Grand Committee

Monday 22nd June 2026 Grand Committee

Monday 22 June 2026

Financial Services and Markets Bill [HL]

Committee stage
Monday 22nd June 2026 Grand Committee

Committee (1st Day)

15:45

Northern Ireland and Scottish legislative consent sought. Relevant document: 2nd Report from the Delegated Powers Committee.

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

My Lords, before we start the debate on the first group, I remind the Committee of the rules on declaring interests. Noble Lords should declare any relevant financial interest the first time they speak at each stage of a Bill. This means that, in Committee, relevant financial interests should be declared during the first group on which a noble Lord speaks. Thereafter, the declaration does not need to be repeated in debates on later groups at this stage. Declarations should be specific and brief. Members should briefly indicate the nature of their financial interests, not simply refer to their entry in the Register of Lords’ Interests. I also remind noble Lords of guidance at paragraph 8.82 of the Companion: when withdrawing amendments, noble Lords should

“be brief and need not respond to all the points made during the debate”.

Clause 1: Consumer credit

Amendment 1

Moved by

[Baroness Neville-Rolfe]

1: Clause 1, page 1, line 4, leave out subsection (1)
Member’s explanatory statement
This probing amendment, along with another in the name of Baroness Neville-Rolfe, seeks to allow for a debate on the Government’s intentions around a new regime to be laid down in the regulatory rule book in place of that established by the Consumer Credit Act and associated legislation.

[Baroness Neville-Rolfe (Con)]

My Lords, it is a pleasure to open our deliberations on the Financial Services and Markets Bill. I thank the Minister for his constructive engagement so far and I thank noble Lords across the House who have shared their initial views with us. These conversations have been very helpful and have underscored a shared objective: to improve financial services regulation in a way that promotes growth, attracts investment and supports innovation. Although there are differences between us, we all agree on the importance of the financial services industry across the United Kingdom: the contribution it makes to GDP, the 2.5 million jobs it supports and the £110 billion in tax it pays.

However, I think this first group of amendments will challenge the Minister on a very important issue that we will want to address at several points throughout Committee: oversight and parliamentary scrutiny. We have approached this with slightly different amendments, but I believe that the noble Baroness, Lady Bowles, shares the concern, which also applies to her amendments in group 2.

Clause 1 is short, but it is the gateway provision that introduces Schedule 1. It provides for the repeal and recasting of significant parts of the remaining Consumer Credit Act framework into FCA rules. The reasoning behind this desire for reform, as we said at Second Reading, is broadly understandable. The Treasury’s policy statement on CCA reform says that the current framework is increasingly out of date because it was designed for a paper-based credit market and now sits awkwardly alongside modern regulation. The Government say that the aim is to create a more “agile and proportionate” regime, and we do not disagree with that assessment. Certainly, that is the feedback we have been getting in our discussions with stakeholders.

However, identifying the right problem does not necessarily mean that the Government have chosen the right solution. Their approach has two serious consequences. First, Parliament will lose control and oversight of the core consumer protections currently contained in the CCA. Secondly, we are being asked to approve the repeal of these protections without being able to scrutinise the regime that will replace them. This sets a deeply concerning precedent. The purpose of your Lordships’ House is to scrutinise legislation, challenge the Government, ask questions and ensure that the law is workable, proportionate and effective. Yet there is nothing for us to scrutinise. The Government are dismantling the existing regime without showing Parliament what will take its place.

Both Houses contain a wealth of expertise—much of it is here today—including Members with extensive industry experience, who can identify unintended consequences and suggest more effective solutions. As we have frequently made clear, we want to work constructively with the Government on this Bill, but asking Parliament to surrender its powers to a regulator before it can examine the replacement regime is not meaningful scrutiny and it is not an approach that we can support.

Consumer credit in particular matters because it is woven into the everyday financial lives of millions of people. It allows households to spread the cost of major purchases, manage short-term cash-flow pressures and access funds when they are needed, all of which supports wider economic participation but needs to be done carefully and responsibly. This is a very important area and, as with the other parts of the Bill that delegate power, the Minister must take this opportunity to answer some key questions.

