Putting bank lending under scrutiny

Later this month the Council of Mortgage Lenders and the British Bankers Association will publish the third tranche of quarterly lending data.  The information details the outstanding ‘stock’ of lending that has been committed to individuals and small businesses – by postcode – by the largest banks in the country.  The publication of the data is part of a voluntary agreement between the Government and the banks to increase transparency after a concerted campaign by the Community Investment Coalition and pressure from Labour’s Shadow Treasury Team.

There is an urgent need to increase the scrutiny of bank lending and the extent to which our high street banks are serving all the communities of Britain – especially given the considerable support that banks have received from tax payers over the last five years.  Transparency also offers the opportunity to deepen the understanding of market trends and refine products and services to better meet local needs and importantly give new market entrants the ability to identify unmet demand creating the diversity in the financial services market that we desperately need.

In the USA the Community Reinvestment Act and the Home Mortgage Disclosure Act (originally introduced in the mid-1970s and expanded under President Obama) mandate American banks to disclose what, where and how they lend down to postcode level.  Where they are not meeting the needs of communities they have a duty to change this or work with other lenders including credit unions and community banks to do so.  Some visiting experts in the American system told a House of Commons meeting last autumn that they believe these pieces of legislation have seen an additional $1trillion invested in deprived communities.

The voluntary framework for disclosure of bank lending now in place in Britain has been welcomed as an important first step but today I will be asking Ministers, in a debate in Parliament, to go further.  In particular, the Government needs to be more ambitious in getting other lenders to take part, including payday lenders, giving us a fuller picture of lending practises. They need to consider ways of reducing the inconsistency in the data currently provided by for example handing the process over to an independent body like the Office for National Statistics (ONS).  Maybe most importantly, the Government needs to ensure a thorough analysis of the data and then use it to inform their strategy to promote competition and increase diversity.

If the Government will not take these important next steps it will be down to the next Labour Government to do so which is the why the Co-operative Party will be championing an amendment on the subject at the National Policy Forum.  The release of banking data may not be the most headline grabbing policy issue of the day.  But it has the potential to make a significant contribution to tackling financial exclusion, generating more fairness in the provision of financial services, supporting the growth of the SME sector and benefiting consumers by opening the door to a more competitive market.

Andy Love is the Labour and Co-operative MP for Edmonton and a member of the Treasury Select Committee