Can you imagine life without a bank account? That's the situation at least 1.54 million British Adults are in today.

Affordable, short term credit is needed now more than ever to help people make ends meet as they face cuts in public services, stagnant wages and unemployment.

However, Britain's "unbanked", that is those without access to a transactional bank account, are being refused much needed credit, leaving them no choice but to borrow from private lending companies at exorbitant rates, or, even worse, to borrow from loan sharks.

Why do people not have bank accounts?

In 2008/09, The Financial Inclusion centre found that at least 1.54 million British Adults did not have access to a bank account. More than half of these people are among the poorest fifth of the population. One in ten out of over 400 people surveyed by the Citizen's Advice Bureau Scotland for a report entitled "Banking on the Basics" did not have a bank account. Generally, this is not because they did not want one, almost two thirds had tried to open an account.

Joe Cox, campaigns assistant at the think tank Compass, believes that because banks don't make money out of basic checking accounts they do not publicise them to people who have been refused other accounts. Basic accounts don't have an overdraft facility and are not linked to a credit card, therefore they are available to most people, even those with a poor credit history.

Almost half the people surveyed by Citizen's Advice Scotland had been denied a bank account because of poor credit history, a third due to lack of appropriate identity documents and almost one fifth because of current or past debt with the bank. Of those who had no credit history, three in ten did not have a bank account, though half had tried to open one. Hardly any of the respondents with no credit history had debts.

Trapped in a downward cycle of poverty?

Save the Children's "UK Poverty Rip-Off" campaign reports that people without bank accounts will often have to pay more for their goods and services, and can encounter problems receiving benefits, wages, or even getting a job, because they have no bank account to pay their wages into. Bills are often more expensive when not paid by direct debit and when buying larger items the only options available to those without bank accounts are often the priciest.

The previous Government acknowledged that financial exclusion is a barrier to reducing poverty and encouraged banks to offer those with poor credit histories "basic bank accounts", without overdraft facilities. The initial target of halving the number of people without bank accounts in 2002 was met by 2009 but much work remains to be done. The Coalition government have not implemented the previous Government's plans to establish a universal right to a basic bank account.

Mick McAteer, Director of the Financial Inclusion centre says that the apparent improvement in figures is misleading. While it appears that banks have opened many more basic accounts, large numbers are "shell accounts" that people get their benefits paid into, only to immediately withdraw them without getting any additional benefits such as direct debit facilities. Consumers are not being given the opportunity to use bank accounts properly due to lack of promotion by certain banks and poor financial literacy. So although it looks good in terms of accounts opened, it doesn't mean that excluded consumers are using the banking system effectively.

Those without bank accounts are also particularly vulnerable to being exploited by private lending companies. A report on borrowing in Britain, by the accountancy firm PricewaterhouseCoopers predicts that the private lending sector is poised for a boom because banks have dramatically cut back on consumer lending.

Private lending company Provident Financial has nearly two-thirds of the "door-to-door lending" market and has expected profits of over £140 million for this year, compared with £130 million last year. Provident charge an equivalent annual interest rate of 400 per cent for a £200 loan. It has over 2.3 million customers and this year it will issue 9 per cent more loans than it did in 2010.

Thus, the UK's poorest money borrowers are paying the highest price for credit in Europe, while the government are allowing private personal credit companies to reap huge financial benefit, by exploiting the most vulnerable members of society.

Gavin Hayes, General Secretary of Compass says that, "The key problem with Provident is that they have a near monopoly on door-to-door lending and they are completely and utterly embedded in Britain's most deprived communities where they are charging huge interest rates, as much as 800 times the Bank of England base rate. We are not calling for these people to be put out of business. We simply want to see a sensible, fair lending rate cap."

Irresponsible high cost lending played a key role in causing the credit crunch in 2008. The government is committed to regulate excessive interest rates on credit and store cards, and yet is paradoxically allowing the far more pernicious practise of legal loan sharking to continue, whilst not acting to help the "unbanked".

What is to be done to help "the unbanked"?

Sheila Gilmore, Labour MP for Edinburgh East wants banks to market their basic accounts more effectively and ensure that those who make enquiries are told about them. She says that the "government should take steps to support and encourage financial institutions that offer an alternative to mainstream banking, such as credit unions and Community Development Financial Institutions."

Credit Unions are non-profit organisations that are cooperatively owned and governed by their members. They provide serve low income communities beyond the reach of banks by giving them fairly priced loans and a place to save.

Community Development Finance Institutions also offer loans at affordable rates, specifically to those who have been turned down by banks. They are independent organisations and many are part funded by Government departments. Others are funded by European grants and charitable donations.

In Edinburgh East, Gilmore's constituency, Craigmillar Portobello Credit Union gives people the chance to save and obtain credit at an accessible local level. Although it doesn't provide current account facilities, it does allow its 1300 members to save and pay for holidays, home improvements and emergency bills that would otherwise be unobtainable or pose real difficulties. It is a fantastic asset to the community and the sort of organisation that the Government should act to encourage.

Today, 3rd February, the End Legal Loan Sharking campaign is holding a rally in Parliament from 6pm-7.30pm to push for lending rate caps and tougher regulation of the home credit and loans industry which charges annual interest of up to 400 per cent for a £200 loan. This rally will coincide with the second reading of Stella Creasy MP's Consumer Credit and Advice Bill and major new research on the impact of financial exclusion by Compass.

More than 100 MPs are backing a campaign to end legal loan sharking by signing a parliamentary motion calling for a cap on the cost of credit.
The struggle to cap the cost of credit is centuries old but Compass have brought the movement together and given it clear direction. Joe Cox, says that they have a lot of anectotal evidence that since the credit crunch there has been a lot more pressure on people to take out loans, for example through door knocking. A Compass poll before the general election found that approximately 90 per cent of people would like to see a cap on the cost of credit and the Labour government pledged to impose a cap on the cost of credit.

Fifty people have signed up to come to the rally and Cox expects around 100 to turn up and nearly 250 MPs support the bill "so it could be embarrassing for the government if they don't pass it."