Could Consumer Duty help release savings that are strangled with red tape?
In an earlier article I talked about Consumer Duty, the FCA’s new requirements for financial services firms to work in the best interests of their customers.
There are clear benefits for consumers and I welcome the opportunities it brings for improving financial inclusion and growing trust.
Yet there is one group of vulnerable customers for whom Government legislation that’s actually intended to protect them, is currently a stumbling block that acts against their best interests. I’d argue that it is also diametrically opposed to what Consumer Duty is trying to do.
Under the current terms of the Mental Capacity Act (MCA), young people who are not able to manage their own finances cannot access the relatively small balances of their child trust funds (CTFs) without an application to the Court of Protection.
This is a daunting and potentially expensive legal process that, according to the disability charities that we’ve spoken to, has led families to simply abandon their children’s savings.
Many of these young people have degenerative conditions and the money that is trapped in their CTFs could purchase an important piece of life-improving equipment. The average account holds just £2,000, so it’s not a vast sum, but to the families it can make the difference between buying an essential piece of kit to support their child’s accessibility or for them to have to struggle without it.
"To families, it can make the difference between buying an essential piece of kit to support their child’s accessibility or for them to have to struggle without it"
The MCA is absolutely the right route for situations where large balances or property are involved, for example where an older person has lost their capacity. You can see the obvious benefits here.
However, if a CTF balance of just £2,000 is the only asset held, it really doesn’t feel like this is acting in the customer’s best interests.
In these instances, the MCA prevents firms from applying the basic tenets of Consumer Duty by insisting that legal process has priority over what’s best for the customer. In my opinion, the customer is not being put first - it’s all about the red tape, which is currently strangling the savings of these young people.
This isn’t a small problem either.
Over six million CTFs were opened between 2005 and 2011 – every child in the UK had one. It’s difficult to know exactly how many of these children lack capacity, but there are estimations that there could be between 200,000 to 250,000 young people affected.
Approximately 20,000 of these accounts have been maturing every year since 2020 and just a handful of families have found their way through the Court of Protection process.
"In my opinion, the customer is not being put first – it’s all about the red tape, which is currently strangling the savings of these young people"
When you position this problem against the backdrop of the cost-of-living crisis – can we really say that it is fair for families to be forced to battle their way through a legal process for these small sums?
Whilst costs associated with Court of Protection applications may be waived, there are other associated fees such as practitioner fees for completing medical documents or the possibility of needing to pay for deputy fees each year or perhaps a surety bond.
These fees are confusing and worrying for families.
One father told us that his GP had said they would charge £255 to complete the forms.
And a mother we spoke to said she was at the end of her tether when she discovered that she might have to pay around £600 for a Power of Attorney before she could access her daughter’s £750 CTF. She couldn’t understand why, after a PIP assessment, she could receive her child’s allowances but wasn’t allowed to withdraw her savings – which had also been given to her by the Government. She said it made no sense – and she was right.
After much campaigning by OneFamily, charities and other CTF providers, the Ministry of Justice (MoJ) launched its Small Payments Consultation in November 2021 – with the intention that it would look at the issues faced by these families.
The proposed scheme aimed to simplify the process and help young people who lack mental capacity to access their savings accounts when the value is small – typically below £2,500.
Sadly, after a significant delay the MoJ rejected the Small Payments Scheme early in March (16 months later) with vague promises that improvements would be made to the Court of Protection process.
It was an extremely disappointing result, especially since 87% of the respondents to the consultation had said that they felt the proposed scheme would have had a positive effect on those without mental capacity.
I think this outcome is short-sighted.
"A minor change in legislation could be an easy win for the Government, which would be costless to the taxpayer"
A minor change in legislation that would cover just CTFs could release balances totalling approximately £400 million to 200,000 of this country’s most vulnerable people during the cost-of-living crisis.
It’s an easy win for the Government, which would be costless to the taxpayer.
We’re now more than two years on from the first CTF maturities and all we have is the hope that the Court of Protection’s measures to improve its user experience will be effective and swiftly implemented to avoid further delay.
But perhaps this is where Consumer Duty could help, since I believe that the current hurdles that these young adults face in trying to get hold of their own money are not in the spirit of the FCA’s intention that the best possible outcomes are found for all customers. Maybe this is the challenge we should make in our continued campaign for fairness.
These teens absolutely deserve to be able to access their own savings when they want them, just like any other young person.
Teddy is a strong supporter of diversity, inclusion and equality. A passionate believer in social mobility and financial inclusion; he is using his position as CEO of OneFamily to help the young, the disadvantaged and the marginalised to reach beyond their expectations. His view is that everyone in society should have the same opportunities to access financial products – regardless of their wealth.
You may also be interested in:
Doing what’s right
Having been seen as unfashionably cause-led in financial circles during the last couple of decades, those of us working in mutuals are suddenly seeing a shift in people’s attitudes back to our core values.
Government responds to child trust fund improved access campaign
We’ve been campaigning since 2020 for a change in law that will make it easier for child trust fund holders who don’t have mental capacity to access their own money.
How we’re helping disabled teens access their child trust funds
We're campaigning for teens with limited mental capacity to be able to access the money in their child trust funds more easily.
Boldness, creativity and a mutual mindset – the driving force that’s needed right now
Mutuals were the original crowd-funders – helping members provide for the future, regardless of their financial position.