Financial education authority to be created

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Chancellor of the exchequer Alistair Darling has announced plans to create a financial education authority to educate consumers about financial products.

 The authority will be independent from the government and will be funded by banks and insurance companies who will have to pay a levy to support the new financial education authority.

 The current system is rather complex, with no one body entirely responsible for financial education for consumers. The move has been welcomed by consumer groups as it is expected to provide more coherent and direct support and education for consumers than is currently available.

 In the report, entitled Reforming Financial Markets, a number of measures designed to protect consumers were outlined. Plans to create a network of money advice centres across the country to support consumers when they make decisions about financial products were mentioned and ministers said that they plan to provide collective redress for victims of financial mis-selling. This would take the form of a strengthened financial compensation scheme and a compulsory traffic light system for mortgages and pensions-similar to the colour coding system for packaged food.

 The charity Citizens Advice Bureau said: “Investing in financial education is one way in which the impact of the recession on communities can be lessened. Sessions with tips how to budget, borrow and save creates more savvy consumers and helps people to help themselves. The commitment to greater resources in this area by levying consumer credit firms, and the anticipated roll-out of a national money guidance service are both positive steps.

 “CAB evidence shows how practices that are unfair and detrimental to consumers can become ingrained, where regulatory standards are non-existent, weak or poorly enforced . It’s therefore encouraging that the white paper outlines a range of ideas to support and protect consumers more effectively.”

The Financial Inclusion Centre, which lobbies on behalf of low-income consumers, also supported the move, saying it represented “some very powerful consumer protection measures”. However, the centre said: “More than 2.7 million people do not have access to a transactional bank account. Yet the government will rely on self-regulation by the banks to tackle financial exclusion.”

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