First, which core consumer rights and remedies do the Government intend to keep in primary legislation? By what principle have they decided which protections may safely be moved into the FCA rules? Secondly, when will Parliament be able to see the FCA’s replacement rules in draft? Will these rules be finalised before any repeal of the existing statutory protections is commenced? What transitional arrangements have the Government found? Thirdly, how do the Government intend Parliament to scrutinise future changes once the substance of consumer credit protection sits in the FCA rule book, rather than in statute? Finally, what assessment have the Government made of the effect of these reforms on smaller lenders, brokers and intermediaries, as well as on the availability of credit and related services more broadly? What effect is uncertainty on this point around the future regulatory regime having on economic activity and how much is that costing?

My amendment seeks to re-establish a basic constitutional principle that is being threatened by the Government’s approach in this part of the Bill. Parliament should not be asked to repeal important statutory protections before it knows what will replace them, how the new regime will operate and how it will be held to account. Modernisation and agility are worthwhile objectives, but they cannot justify Parliament legislating in the dark. Before Parliament agrees to transfer such significant powers, the Minister must show us not only that the destination is right but that the safeguards, accountability and route for getting there are right as well. I look forward to the Minister’s response and I beg to move.

[Baroness Noakes (Con)]

My Lords, as this is my first contribution in Committee, I declare my interests as recorded in the register, in particular that I hold listed shares in financial services companies and technology companies that may be affected by the Bill or amendments tabled to it.

I am going to use the opportunity of this first group of amendments to raise the issue of the accountability of the financial services regulators, which, as we have heard, are being given significant regulatory powers. This theme certainly applies to Clause 1 and Schedule 1, because of the vast new powers in relation to consumer credit being given to the FCA, but the theme is pervasive and we will debate it several times in Committee.

I should start by saying that I agree that consumer credit legislation needs a massive overhaul. The current legislation focuses on paperwork and processes. It was written in a pre-digital age and does not have a sophisticated approach to consumers—for example, it does not have the concept of a vulnerable customer. It is crying out for change. Indeed, when we scrutinised the Financial Services and Markets Bill in 2023, I tabled an amendment to give the Treasury significant powers to rewrite the legislation, including the ability to delegate to the FCA. My noble friend Lady Penn, who was the Treasury Minister at the time, convinced me that this was a step too far because of the many significant consultations that were needed. In withdrawing my amendment, I suggested that the extensive consultations sounded to me like an excuse for not making any progress. I am, therefore, supportive of the Government using this Bill as a vehicle to make some progress, although I regret that they still have not completed the task.

That support is qualified by issues that have become apparent since the 2023 Act was passed. At that time, I was a supporter of the FSMA model, which allowed Parliament to determine the overall principles of financial services regulation and left the detail to the regulators. Instead of challenging the huge burden being put on the FSMA model by the 2023 Act, which made provision for the repeal and replacement of retained EU law, a number of us focused on the accountability of the regulators. This was an error. I now believe that we failed to understand fully what that meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account.

The FSMA model was set up by FSMA 2000 in an era when the most significant financial services regulation was set by the EU and either applied directly or incorporated by our own legislation. In either event, there was significant oversight through the processes of the European Parliament, particularly ECON, which was chaired by the noble Baroness, Lady Bowles of Berkhamsted. In addition, both Houses of Parliament had committees dedicated to oversight of the regulatory outpourings of the EU, and, in the case of your Lordships’ House, we had a Sub-Committee of the EU Select Committee dedicated to financial services.

The FSMA model was not designed to do the heavy lifting that it is now being asked to do, first via the 2023 Act and now via this Bill for consumer credit legislation. I do not advocate scrapping that model but I believe the time is right for re-examining Parliament’s oversight and the accountability of the regulators. The 2023 Bill initially provided for some additional oversight by the Treasury Select Committee in the other place but was amended during its passage to add what is now the Financial Services Regulation Committee of your Lordships’ House. I am a member of that committee, along with several other noble Lords present today, and I currently chair it.

