If you're poor, forget about bank accounts

Britain's financial pariahs: people on low incomes are being frozen out of the system by the high-street institutions

Down and out means out of the banking system, too. Despite fierce competition and hi-tech development after hi-tech development, the proportion of British households without a bank account remains stuck at one in five.

Getting a bank account involves a series of hurdles that people on the poverty line will struggle to clear. For a start, the banks will not touch anyone without a permanent address. "All the banks require a utilities bill," says Sally Stainton of the Big Issue magazine. "We tried, but failed, to get the Co-op Bank to provide accounts so that our vendors could bank their takings; they're incredibly vulnerable if they can't do this. In the end, we had to introduce a savings scheme ourselves."

It is not just homeless people who are shut out. A study published earlier this month by the Joseph Rowntree Foundation looked at what life is like for the 14 million people who have to survive on less than half the national average income. Not surprisingly, the study found that low-income households frequently fall behind with basic household bills. These arrears are logged by credit-reference agencies and so show up when a bank checks up on applicants. The most likely result is that the request is rejected. "It's very difficult to get an account if, say, you've got county court judgments for bad debts" says a spokesman for Midland.

Credit scoring, a system whereby you are allocated points for factors such as income and occupation, is another hurdle. Depending on your score, you will be offered an account with a debit and credit guarantee card; an account with neither of these handy bits of plastic; or no account at all. As a rule of thumb, the system means that the less likely you are to need access to credit, the more likely you are to be offered it.

Even people with an account can find that their bank's attitude turns sour if they suddenly lose income because, say, of redundancy or divorce. Research last year by the National Consumer Council found that "when the income switched off, the bank's service and politeness switched off too." Building societies were, however, rated much better by the low-income people interviewed for the study.

"The banks really aren't interested in people on low incomes, and many of their products are quite inappropriate to what people on low incomes need," claims Elaine Kempson, author of the Joseph Rowntree study and a senior Fellow at the Policy Studies Institute. In a 1994 report for the Social Security Advisory Committee, she recommended that the Government offer to pay unemployment and other benefits direct into basic banking accounts run by either supermarkets or the Post Office. As well as cash cards, these accounts would offer limited but cheap credit facilities. Tesco's Clubcard Plus, a new loyalty savings card, might seem to fit the bill for lower-income groups, offering 5 per cent interest (whatever your credit balance), a cheap overdraft facility and the ability to withdraw cash. The problem is, it is only available to people who already have bank accounts.

Getting a credit card or loan from a high-street lender is virtually impossible for those on low incomes - hence the healthy growth in profits at back-street money lenders. These people, most of whom operate legally, typically target people on benefit payments who already have debt problems, offering small cash loans at high interest rates. The annual cost of borrowing "ranges from 30 per cent to hundreds or even thousands of per cent in extreme cases", says Meg Van Rooyen of National Debtline, which offers debt counselling by phone (0121 359 8501). "Once people get trapped in the benefits cycle with heavy loan repayments, they can't get out of it" warns Ms Van Rooyen. She adds: "There's a huge gap in the amount of debt advice that's available." Without such advice, the risk is that people feel forced to use illegal loan sharks.

There are a few relatively cheap sources of credit for people on low incomes. Credit unions, for example, offer cheap loans to invited members who are willing to save a set amount each month. But most of the successful unions are run for people in a given occupation, such as taxi drivers, rather than for the jobless.

Finally, there is the problem of insurance. One in four households, for example, does not have any contents cover.

"In many ways, the people who don't have insurance need it more than most," says Ms Kempson. "They tend to be at great risk of being burgled because they live in poorer neighbourhoods. And if anything gets taken, it's probably an essential rather than a luxury."