

In 2015, new admissible cases of overindebtedness with four consumer credits

or more still represented nearly 40 per cent of total admissible cases and nearly

70 per cent of the total outstanding consumer debt of these cases.

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Summary

Without denying the impact of “misfortunes”, such as job loss, divorce,

death, illness, or an accident, on the process leading to overindebtedness, the

examination of overindebtedness cases by the Cour des comptes showed that

a significant proportion of them still reflects reckless consumption behaviours,

leading to an accumulation of credit ultimately making overindebtedness

inevitable in the event of the slightest “misfortune”.

The recent reforms therefore have not succeeded in preventing certain segments

of the population from taking on “too much credit”. There are still shortcomings in

the analysis of borrower creditworthiness, and only broader knowledge(covering all

consumer credit obtained) of the financial situation of potential borrowers would

help to stem this phenomenon.

Avoiding the phenomena of consumer credit accumulation: an ever-present

need

The strong negative externalities associated with overindebtedness, whether

in terms of social exclusion for those concerned and the cost of the procedure

for the community (cost, for public finances, of handling overindebtedness by

Banque de France but also of cancelled debts), justify going further to stop

“too much” credit from being granted, along the lines of what is done in other

European countries.

Faced with the phenomenon of accumulation of credit obtained from different

lenders, made possible by each lender’s unawareness of the applicant’s actual

level of indebtedness, the creation of a shared register continues to be the best

solution for stronger analysis of borrower creditworthiness. However, the scope of

such a register providing alerts when multiple consumer credits are held should be

refocused to comply with the requirements expressed by the Constitutional Council.

Otherwise, the introduction of an obligation for borrowers to provide the lender with

their last three bank account statements should be considered. Nevertheless, this

alternative option has disadvantages, particularly at the point of sale, especially

in terms of access to the required documents and confidentiality.

Support efforts to be continued

The efforts made since the adoption of the multi-year poverty and social integration

programme to improve or supplement the public measures for banking inclusion

have gone hand in hand with the development of an approach that is both pre-

ventive and curative to support segments of the population. Implemented by public

authorities and key players in social work, but also by credit institutions, these support

actions cover a wide range of methods of intervention, from budgeting advice to early

detection of individuals in a precarious financial situation as well as credit support

and financial education.

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Summary

Banking inclusion and overindebtedness prevention charte

r

While many credit institutions have seized the opportunity of the entry into force

of the AFECEI’s

banking inclusion and overindebtedness prevention charter to

put in place or strengthen mechanisms for early detection of customers in a preca-

rious financial situation, the methods of monitoring vulnerable customers after

this detection phase appear to be mixed and, for some, just getting started. It is

therefore too early to measure the impact, in terms of prevention of overindeb-

tedness, of implementing this charter, which also runs up against two inherent

difficulties: the complexity of identifying potential financial vulnerabilities and

the need for a strong commitment to the approach by the customer, which is far

from always being achieved.

Current initiatives in financial advice, information, and education

It is still early for a definitive assessment of the experiments with the budget

advice centres (PCB), recently launched to reinforce the budget advice provided

to the public and financial mediation for people experiencing difficulties. Never-

theless, it seems that there is really no room for a debt mediation procedure

with creditors, particularly banks, in advance of the overindebtedness procedure,

beyond the limited action already taken by the French federation of CRESUS

associations. It therefore seems appropriate to refocus the mission of the bud-

get advice centres on budget advice and support, access to rights, and support

for overindebted individuals. In the longer term, preventing overindebtedness

also requires better financial education for households, a mission entrusted

to Banque de France, among others, as part of the recently adopted national

financial education strategy.

Supervised personal microloans, a useful alternative to consumer credit but

limited in its development

While supervised personal microloans have demonstrated their usefulness

for segments of the population excluded from consumer credit, the cost of

setting them up and supervising them makes their rapid, continuous growth

in the coming years unlikely. However, there are areas for improvement that

could expand and facilitate the distribution of microloans that are worth exa-

mining (increased training for supporting networks, stronger ties between

microlending platforms and budget advice centres, experiments aimed at

reaching out to new segments of the population not identified by charities,

relaxed criteria regarding the purpose of the loan within the framework of

the guarantees granted by the social cohesion fund, etc.).

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Recommendations

Right to a bank account

1. enhance the monitoring of appointments made with respect to the right to

a bank account to ensure that this right is exercised effectively and promptly

(Banque de France);

2. put in place a process to eliminate paper in exchanges between Banque de

France and credit institutions within the framework of the right to a bank ac-

count (Banque de France);

3.  step up the actions intended to raise awareness of key players in social

work and associations on the “right to a bank account” procedure (Banque de

France, ministry of health and solidarity).

La Banque Postale’s banking accessibility mission

4.  initiate a study on the characteristics and needs of La Banque Postale’s

customers who make extensive use of the Livret A and the branch (ministry of

the economy);

5.  start thinking about changes to the content of the banking accessibility

mission in the light of the identified needs regarding access to a financial

branch (ministry of the economy);

6. enforce the restrictive rules regarding direct deposits of bank transfers into

Livret A accounts more rigorously (La Banque Postale);

7. permit the use of La Banque Postale’s Livret A accounts, in the future, as

quasi-current accounts only for new customers who have no bank account

(ministry of the economy, La Banque Postale).

Preventing overindebtedness

8. evaluate the overall costs of overindebtedness (Banque de France, ministry

of the economy);

9.  put in place a register providing alerts on consumer credit according to

terms that comply with the requirements expressed by the Constitutional

Council (ministry of the economy);

10.  focus the mission of the budget advice centres on budget advice and

support, access to rights, and support for overindebted people (ministry of

solidarity and health).