Financial Services Bill

Baroness Hayter of Kentish Town Excerpts

Wednesday 25th July 2012 Lords Chamber

[Lord Whitty]

My Lords, I do. I was looking at the Marshalled List and saw the name of the noble Lord, Lord Flight, to the next amendment. I beg the pardon of the noble Viscount, Lord Trenchard.

When faced with issues of consumer care and consumer protection, the FSA, in its early days and for much of its time, tended to resort to stipulating the information that the consumer needed to be given. By the time that had gone through the corporate lawyers of the various banks and insurance companies, it amounted to five, six or sometimes 25 pages of close 10-point type, which was even more difficult for the average consumer to understand than it is for the average Member of the House of Lords to understand this Bill.

That is a very passive form of consumer protection and it is a very passive definition of customer care. The amendment attempts to put an obligation on the FCA to ensure that companies operating in this sector operate positive customer care, not simply passive provision of information which a large number of consumers cannot understand. To answer the noble Baroness, Lady Noakes, one reason why I believe that it is appropriate for it to be in the competition area is that when the FCA looks at where competition is succeeding, one of the measures of the proper outcome of competition that it considers is the way in which companies compete, as regards customer care, for their consumers.

Competition is not an end in itself. Competition policy and the enforcement of competition should protect and enhance benefits to consumers. One of those benefits is that the truly competitive company looks after its customers in a positive way and competes with its competitors in that regard. The passive provision of information is not customer care. This clause goes a significant way towards ensuring that customer care is seen as an objective both of consumer protection and of competition policy.

[Baroness Hayter of Kentish Town]

My Lords, along with most other speakers, I support the amendment moved by my noble friend Lady Drake. As I have argued in Committee before, it is no good having a competitive market for banking and insurance—not that we have one—if consumers effectively cannot enter the market, if they cannot identify what they need and if they cannot get value for money. As we have heard, all sorts of people find it challenging to know what services are suitable for them. How else could HSBC have sold bonds designed to be held for five and more years to 2,500 with an average age of 83? It is a little like people trying to sell PPI to my noble friend Lord McFall, or Barclay, HSBC, Lloyds and RBS mis-selling interest rate swaps to 28,000 businesses.

My hope is that Amendment 117 will give the FCA an explicit mandate to put a stop to unfair overdraft charges, excessive fees and complicated price structures, all of which hinder competition, which is probably why I think the amendment belongs within this area. The FCA has to be able to tackle hidden charges if it is to promote effective competition, given that, as we have heard, individual consumers simply cannot do this for themselves. If we, as consumers, buy a theatre or an airline ticket, there is a pernicious little booking fee—at least we can see it. I have just had to pay £2 on a £10 ticket to go to the Noel Coward Theatre, which seems a bit high. At least we can see such a charge and we can choose whether to pay it or not to go to the theatre, but that is not the case with bank charges.

A recent Which? survey found that 60% of those polled said that they paid what they felt to be an unfair bank charge and half paid a charge which they thought was disproportionate to whatever benefit they received. It is not clear, from the current language in the Bill, that the FCA will have the necessary mandate to tackle hidden charges. I know—and my noble friend Lady Drake quoted it earlier—that the Financial Secretary in the other place said that the FCA had,

“the powers and the mandate to intervene on matters of price and value for money”.—[Official Report, Commons Financial Services Bill Committee, 1/3/12; col. 261.]

The Financial Secretary argued that the FCA does not need these bespoke powers, given that it can take action under the competition and consumer protection objective. However, a Queen’s Counsel advised Which? that the current wording of the objective could allow the industry to challenge the FCA’s mandate to tackle hidden charges, which could lead to a repeat of those failed and expensive test cases to which my noble friend referred. Any such uncertainty would make the FCA very risk-averse; it would be reluctant to take action for fear of being challenged. Unless the FCA has a really clear, unambiguous mandate to tackle hidden charges, I can share its reluctance to be at risk of legal challenge from the industry. Therefore the Bill must give this power to the FCA; it is absolutely key to promoting competition. At present there is insufficient responsibility on firms to ensure that products are appropriate for the consumer in terms of meeting their needs, accessibility and reasonable value for money, as Consumer Focus argued to the Joint Committee. The Council of Mortgage Lenders said that the regulator,

“should have an appropriate degree of protection for consumers and should reflect a differential approach not only between market and retail consumers, but within the retail market itself”.