These arrangements were designed to increase the accountability of the regulator, but I have to tell the Committee there remains a significant accountability deficit. Of more importance, committees of Parliament cannot and should not replace democratic oversight of the judgments made by the regulators. That is particularly important when we come to consumer credit law. The arrangement envisaged in the Bill passes to the FSA almost total responsibility for judging the complex balance between consumer protection and the need for innovation and competition in the market. Quite simply, that is not the right answer and Parliament needs more involvement.

The noble Baroness, Lady Bowles, has some amendments to Schedule 1 that we will be debating in the next group, and I believe they are designed to alter the balance between Parliament and the regulators. I look forward to that debate, but that measure alone would not be enough because any reasonable approach to modernising consumer credit legislation will still involve significant delegations to the regulators. That is why we need to use the Bill to revisit the mechanisms for the accountability of the regulators.

At a later stage in our Committee, we will be reaching some important amendments designed to tackle that: the noble Baroness, Lady Bowles, has a provision requiring a periodic independent review of the regulators, and my noble friend Lord Bridges of Headley has some amendments dealing with an office of financial regulatory accountability.

These issues of democratic oversight and regulatory accountability are unfinished business, and we must use the opportunity of the Bill to strengthen both and not sleepwalk into a situation where the regulators govern us rather than the other way around. We will be debating the accountability of the regulators again when we get to Clauses 16 and 17, when we reach the accountability amendments that I have just referenced.

16:00

The Minister will be aware that I wrote to him on behalf of the Financial Services Regulation Committee last week. That committee incorporates Members from all sides of your Lordships’ House. The letter outlines serious concerns with Clause 17 and the ability of the committee to hold the regulators to account if it remains in the Bill—the letter can be found on the committee’s website. It asks for the Minister to meet the committee to discuss our concerns. The Minister is still new to our House and may not be aware that it is a very unusual step for a committee to take, so I hope that he will respond positively. I am pleased to take this opportunity to place that letter on the record. Democratic oversight and regulator accountability are issues that will run through almost all our consideration on the Bill.

[Lord Goodman of Wycombe (Con)]

My Lords, I will speak briefly as a member of the Delegated Powers Committee, which has produced a report on this Bill. That report concerns especially Clause 3, but it raises general issues that fall within the scope of the amendment that my noble friend has moved from the Front Bench. My noble friend is essentially asking what the purpose of the Bill is and what it will do.

On the committee we have heard again and again, where government Bills are introduced, quite correctly, that this is a fast-moving world, that the Government need the flexibility and room to move quickly, and that it is therefore appropriate to do these manner of things and those manner of things by regulation. That is far from being a contemptible argument. The Government have a good point, and I suspect that Ministers in other political parties have made the same point from the Dispatch Box in the past. However, there are some important general issues to consider.

First, as my noble friend indicated, it is not generally a good thing to bring in legislation if you do not know quite what the intention is and you propose to proceed by regulation. Secondly, Ministers at this point tend to say, “Trust us”, which is fine, but the Minister may change. Another Minister may come with a different approach, and we are about, I read, to have a change of Prime Minister, and the Government may decide that there is some alteration in their approach to these matters. Thirdly, you may have a change of political party, and quite another Government of a different complexion deciding what to do. I do not want to anticipate the debate on Clause 3, but, if I read the Bill rightly, as noble Lords will find when we get there, power is given to the Minister by regulation to pretty much close every bank account in the country.

Why is all this happening? The reason is that, down in the other place, things are changing. Members of the other place are besieged by WhatsApp messages all day in their groups and are drowning in constituency correspondence from people besieging them with matters that often would be better addressed by priests and psychiatrists. They are being drawn away from the Chamber by dealing with this on social media, at a time when, as my noble friend Lady Noakes has pointed out, the burden of what they consider has had to increase because of Brexit. Whether one is pro-Brexit or anti-Brexit is not the point here; the point is that there is simply more to do.

