A House of Lords committee has proposed that the remit of the Financial Conduct Authority be broadened to give priority to tackling financial exclusion.
A report from the House of Lords Financial Exclusion Committee stated the poorest are being excluded from even basic financial services and forced to rely on expensive and substandard products.
The report proposed the government should broaden the remit of the FCA to give priority to tackling financial exclusion and to establish new rules requiring banks to have a duty of care towards their customers.
The report highlighted that regulation has proven to be effective in tackling abusive practices by payday loan companies since the government asked the FCA to cap interest rates charged by such providers.
The committee recommended that similar restrictions should be introduced for other forms of high cost credit.
The committee also called for urgent action to introduce new controls on ‘rent to own’ products and unarranged overdraft fees.
The committee heard that more than 1.7 million people in the UK do not have a bank account, and that 40 per cent of the working age population had less than £100 in savings.
Estimates suggest at least 600,000 older people are financially excluded.
Baroness Tyler of Enfield, chairman of the House of Lords Financial Exclusion Committee, said: “The UK financial services sector is a world leader, which makes it doubly unacceptable that it is failing those who need it most.
"The ‘poverty premium’ - where the poor pay more for a range of services from heating their home to accessing credit - contributes to a vicious circle driving people ever deeper into debt and distress.
"Banks should also ensure they are offering, and properly promoting, basic bank accounts to those customers who need them."
Better financial literacy is identified by the committee as a key priority for reducing financial exclusion.
The committee proposed financial education to be introduced to the English primary school curriculum and that Ofsted should assess the extent to which schools provide young people with necessary financial knowledge and skills.
Ruth Whitehead, principal at Ruth Whitehead Associates, noted that in December the FCA said it had enough powers to widen its remit to do more on financial inclusion.
She questioned why it had not taken greater action to help the financially excluded before.
Ms Whitehead said: "The people who need more protecting than anyone else are at the bottom of their list.
"This pure exploitation of trying to get more money out of people who have less money has been going on for a very long time this and the sooner it gets redressed the better."