The amendment is simple; and can only promote confidence in the industry. Who, after all, could argue with appropriate services and value for money? Not even, I think, the Minister. We need to get back to trusting the banks and the pension providers, as the noble Lord, Lord Lucas, said. Therefore we trust that the Minister will accept Amendment 117. In the words of my noble friend Lord Barnett, it can do no harm; it can do good.

[Lord Sassoon]

My Lords, this has been an interesting and wide-ranging debate to kick off today’s Committee session. I will deal first with the amendment on its own terms and then pick up some of the wider important points, although perhaps they may not be directly relevant to the key reason why I cannot accept it.

As we have heard, this amendment seeks to add a new have-regard to the FCA’s competition objective. I know that it has been promoted by the consumer group Which?. As we have heard, it drives at the same issues as a number of amendments discussed in another place—namely, that the FCA should have, in the words of Which?—which were quoted by the noble Baroness, Lady Hayter of Kentish Town—an explicit mandate to,

“put a stop to unfair overdraft charges, excessive fees and complicated pricing structures where they hinder competition”.

I agree, of course, with what lies behind this amendment. Consumers should have access to the right financial services and products; they should be able to buy in the confidence that they know what they are getting and what they are paying for. That must be clear and transparent; there ought to be no place in financial services for a culture where consumers are kept in the dark.

However, let me put on the record what the Government have said a number of times before—both in publications and during discussions in another place—which is that if the FCA finds problems in pricing, charging or in the ability of the consumer to obtain value for money that cause it concern, it will have the mandate and the powers to act. It has the mandate both under the effective competition and the consumer protection objectives, a point that has been made by a number of my noble friends and other noble Lords in this debate. It can apply its extensive regulatory toolkit in pursuit of price intervention, should it think it appropriate to do so. The FCA does not need new powers nor do its objectives need expanding. We simply do not agree with Which?’s legal analysis. Fundamentally, it is a narrow legal point.

Having said that, a range of important issues have been raised which I will spend a minute or two addressing. The noble Baroness, Lady Drake, in introducing this amendment, talked among other things about the OFT bank charges case. It is important that the Committee understands that the powers available to the FCA are far broader than those available to the OFT at the time of the bank charges case. The OFT was in fact relying on the Unfair Terms in Consumer Contract Regulations. I suggest it is incorrect to draw a line somehow between what the OFT was or was not able to do and what the FCA will be able to do, because the FCA has much wider powers.

In terms of what the FSA can do now and what the FCA might do in future, first, as we discussed in Committee on previous occasions, the FCA will have additional product intervention powers. The noble Baroness I think gave an example of a low headline price to attract new customers that is then offset by high ancillary charges. That is a very good example—and one that I might have given if challenged—of precisely the sort of situation where the FCA might well intervene and where the FSA has already begun to take a similar approach, as set out for example in its consultation paper on the mortgage market review. I do not think there should be anything between us there.

Looking more widely, I think the noble Baroness said at one point that the FCA “must” be required to have regard to ease of access to value for money. However, the amendment does not achieve this—it simply adds to the list of matters to which the FCA may have regard. Linked to that, I can assure my noble friend Lord Trenchard that the have-regards listed in this new Section 1E are of course not exhaustive. The FCA is not precluded from taking other matters into account in assessing the effectiveness of competition. That takes me to the point made by the noble Lord, Lord Barnett, where we would get into difficulties. The easiest thing would be to say, “I agree with the sentiment behind this, let’s put it in”. One of the arguments in favour of putting it in is that the FCA would be vulnerable to legal challenge if it is left out. However, as I have clearly stated, our legal analysis is simply different—I have not seen what lies behind Which?’s legal analysis but we disagree on that. If we were to go down the line of putting in a longer list of have-regards, we get more and more into the difficulty of suggesting somehow that the list is exhaustive and that the FCA cannot do things that are left off the list. Potentially, the more we add to the list, we risk getting into legal difficulties that we are not in at the moment, because the FCA will have all the legal powers it needs. The noble Lord, Lord Barnett, put it as a reasonable challenge, as he always does to me, but I think there is a danger in going down the route of this amendment.