In short, there is a general attention deficit problem in our culture, which I am sure affects this House as much as anyone else but is particularly affecting the other place. Poorly drafted legislation is rushed through, it is then challenged successfully at judicial review, and then we all blame the judges. Why should we do that when the fault is literally and almost completely in our own House? I am grateful for the chance to raise these general issues and look forward to the Minister’s reply.

[Lord Blackwell (Con)]

My Lords, I declare my interests as a significant shareholder in Lloyd’s Banking Group, of which I was formerly chairman.

Although I recognise the concerns raised by my noble friends, it is important that we tackle the confusion caused by the dual roles of the courts and the regulator in the regulation of consumer credit. The regulation of consumer credit is not a black and white issue. A balance has to be made all the time between the level of protection offered to consumers and the costs of compliance borne by the institutions, and the risk that, if the courts are unpredictable in the way they interpret the Consumer Credit Act, suppliers will either withhold products or build an insurance premium into the costs.

We have had too many incidents over the past few years where what financial institutions thought was a settled issue, as determined by the regulator, has been altered retrospectively by decisions in the courts. We can have a choice one way or the other, but it is important that we tackle the confusion caused by the dual responsibility. As I see it, the Consumer Credit Act is an outdated piece of legislation, as the Government have set out. It was based on conditions that have changed radically. We have since set up the financial services regulator, with devolved responsibilities for regulation. We may or may not think that the regulator is doing well or want to increase supervision of it, but the Government should try to make it clear through these amendments to the Consumer Credit Act whether the result will be, as I hope, to make it clear that there is a single definitive source of regulation for the Consumer Credit Act, which is the balance struck by the Financial Conduct Authority, and that the courts, so far as possible, no longer have a role.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, this and the following group dwell on the same territory; I will make my main intervention in the next group alongside my detailed amendments. I am sorry that I had to separate them out, but that was only because of the Chief Whip’s speaking-time restrictions on non-movers, which ironically mean that the debate will take longer overall. I have both general points and points on the substantive amendments. I agree very much with many other speakers, and in particular the noble Baronesses, Lady Neville-Rolfe and Lady Noakes. Overall, the Bill is extraordinary for the manner in which it does and undoes many things with questionable process.

My general approach on the point about the Consumer Credit Act is straightforward: I do not object to using the FCA to modernise and speed up redress mechanisms. We are already seeing that in practice with the motor finance commission cases, but that experience also contains a very clear warning. Here I depart from what the noble Lord, Lord Blackwell, would wish to have. In the first instance, the FCA made rules that were not in line with statute. It said that commission did not have to be disclosed unless asked about. We have ended up with a situation where firms which thought they were following the rules have been caught out because the statute said something different.

The moral lesson is simple: if you find yourself thinking, “Oh good, I don’t have to tell them about this nice little earner”, something is already unfair. In practice, some car salesmen discussed bonuses, quotas and commissions with customers, sometimes linking them to discounts. I have personal experience of that. But if the statute had not existed, what would have happened? The logic is that the old way, non-disclosure, might have continued because the FCA rules permitted it and it had not spotted the unfairness. For all that we have some very capable regulators, we have been shown that they are not infallible and they are not legislators—a point we will return to repeatedly as we go through the Bill. From time to time, they hit the barriers of their remits, perimeters and institutional roles.

Our system is not to delegate unconstrained power to regulators. Parliament sets the framework, regulators operate within it and, when necessary, the court interprets. Yet here, we are being asked to legislate for an automated substitution to set in train an unseen process that Parliament can no longer influence, that has no predetermined scope and whereby courts lose jurisdiction. That is constitutionally unsound and unsupportable. I will return to the detail in the next group but the principle is clear. As the noble Baroness, Lady Neville-Rolfe, said, Parliament should not sign away rights and protections without knowing what will replace them.

[Baroness Kramer (LD)]

It is a great privilege to wind up for the Lib Dems. People will know from Second Reading that I am very strongly of the same mind as the noble Baronesses, Lady Noakes and Lady Bowles, and I think the noble Baroness, Lady Neville-Rolfe, takes a very similar view on this first clause. The others speak with some sense of diplomacy; I will be slightly more direct, because, from my perspective, the Bill, by repealing the CCA, basically removes consumer credit protection from law and moves it to the FCA rulebook with no meaningful accountability and, frankly, little visibility.

