Financial Services Bill

Baroness Primarolo Excerpts

Monday 23rd April 2012 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss the following:

New clause 5—Amendments to Tribunals, Courts and Enforcement Act 2007

‘(1) Section 124 of the Tribunals, Courts and Enforcement Act 2007 (charges by operator of approved scheme) is amended as follows.

(2) In subsection (1) for “costs’ substitute “charges”.

(3) In subsection (2)—

(a) for “costs”, in the first instance, substitute “charges”,

(b) after “scheme”, insert “along with any charges made by the operator”, and

(c) after “those costs” insert “and charges”.’.

New clause 9—Debt management plan regulation

‘The FCA shall bring forward recommendations within a year of the commencement of this Act to phase out the practice of directly charging consumers fees or charges for the provision of debt management plans.’.

New clause 10—Mortgage rate forewarning

‘The Treasury shall bring forward recommendations within six months of Royal Assent of this Act requiring mortgage lenders to forewarn existing customers about potential interest rate changes and their impact on the affordability of mortgage repayments.’.

New clause 12—Prepayment schemes

‘(1) The FPC must carry out and publish a review of the operation of consumer prepayment schemes to consider whether existing protection for consumers is sufficient.

(2) The FPC must make recommendations under subsection (1) within one year of this section coming into force;

(3) Any report produced by the FPC under subsection (1) shall include an analysis of whether consumers of prepayment schemes should be made preferential creditors for the purposes of the distribution of the realised assets of the company operating such schemes in the event of insolvency.’.

Government amendments 2 and 3.

Amendment 37, page 37, line 42, in clause 5, at end insert ‘and targeted, proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.’.

Amendment 55, page 38, line 6, at end add—

‘(h) supporting the provision of legal advice on all areas of law related to personal debt, including but not limited to—

(i) issues covered under Schedule 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012,

(ii) remedies under the Insolvency Act 1986 and Tribunals, Courts and Enforcement Act 2007,

(iii) protections under the Consumer Credit Act 1974 and Consumer Credit Act 2006,

(iv) consumer redress schemes under the Financial Services and Markets Act 2000,

(v) debt limitation under the Limitation Act 1980, and

(vi) enforcement action for specified debts pursuant to a county court judgement, a High Court writ or warrant issued by a Magistrates’ Court.

(4A) For the purposes of subparagraphs (h)(i) to (vi) above the consumer financial education body may enter into arrangements with the Ministry of Justice to direct appropriate levels of funding for these purposes.’.

Government amendment 4.

Amendment 40, page 80, line 2, in clause 22, at end insert—

‘(2A) The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.’.

Government amendments 11 and 18 to 21.

[Mr Hoban]

New clause 4, which is the most significant of the Government new clauses and amendments in the group, provides a framework for implementation of the Government’s proposal to retain the important rights and protections of the Consumer Credit Act 1974 to ensure that consumers do not lose out as a result of the transfer. For example, we are likely to retain section 75 of the Act, which provides for the joint liability of creditors for misrepresentation or breaches by suppliers.

The Government’s preferred approach to the implementation of the transfer of responsibility for consumer credit from the Office of Fair Trading to the Financial Conduct Authority is to ensure that the Consumer Credit Act protections are replicated in the FCA’s consumer credit rule book, and that the relevant sections of the Act are repealed. That approach is in line with the intention to move to a more responsive, rules-based regime than the current statutory framework.

However, there are limitations to the type of rules that the FCA can make, which means that it will not be able to replicate in its rules all the CCA protections that we want to retain, including protections that impose rights directly on consumers and those that affect unauthorised third parties. That means that some CCA protections will need to be kept in the CCA itself, and that certain provisions of the CCA will therefore need to remain in force following the transfer. As a result, a number of changes will need to be made to both the CCA and the FSMA as part of the transition, to reflect the fact that the FCA will be responsible for regulating consumer credit and to ensure that the FCA, as well as local trading standards, can effectively enforce the retained CCA provisions. For example, it will be necessary to replace references in the Consumer Credit Act to the Office of Fair Trading with references to the FCA. We will also need to apply certain features of the FSMA, such as references to the FCA’s objectives, statutory immunity and fee-raising powers, to the FCA’s new functions under the Consumer Credit Act, and enable the FCA to use FSMA supervision and enforcement powers that would normally be used in relation to breaches of FCA rules for breaches of CCA requirements. New clause 4 enables the Treasury to make those changes and other necessary amendments to the CCA and the FSMA by order.

