Oral Answers to Questions
Debate between Baroness Clark of Kilwinning and Mark Hoban(11 years, 2 months ago)
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Mr Hoban
That is absolutely at the heart of the roll-out of universal credit, which will mean that people know that they are better off in work, and better off working more hours and earning more than working fewer hours and earning less. That incentive to get paid work is at the heart of our welfare reforms.
Katy Clark (North Ayrshire and Arran) (Lab)
12. If he will reconsider the decision not to include residential properties owned by local authorities for temporary accommodation in the definition of temporary accommodation contained in the Housing Benefit (Amendment) Regulations 2012.
Financial Services Bill
Debate between Baroness Clark of Kilwinning and Mark Hoban(12 years ago)
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Mr Hoban
I do not have that information on me, but I will endeavour to have it by the time I wind up the debate. It is important that there is evidence, that we do not respond on a knee-jerk basis and that we ensure that we protect vulnerable consumers. That includes ensuring that the right protection is in place for those who wish to borrow money to meet their needs and we should also ensure that we do not push them into the arms of illegal money lenders. One change we are making in this group of amendments includes ensuring that the work of the illegal money lending teams out in the regions can continue when we shift the regulation of consumer credit to the FCA.
I am aware of these issues and it is important to the constituents of my hon. Friend the Member for Enfield North (Nick de Bois) and to mine that we get the right answer. A lot of work has gone on in the past to consider the cost of credit, and we need to proceed on the basis of evidence rather than closing our minds to what solutions there might be. Let us have some evidence to inform the debates so that we can give our constituents the right answer, rather than something that happens to be convenient to some political whim or desire. I believe that we should have evidence-based policy making and that that is the right approach. All the stakeholders would also agree that we need to support this work with some evidence, rather than proceeding without a firm evidential base.
New clause 12 concerns the important issue of how consumers who take part in prepayment schemes are protected and how they are treated if the provider of such a scheme becomes insolvent. I suspect that many members of the House will have dealt with this matter over recent years, given how many people were affected by the collapse of Farepak just before Christmas 2006. The Government have great sympathy for those who have lost money in such schemes and are aware of the frustration they feel. One problem with the Farepak insolvency has been the fact that it has taken so long for the customers to get their money back. Work with the liquidators is continuing.
The challenge is whether the Bill is the appropriate place for regulating such a function. Prepayment schemes are advance payments by a consumer for goods and services that are not supplied immediately; they are not financial services. It is not clear whether they are an issue for any of the bodies provided for in the Bill to consider and I do not think they will be a matter for the Financial Policy Committee, with its remit of considering threats to financial stability.
Since the collapse of Farepak, a considerable amount of work has been done to consider how best to protect consumers who enter into prepayment schemes and how best to deal with situations where companies collapse. Following the collapse of Farepak, the then Department of Trade and Industry worked with the remaining hamper companies to put in place effective protection for customers’ prepayments, including oversight by a new body, the Christmas Prepayment Association. The Government also supported the OFT to deliver a consumer awareness and education campaign to empower consumers to make decisions that are right for their circumstances. The Money Advice Service also provides advice on its website about what protection is offered for various ways of saving money, including prepayment schemes. I would encourage hon. Members who are aware of constituents who continue to engage with such schemes to point them in the direction of the Money Advice Service.
Katy Clark (North Ayrshire and Arran) (Lab)
If the Minister does not feel that this Bill is the appropriate vehicle for dealing with that matter through regulation, when he sums up could he outline where it should be dealt with? There is a strong view that the current legislative framework is not sufficient.
Mr Hoban
Part of the challenge is that such schemes are part of a subset of advance payment schemes that are not necessarily covered by the Bill. These issues are consumer issues and I shall certainly raise with my hon. Friend the Minister with responsibility for consumer affairs where he feels that the best opportunity might be to do that and whether there are some non-statutory alternatives to regulation that will help protect the customers of such schemes.
Before I speak to Government amendment 3, I can let my hon. Friend the Member for Enfield North know when the research will be published. The research project will conclude this summer, and given that the transfer of consumer credit to the FCA will not take place until 2014, that gives us time to act. That is not to say that nothing is happening in the meantime in the regulation of consumer credit: the OFT is doing a great deal of work in that area. I am as keen as he and others are to ensure that the matter is brought to a head as soon as possible, so that the right protections are put in place for our constituents.
Government amendment 3 aims to improve the drafting, following the close and valuable scrutiny in the Public Bill Committee. In Committee, questions were raised about the appropriateness of “supply”, and the amendment clarifies the Money Advice Service financial education function so that it should include the promotion of awareness of the financial advantages and disadvantages relating to issues that may arise over the lifetime of the product, not just to the initial purchase or supply of a particular good and service. The function might include, for example, promoting awareness of the financial advantages and disadvantages of a person exercising the right to receive part of their pension savings as a lump sum, or the financial advantages or disadvantages of the various options open to a person who is having difficulty paying their mortgage.
I am confident that the Bill as it stands already provides for such matters to be covered by the Money Advice Service financial education function, but the amendment helpfully clarifies the scope of the MAS’s specific duty to promote awareness of the advantages and disadvantages of particular goods and services. I am grateful to the Members who raised the matter in the Committee, and I hope that the amendment addresses their concerns.