Peers will remember that in 2021, many of us in this House and the other place were getting very frustrated with the FCA. It had some very good people but it was definitely neglecting consumer protection, and this House consequently passed an amendment to instruct the FCA to consult on a duty of care. The FCA chose not to consult on a duty of care, despite that direct instruction. It consulted instead on what it said was the equivalent, which was a consumer duty, the key difference being that a duty of care has a meaning in law, with a private right to action. In other words, an individual can turn to the courts if he or she believes that they have been wronged. This is a right that, as we heard from the noble Lord, Lord Blackwell, the FCA, at the behest of the industry, did not want the consumer to have, despite it being a long and very well-established tradition in English law.

The Bill now achieves the wholesale removal of credit protection from the law and into the rulebook of the FCA, and it is obviously an extension of that deliberate process to remove paths to redress for consumers. The Committee will be aware that consumers cannot take civil action against the FCA: it is immune. It is correct that it should be immune from action by those whom it regulates in the market, but it is also immune from action by consumers. As we go on through the Bill, will see that same process of undermining redress in future groups of amendments—very much so when we are dealing with the FOS.

When I have talked to members of the Government on this issue, they seem surprised at my comments because they see the FCA as a real champion of the consumer. Indeed, the industry will say the same thing. However, perhaps I have a longer memory, as does this Committee.

Do Members here remember the issue of payday lenders—the very widespread abuse of individuals who were entering into incredibly high-priced credit and were finding themselves continuously in debt trouble? When the issues were put to the FCA by Members of Parliament, by complainants and by whistleblowers, the only action that the FCA agreed to take was to make some minor adjustments to the rules on rollover. It argued that payday lenders had an important part to play within our credit system. It took action in this House in 2015, when a Minister broke with the Government’s perspective and decided to support a move that had been made from the Labour Benches by the noble Lord, Lord Mitchell. It was the noble Lord, Lord Sassoon, who spoke for the Government, and he decided that enough was enough and that the only way to deal with payday lenders was to shut them down. That action was put into law, and it improved the whole credit environment that we live in today and eliminated a really serious abuse. As I read the Bill, people will lose that opportunity. When people claim that the FCA is a champion of credit, and they cite the consumer duty, they do not realise that it does not incorporate that very traditional English right to turn to the courts.

Even if today one accepted that the FCA, in its currents design and with the relevant people in place, was indeed a consumer champion, that could easily change, because we are relying totally on FCA culture. In the 1990s—I often go back to that decade—the financial regulators demonstrated the most extraordinary degree of deference to the financial sector. Frankly, the 2007 crash could not have happened without that deference. Many of the lessons of that crash are being undermined by this Bill, throughout which there is a return to deference—this time in the name of growth.

16:15

I very much hope that the Government will seriously consider the amendments in this group and the next. I am not sure that they have fully understood the implications of the approach being taken, so I hope that we can find some movement in that area.

[Lord Ranger of Northwood (Con)]

My Lords, I will make my first contribution to this Bill. This is also one of my first in Committee, so I beg noble Lords’ forgiveness for any errors I will make. I do not have vast experience in the banking sector, but I have spent almost 25 years in technology, during which I worked with a number of firms in the banking sector.

I support the comments from my Front-Bench colleague, my noble friend Lady Neville-Rolfe, and from the noble Lord, Lord Blackwell, on the impact of this broad-ranging Bill. Later, I will comment more on the technology aspect, but at this point I highlight that, as we move forward, a degree of regulatory burden is continuing to build, especially for the future of banking around fintech, innovators, start-ups and scale-ups, a world I have worked in significantly. I look at this Bill through that lens, seeking to understand what we are doing around the posture we are requesting from these new future banking institutions, as they see different requirements from different regulators based on a loose—or, sometimes, as in the case of this Bill, unclear—focus. I say that because we are hearing that from the industry.

