Opening the lid on jam-jar banking

Registered providers needn’t reinvent the wheel. There are a number of products and services already on the market that can help tenants to budget and promote rents getting paid on time. David Hall, senior associate at Anthony Collins Solicitors examines what to ask for from a Financial Services Provider (FSP) tender or contract.

While housing benefit is currently paid directly to the landlord by the local authority to cover rent payments, benefits-supported tenants will soon be expected to manage their own income and expenditure through Universal Credit.  Tenants will receive a single, monthly benefits payment and will have to pay rent and their other bills out of it.

Some benefits-supported tenants may find changes to their financial routine particularly challenging to manage. Those with debt problems, poor numeracy skills, learning difficulties, older people or substance abusers may not be ready to budget for themselves when the scheme comes in to play, resulting in late or non-payments of rent as well as other important bills.

To avoid a situation where rents are not being paid, many social landlords are working with FSPs to give tenants access to ‘jam jar’ bank accounts.  These are designed to be particularly user-friendly for people who have never used a bank account, and to allow clients to set up direct debits and standing orders for regular outgoings while splitting the remaining funds between pots or ‘jars’.

It is in the best interest of the housing association to have tenants set up with a jam jar account to help ensure that rent is paid on time. When looking for an FSP partner, there are a number of criteria to look for to ensure that the product selected for tenants’ use benefits all parties.

First of all, it is important to procure a product that tenants will see the value in and be happy to use. Ease of use is one of the first things to examine. While a high percentage of users in younger age groups will have access to the internet and feel comfortable using this function to manage their finances, this will not apply to all tenants. Landlords should look for an account provider that offers telephone and SMS banking and support, too. Providing multiple access points promotes active financial management by making tenants’ funds more visible.

The set up of the account is also particularly significant. Landlords should make sure that the account is flexible and can include enough jars to support a wide range of lifestyles and habits of bill paying, necessary purchases and savings. Basic accounts are structured with a minimum of two pots – bills and spending. Additional functions to encourage saving can be built in to the account where any money left in the ‘spending’ jar is automatically swept into a savings pot at the end of the month. Users should be able to opt in to this kind of service but landlords should use the procurement process to investigate the options available in order to obtain the most desirable products and get buy-in from tenants.

Consider doing some testing, drawing on your existing tenant engagement arrangements, and maybe even build that into your tendered requirements for your chosen FSP to meet.

Your interest in how much tenants like the jam jar facilities that you offer to them might depend on your level of commitment to a financial inclusion strategy.  Whatever your corporate views on that score, and even if you find a jam jar account that is liked by tenants, you are likely to need to offer incentives to get the most disinterested customers on board.  You are also likely to want to give at least equal priority to your business objective: you need jam jar accounts so the rent gets paid. Many FSPs have not yet latched on to this!

There are FSPs and jam jar solutions available that make rent payment a priority. Not all FSPs will use software that does this automatically, so landlords must stress this from the outset. The ability to align rent payment dates with Universal Credit award dates is also essential to limit the landlord’s exposure to arrears. You want the rent out and in your account, as soon as it hits your tenant’s account.  If the tenant choses to pay via direct debit then the landlord’s account in turn must be flexible to allow for collection on any day of the month.

Should the tenant prefer to pay their rent at the Post Office (or using other payment outlets such as PayPoint), the use of a pre-pay card is necessary. Pre-paid jam jar account swipe cards act like traditional debit cards but they only allow the user to spend what has been loaded on to them, helping to curb accidental overspending. Social landlords should examine how the cards can be credited and if there are measures in place to prevent funds being loaded and spent elsewhere.  You might need a jam jar or other bank account in place first, before your tenant can utilise pre-pay cards.  It might start to look like a rather complicated and costly solution when you really evaluate it.

Many FSPs will want the landlord to get involved with advertising / promoting the account (and perhaps lending) to tenants, along with account set-up, tenant support and training in how to use the account and admin.  Make sure you understand what you are agreeing to and the risks and liabilities involved.  The financial services jungle is heavily regulated, and legal advice may need to be sought at an early stage.

Most FSPs are imposing a per-account monthly fee payable by the landlord.  Expect the price to drop if you will be referring a large number of tenants to the FSP, or if the FSP is already a high volume provider.  Some FSPs will impose charges on the tenant for withdrawals or deposits.  This should also yield a drop in the monthly fee payable by the landlord. FSPs who are geared up to offer or promote lending to their account holders should be able to offer yet further discounts to the landlord and on transaction charges, as the profit from lending is higher than from operating deposit accounts.  The leading FSPs will charge the landlord under £5.  Don’t feel unreasonable in pushing for something under £3 per account, with no transaction charges.

We would recommend that you run a competitive tender to make your final selection of FSP and jam jar product, so you can push them on these features and also on price.

Finally, the really legal bit.  The FSP should be authorised and regulated by the relevant financial services regulators.  Currently it is the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) for consumer credit.  Later this year the FSA gets chopped up and will become the Prudential Regulation Authority and the Financial Conduct Authority.  Any contract or arrangement that you form with a FSP, including any adverts or promotions made to tenants, will have regulatory implications, and the deal may amount to being a regulated contract.  Landlords can rely on some exemptions but they are narrow and fiddly, and if you get it wrong you are likely to be committing criminal offences.

The FSA and its successor, and the OFT, are powerful, aggressive regulators.  Get it right, first time and take advice.  Ideally, select a legal partner before you do any soft market testing. There are a number of products already available and it is not necessary to reinvent the wheel. The most important thing to ascertain is that tenants are presented with a product they want to use, and that this ultimately ensures that rents are paid.

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