I should also draw attention to the addendum to the delegated powers memorandum, which the Department has prepared and provided to the delegated powers Committee. The memorandum sets out in more detail how this power is intended to operate and why it is necessary. Copies are available in both the Printed Paper Office and the Vote Office. The order to be made under this provision will be subject to further consultation following Royal Assent to the Bill. Government amendment 11 provides that any order under new clause 4 will be subject to the affirmative procedure and so can be made only with prior approval of both this House and the other place.

Government amendment 2 supports effective collaboration between the FCA and local trading standards following the transfer, enabling the FCA to contract trading standards for the provision of services in the same way that the OFT does now—for example, to undertake local inspections and follow up on enforcement action, including by local illegal money-lending teams. Government amendment 21, and related amendments 18, 19 and 20, insert into the Bill provision for the transfer of the OFT property, rights and liabilities, including staff, to the FCA.

I hope Members will agree that the Government amendments in relation to consumer credit are sensible and practical provisions to support an effective transfer of regulation to the FCA. The new clause and related amendments sit within a process of regulatory reform that seeks to tackle some of the issues raised by Members on both sides of the House about the functioning of the credit market. We believe the FCA will have much stronger powers and greater resources than the OFT has had in order to tackle detrimental practices in the consumer credit market. Unlike the OFT, the FCA will be able to make binding rules on firms to ban specific products or product features that cause harm, to issue unlimited fines, and to require firms to pay redress when things go wrong. It will also be able to apply greater scrutiny to applications for credit licences and make it more difficult for rogue firms to enter the market.

As a consequence of the transfer we have introduced into the Bill, there will be a fundamental change in the regulation of firms such as payday lenders and debt management companies. I am pleased that the provisions enabling that transfer were welcomed in Committee.

There are a number of Opposition amendments relating to consumer credit and debt management plans, and I want to say a few words about them now. On new clauses 5 and 9, I made it clear in Committee that I sympathise with concerns about some of the practices in the fee-charging debt management sector. That is why clause 6 enables the regulation of debt management companies to be transferred to the FCA. That is also why we have chosen to leave on the statute book the enabling powers of the Tribunals, Courts and Enforcement Act 2007.

More immediately, we are working with the industry to develop a protocol of best practice for debt management plans, which should cover, among other things, the nature and timing of fees. Indeed, on 14 June the Minister with responsibility for consumer affairs, my hon. Friend the Member for North Norfolk (Norman Lamb), will chair the first industry-wide meeting to discuss and take forward the protocol. That will follow several months of meetings with a smaller, representative group of stakeholders, which has talked through processes, commercial terms and advice, to reach an agreed position.

I also wish to refer the House to new guidance for the debt management sector recently published by the Office of Fair Trading, which sets out in substantial detail the standards expected of firms. I believe that it is appropriate that we give time and focus to current efforts to improve standards in the debt management sector, and take account of the significant changes to the wider regulatory regime enabled by the Bill, before we start talking about changes to a potential statutory scheme under new clause 5.

As I said in Committee, I do not think that we should throw the baby out with the bath water and shut down the market for fee-charging debt management services, as proposed by new clause 9, before fully exploring better regulation. Where suppliers of credit are aware of people who are suffering financial distress in repaying their debt, I encourage them to signpost their customers to fee-free debt advice services so that they can get the best possible advice to meet their needs.

On amendment 40 and new clause 10, I wish to reassure hon. Members that the Bill already enables the FCA to make the kind of rules proposed in those two provisions. Indeed, in relation to new clause 10, the Financial Services Authority already places a number of requirements on firms to ensure that borrowers are informed if their mortgage repayments are subject to change. I know that some hon. Members may wish to challenge the approach, saying, “But if the FCA can already make the proposed rules, what is the harm in accepting these proposals?” The point is that there are significant risks to specifying in great detail in the Bill the precise type of rules that the FCA may make. First, in doing so, we risk distracting the regulator from using its expertise and judgment to identify and address the risks that it considers pose the greatest risks to its objectives. As parliamentarians, we should be creating a framework within which technical experts can exercise their discretion, in a suitably constrained way. We should leave them to get on with the job, not provide a long laundry list of everything that we want them to do.

By specifying in detail what rules should or should not cover, we also risk creating the opportunity for challenge to the regulator’s ability to make rules that are not specified in the Bill. The lack of specific provision in the Bill does not, in any way, reflect on how seriously the Government take these issues. For example, in relation to high-cost credit, a number of initiatives are under way to improve standards in the sector. Those include work to improve industry codes on payday lending; research commissioned by the Department for Business, Innovation and Skills into the impact of a cap on total cost of credit; and a review by the OFT of payday lenders’ compliance with its irresponsible lending guidance. As well as raising standards now, the findings of those pieces of work will feed into the FCA’s approach to regulating the sector following the transfer, including on the type of rules it may make regarding these charges.