The past couple of years have required significant consultation on start-ups and scale-ups, particularly in the area of digital assets. Regulators have undertaken extensive questioning of the industry, but there seems to be some gap between parliamentary oversight and regulatory direction. That has been fed back and has resulted in ad hoc approaches to intervention with regulators from parliamentarians, industry bodies and even parliamentary groups—I co-chair the APPG on Digital Markets and Digital Money—in order to provide a certain level of input about what the industry, particularly the digital asset industry and digital start-up banks, may be considering. There is a huge opportunity in this Bill to understand how we would like to set out frameworks and risk management for the future, but there is also considerable risk—as was mentioned by my noble friend Lady Neville-Rolfe—around where we lose oversight and potential control at this critical time.

[Lord Davies of Brixton (Lab)]

I will speak just briefly. I find myself in the unusual situation of agreeing with the noble Baroness, Lady Noakes, on the role and functioning of the Financial Services Regulation Committee, of which I am a member. The committee was created to undertake a particular task, and what is in the Bill makes that task virtually impossible. We very much hope that the Minister will listen to what the committee has said on this subject.

[The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)]

I thank noble Lords for the opportunity to set out the Government’s position on this important set of issues and for the constructive nature of the debate so far. Before we start, my interests are set out in the ministerial register. I invest in a number of funds that are regulated by the FCA.

I start by addressing why Clause 1 and Schedule 1 should stand part of the Bill. The case for reform is straightforward. The Consumer Credit Act—the CCA—is more than 50 years old and was enacted long before the creation of the FCA. It no longer delivers as it should for today’s consumers, who engage with modern products in an increasingly digital world. It too often results in people being sent lengthy, complex documents that they do not read, do not understand and cannot use with confidence. It is important to say that one in seven adults has literacy skills at or below those expected of a 9 to 11 year-old and 34% of adults have poor or low levels of numeracy involving financial concepts, yet the CCA regime means that some of the information provided on credit cards requires a far higher reading age.

Debt advice charities have criticised the way in which the CCA requirements often result in borrowers being sent arrears notices even when they have agreed a repayment plan, causing confusion and alarm. To address the point raised by the noble Baroness in her amendments, this demonstrates that it is not just the content of the arrears notices that is the problem but the inflexible legislative triggers that mean they must be sent even when there is no clear purpose and they cause more harm than good. There are many more examples of where the CCA results in poor outcomes for consumers and anachronistic procedures for lenders.

That is why this Bill continues the work that began in 2012 of repealing this outdated legislation so that it can be replaced with updated rules that better meet the needs of consumers and are fit for the digital age. The Government strongly believe that those replacement rules should, in the main, reside in the FCA rulebook, not in primary legislation. The FCA has extensive experience in developing firm-facing rules for retail markets, including mortgages, insurance and investments. Its rule-making approach is underpinned by consultation and consumer testing so that protections remain robust, proportionate and relevant. The FCA’s new rules for buy now, pay later, which come into force next month, demonstrate what a modern, FCA rules-based regime can deliver for consumers.

I have heard the concerns of some noble Lords that the Bill does not set out how the repealed provisions of the CCA should be replaced and that this has been left to the FCA to determine at a future time. While I appreciate that concern, this is entirely consistent with the model of regulation established in the Financial Services and Markets Act 2000. These provisions sit in the CCA only because this model of regulation did not exist in 1974. Parliament has already vested the FCA with significant responsibilities in this space, objectives that include a primary consumer protection objective, powers to allow it to fulfil its role and a comprehensive system of transparency, governance and oversight.

Parliament will have a key role in scrutinising the FCA as it makes these replacement rules. The FCA is required to advance its objectives through its rules, including its consumer protection objective. The FCA is required to consult, to conduct a cost-benefit analysis on rule changes and to submit copies of those consultations to the relevant parliamentary committees. They include the Financial Services Regulation Committee, ably chaired by the noble Baroness, Lady Noakes.

The FCA has a comprehensive set of enforcement powers that will help it to ensure compliance with its rules and to act decisively where firms are failing to comply. As well as ensuring that an expert body with the right objectives, powers and resources can fulfil this function, this approach ensures that the rules can adapt as needed in the future to stay current and respond to future trends.

