Financial Services Bill

Baroness Howe of Idlicote Excerpts

Wednesday 5th December 2012 Lords Chamber

[Lord McFall of Alcluith]

My Lords, I congratulate the noble Lord, Lord Mitchell, the Government and others in the House on passing this Act because in terms of consumer protection in Acts, the wheels turn very slowly. The Consumer Credit Act 1974 was only superseded because of a lot of effort by quite a number of us in the other place in getting another Consumer Credit Act in 2006, 32 years later. At a time when we have the internet and technology has increased enormously, that means that the imbalance between the consumer and the industry gets even steeper, so I welcome this amendment today and the efforts that have been put into it.

In particular, I congratulate the Minister, the noble Lord, Lord Sassoon, as he departs the Front Bench. He deserves our hearty congratulations because for years we have listened to the plea, “Let the market work”. What happens when we let the market work, to be euphemistic, is that innovation takes over and innovation, as the Minister says, equates to sharp practices. Once we pass this in the House today, it will be going out into the cold light of day and I can tell everyone in the House that innovation will take place and we therefore have to be on our guard.

This is but a first step but it is a huge first step. In line with the comments made by other Peers, I ask the Minister for clarification on these points. First, will the new clause cover all costs and charges levied by payday lenders or borrowers? Secondly, when will it come into force? A number of us are worried that we could be waiting for a long time before it is brought in and that, in the interim, the sharp practices will continue. Lastly, how do the Government envisage the cap being set and does the Minister have in mind at what level he expects that cap to be set? It is important to give some direction to the FCA in today’s debate. My last word to the Minister is to offer my congratulations as a new life beckons in front of him, which I hope is just as prosperous.

[Baroness Howe of Idlicote]

My Lords, I had not intended to say anything today, because I was pleased with the amendment. The more I listened to the explanation, however, the more enthusiastic I became about it. So I wanted to add my thanks to the noble Lord, Lord Mitchell, for all that he has done here, as well as to the noble Lord, Lord Sassoon, and everybody else who has been involved in the redrafting. I am sure it will not solve all the problems. I would also like to ask when it will come into force; I imagine that it will not be all that far ahead. Nevertheless, as has been said, it is an extremely important and valuable step in the right direction.

[Lord Sassoon]

My Lords, I am grateful for all those contributions. I will briefly respond to some of the specific questions. First, the noble Lord, Lord Peston, asked whether this means that the FCA has to go into this field. Absolutely it does; it would have to anyway. Putting all this in the Bill will concentrate the FCA’s mind wonderfully. However, as the noble Lord knows, it is an enabling power; the FCA may make these rules, but this does not say that it must make them.

On the noble Lord’s other questions about whether consumers know what they are letting themselves in for, this is one of the other areas that clearly needs attention, as I indicated in my opening remarks. Whether this is addressed under the consumer credit directive or the consumer protection regulations, it is another parallel area. I stress again that we are getting to the heart of the issue in this amendment, but this is not the sum total of it.

There were also questions about when the rules might come in. The rules will come in when the FCA gets round to making them. There is nothing to stop the OFT moving ahead. The next thing we are expecting is the academic report, which refers in some detail to the international evidence about the pros and cons of caps. That will be part of the evidence base that will be used, building up to any rules that may or may not be put in place. However, I can assure the noble Lord, Lord Barnett, that there is no question of secondary legislation here. We are giving the FCA a clear rule-making power; its rule-making procedures will then go for consultation, but this does not need to come back through the channel of secondary legislation.

Lastly, I turn to the questions from the noble Lord, Lord McFall of Alcluith. In parenthesis, I would argue that there have certainly been financial innovations that have been beneficial, but perhaps we will leave that debate for another day. The noble Lord asked whether all costs and charges would be covered. Yes, they will—all of them. He asked when this comes into force. This specific power comes into force in April 2014, when credit becomes a regulated activity under the FCA. Of course, that will not stop the Government and the OFT looking at what may need to be done before then, but we are talking about a Bill that relates in this instance to the powers of the FCA when they are transferred over. As far as what the cap should be, that will be a matter for the FCA. It is a very difficult question that will need careful thought. As I have already indicated, the Bristol study, which is coming out very soon, will be an important contribution to that thinking. We are putting an important building block in place today, but it is not the only building block in this area.