Amendments 37 and 55 would affect the functions of the MAS. Amendment 55 would require the MAS to support the provision of legal advice in relation to personal debt, with funding received from the Ministry of Justice to support that work. The amendment would reinstate changes to legal aid in the Legal Aid, Sentencing and Punishment of Offenders Bill. For the reasons clearly set out by my right hon. and learned Friend the Justice Secretary, we cannot use the Financial Services Bill to compensate for reforms to legal aid in the other Bill as a roundabout way of maintaining funding for not-for-profit bodies; moreover, effectively reinstating those categories in the scope of legal aid means reinstating legal aid for all legal advice, not just for those in not-for-profit organisations.
Amendment 55 is not required because the Money Advice Service already has sufficient responsibility and funding to assist members of the public with debt management. The MAS and other organisations provide debt advice directly, including by advising people who are facing difficulties with debt on the options available to them and the possible legal ramifications. For example, they provide advice to people who are at risk of losing their home and advice on options to resolve their financial difficulties. Any debt adviser trained to intermediate level can give advice on such matters as a matter of course. In contentious areas of law, such as the impact of insolvency or immigration status, an adviser could seek external advice. Similarly, if a non-debt issue arose, or substantive legal advice was required, an adviser could refer the client to a specialist solicitor. I therefore do not think the amendment is necessary, as the MAS and other organisations, through their debt advice services, already advise people facing difficulties with debt on the impact of the law on their situation.
Amendment 37 would require the MAS to provide
“targeted, proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.”
I am sympathetic to the intention behind the amendment: clearly, the service provided by the MAS should encompass such groups of people. However, as I said in Committee, one of the key features of the Money Advice Service is the breadth of consumers it is there to serve. Millions of people can be vulnerable to poor money management at any point in their lives, especially as they experience key life events. Similarly, many people, regardless of their financial circumstances, may not know where to turn for impartial financial advice, or may not know that they need information and advice in the first place. I therefore do not think it appropriate for the legislation to prescribe which groups are in most need of the service. By focusing the Money Advice Service on particular groups, we risk neglecting others who may be equally in need.
It is clear to me, from discussions I have had with the management of the Money Advice Service, that they recognise the need to provide support across a wide range of people. They also recognise the importance of face-to-face debt and money advice and the importance of ensuring the right channels of support are there to help those in need of financial advice—for example, those who need guidance on how to get out of debt or how to protect their families in the long term. I believe the MAS is acutely aware of its broader social obligation.
The group of amendments before us raises important issues that impact on many in our constituencies. The action that we have taken to tighten the consumer credit regime by moving consumer credit from the OFT to the FCA is the right way to proceed. This is a dynamic and changing market, and one of the great advantages that the FCA brings is the opportunity to keep issues such as the cost of credit under review and to make sure that it responds in a timely manner to help protect our constituents in these difficult areas.
Katy Clark
What is different about this situation, however, is that often the reason for prepayment is that the person buying the product wants to purchase in that way because of their financial situation, and the person selling the product gets the financial advantage of holding that money for a period of time. I therefore cannot understand the Minister’s point, in that at present the advantage is with the organisation selling the product. Does the Minister agree that we should be considering how to move towards a situation in which the consumer is able to pay in this way and get protection for the funds they have paid out?
Mr Hoban
The hon. Lady makes an important point. It is my understanding that some of these prepayment schemes get their income from being able to negotiate a discount with the supplier of the goods, as well as, perhaps, from the interest they earn on the prepayments. The question then arises whether the revenue the prepayment scheme gets is sufficient to outweigh the cost of enhancing customer protection. Some of these schemes are administratively expensive, and the cost of protection may exceed the income generated, which would lead to that service being withdrawn from the consumer.
As this exchange demonstrates, some complex issues are involved. The hon. Lady is right to raise them, and it is right that the Government should continue to address them. Many people rely on these schemes and it is important that they are well protected. We should make sure that there are alternative sources of information for them, in order to enable them to judge where they might get best protection and, perhaps, earn some interest themselves on the prepayment they are making, rather than the supplier making that money.
Regulatory and Banking Reform
Debate between Baroness Clark of Kilwinning and Mark Hoban(12 years, 11 months ago)
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Mr Hoban
My hon. Friend makes an important point, which goes back to the point that my hon. Friend the Member for Wycombe (Steve Baker) made about exit from the financial system. That is why it is important that resolution tools are in place to enable firms to be wound up in an orderly fashion, rather than being reliant on taxpayers’ money to keep them going.
Katy Clark (North Ayrshire and Arran) (Lab)
The Minister is well aware that savers are getting a very low interest rate, while for those who try to borrow there are high interest rates and unattractive terms—not just for individuals but for businesses. That must be stifling the economic recovery. The banks are not meeting Project Merlin’s targets, so should not the Government use regulation and their ownership of banks to address those issues?
Mr Hoban
The hon. Lady is absolutely right to say that it is important that banks lend to businesses. If the economy is to continue to recover and to pick up momentum, banks need to be able to lend. That is why we introduced the lending commitments under Project Merlin, and we will monitor them very carefully. We have said that we will not be afraid to use any tools at our disposal if those targets are not met.