Banks and poverty: how to prevent the hellish cycle?

In partnership with other French organisations, Emmaus France has just published a manifesto for universal financial inclusion.

In September 2021, inflation observed since summer 2021 was eroding people’s purchasing power and led to fears of households’ financial situations worsening; with household finances already weakened by the COVID crisis. Spearheaded by Emmaus France, a collective of organisations has formulated 16 recommendations for better financial inclusion and improved access to vital payment methods and banking services, involving beneficiaries in the process.

We met Thibaut Largeron, the report coordinator for Emmaus. He explains to us the challenges involved and the proposals made.

 Why have you decided to tackle this issue in France?

In France, the Emmaus Movement is a financial inclusion pioneer. In 1967 via SOS Familles Emmaüs (SOS FE), we invented personal supported microcredit, a concept that would be taken up by the public authorities in the 2000s. Our strong point: offering these advances from Emmaus’ own funds and outside the traditional banking system, sometimes to people with zero repayment capacity for whom funding a project (buying a vehicle, for instance) will enable them to access employment!

Likewise, budgeting and debt issues are at the heart of SOS FE’s work: since these organisations were founded, our volunteers have been offering support and budget advice to households, just like the budget advice service set up by the State in 2018.

More generally, ethical finance issues are one of the Movement’s priorities, affect all of our beneficiaries, and are relevant at the international level too: access to banking services for the most vulnerable people, access to credit, savings schemes, etc. . Nowadays, the financialization of our society and the liberal capitalist system mean that the banks’ economic model is based on exploiting the most vulnerable people: people on low incomes are hit hard by bank penalty charges, and those who are digitally excluded have to pay charges for services that are free online…without even mentioning the banks’ investments in fossil fuels!

The Emmaus Movement in France, via the national organisation, is also a member of the Observatoire de l’inclusion bancaire (Monitoring Unit for Banking Inclusion), headed by the governor of the Banque de France, under the auspices of the Ministry of Finance. The unit brings together representatives of all the relevant stakeholders (public bodies, third-sector organisations, banks). It is the central body for measuring and fostering financial inclusion. It gives us a legitimate voice, and, above all, we are expected!

When we use the term “financial inclusion”, what are we actually talking about?

According to the World Bank, financial inclusion means that individuals and businesses have access to […] financial products and services – transactions, payments, savings, credit and insurance […]. Banks therefore play a pivotal role in this process, as financial inclusion does not just boil down to having access to a bank account, but more general use of banking products and services: savings, access to credit, account services, account fees and penalty charges, etc.

The Manifesto for Universal Financial Inclusion covers all of these highly varied topics. We want to enable access to payment methods for all, for instance for the Emmaus companions without leave to remain, or asylum seekers, who do not have access to cash in France. Like many Emmaus groups around the world, we want to foster access to credit for vulnerable people, so that they can access employment and be independent. We are taking action to pre-empt and avoid serious debt through budgeting workshops for young people and prison leavers, and we want to roll them out more widely.

Finally, we are calling for a reform of bank fees to make them fairer: how can we accept that bank penalty charges in France bring in over €6.7 billion for the banks, with an average profit margin of 86%, and all on the backs of the poorest people? SOS Familles Emmaüs see every day in their work how these penalty charges fuel the spiral of serious debt. Finally, the last part of the manifesto focuses on news relating to the Ukraine war.

 The SOS Familles Emmaüs concept only exists in France. Can the model be replicated?

Indeed, there are 62 SOS Familles Emmaüs today in France. Solely made up of volunteers, they cater for and provide a listening ear to anyone experiencing financial problems. Having assessed their situation, the SOS FE put forward solutions to balance their budgets, avoid serious debt, and leave behind their difficulties. The SOS FE offer bespoke, personalised solutions that best fit each person’s situation; it is really painstaking work! For instance, they may offer a reimbursable financial advance, funded by the work of a community or committee of friends in the local area; making for a real chain of Emmaus solidarity!

These budgeting and “making ends meet” issues affect all Europeans: the precarious nature of employment, benefits not being uprated, the cost of housing and transport…all combine to quickly plunge households into problem debt. Costs are rising – with an average 10.4% inflation in Europe (10.5% in the UK and 8.6% in Germany, for instance) – and debt is piling up, and many households are experiencing major financial problems.

Moreover, for many years, the share of “fixed costs” (owed by households contractually or via subscriptions) has continued to rise! The work of the SOS FE chimes with other local contexts, and could quite easily be tailored to them. Moreover, outside Europe other groups are offering financial advances for occupational activities – while this differs, the issues around support may be similar.

Is legislation the same across Europe?

In France, we are fortunate to have a large number of mechanisms that protect people who are financially vulnerable. Indeed, over the past decade and thanks to the efforts of anti-poverty and consumer protection associations, the legal framework has been added to and improved. Several laws and then decrees have put in place an overall cap on bank penalty charges for the most “vulnerable”. In 2006, the State created a personal supported microcredit service, enabling people unable to access traditional credit to fund the expenditure involved in getting back into work. The legal right to a bank account (notably for people without leave to remain) has been simplified, but it still needs improving. Since 2016, France has had a national strategy on economic, budgeting and financial education (EDUCFI). However, there is still a lot to be done or to be improved!

What is being done in France could inspire other European countries, just like we draw inspiration from Belgian “universal banking service” or “basic banking service” initiatives, which also exist in Portugal (Cuenta Serviços Mínimos Bancários). At the European level, Emmaus France has worked on the rollout of the new directive on consumer credit, which the European Commission is in the process of finalising.

So are there things to be done at the European level?

Totally! As I was saying, the first stage could involve exchanges of practices to share our issues and draw inspiration from each other. This could also be highly beneficial!

For a year, Emmaus France has also been taking part in the European “Financial Inclusion Europe” working group. This network of experts and academics is committed to solving financial exclusion by engaging with the EU institutions and raising their awareness, but also giving a voice to those affected. The EU may be the right level at which to achieve change! The new credit directive is a step in the right direction, i.e., protecting and informing consumers.

Resources

Manifesto for Universal Financial Inclusion
Comparative analysis of basic bank accounts in Europe (Financité research – Anne Fily)