The noble Baroness, Lady Neville-Rolfe, asked when Parliament will see the replacement rules and how the transition period might work. The FCA will set out the detail of the new rules through its normal rule-making process. Repeal of legislation will be commenced only once the relevant FCA rules are in place. The Bill contains a power for HMT to allow for an orderly transition. In practice, Parliament, consumer groups and stakeholders will see the FCA rules at consultation stage before the new regime takes effect. I am aware that some noble Lords have tabled amendments to strengthen parliamentary scrutiny further. The Government believe that the current arrangements work effectively, but I look forward to debating them in more detail later. CCA reform is an important opportunity to create a clearer, more flexible and more accessible framework that better reflects today’s consumer credit landscape.

The noble Baroness asked what rights and protections will remain in legislation. Where rights and protections require legislation to work, they will remain in legislation. Criminal offences will remain, so canvassing to minors and doorstep selling will remain in legislation, along with other key protections such as Section 75.

The noble Baroness, Lady Neville-Rolfe, also asked about the impact on smaller firms, as the FCA replaces parts of the Consumer Credit Act. I can assure her that the aim of the reform is to create a more proportionate set of regulations for all firms, including smaller lenders. Everyone will benefit from this modernised regime.

I hope I have provided the Committee with some assurances that the CCA reforms are vital. I ask the noble Baroness, Lady Neville-Rolfe, to withdraw her amendment.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank all noble Lords who have contributed to this debate and the Minister for his response. I particularly thank my noble friend Lady Noakes, the noble Baroness, Lady Kramer, and my noble friends Lord Goodman and Lord Ranger of Northwood, all of whom, I think, echoed the Opposition’s concern about overdelegation. In fact, I appreciated and enjoyed their interesting historical and contemporary perspectives, which brought the matter to light.

The discussion has demonstrated that the concern at the heart of these amendments extends well beyond the technical details of consumer credit regulation. It concerns a fundamental question about how Parliament performs its constitutional role, particularly when substantial powers are transferred from statute to regulators. I will not repeat all the points made by my noble friend Lady Noakes, but we need to look at Parliament’s oversight. There is a democratic deficit. We will no doubt debate her letter when we come to Clause 17. I noted the support of the noble Lord, Lord Davies of Brixton, for bottoming out the role of the committee and the points that he made.

We support the objective of modernising the consumer credit framework—I would like to emphasise that—but reform cannot mean that Parliament approves the removal of existing protections without seeing what will replace them. Nor should moving provisions into a regulator’s rulebook place it beyond meaningful parliamentary scrutiny. We will continue to apply these principles throughout our deliberations in this Committee. Wherever the Bill delegates new powers or expands the remit of the Treasury or the regulators, we will be asking the same essential questions. What safeguards will govern the exercise of these powers? Who will be accountable for the decisions taken? How will Parliament examine what is being proposed, assess whether it is working—because follow-up is important too—and intervene where it is not?

There must be a direct relationship between power and accountability, and when the authority, discretion or remit of a regulator is increased, the capacity for effective oversight must increase alongside it. It is constitutionally perverse for an expansion of regulatory power to be accompanied by a weakening of parliamentary scrutiny. The Government repeatedly invoke the need for agility, which I understand, and we recognise the value of a framework that can respond to changing markets and emerging technologies. My noble friend Lord Blackwell warned against the confusing dual responsibility that sometimes exists between the CCA and the courts and regulators, but the noble Baroness, Lady Bowles, pointed out that it is not as simple as delegating everything to the FCA, which is not a legislator. She was right to warn against automated substitution.

Agility cannot become a proxy for opaqueness and flexibility cannot become an excuse for removing important decisions from democratic oversight. The Government must demonstrate that each transfer of power is not merely convenient but necessary, proportionate and matched by effective accountability. If the Minister is willing to engage with us on this basis, we will do so constructively, but we will continue to challenge any provision that asks Parliament to surrender oversight without first showing how that oversight will be replaced. We will return to this issue on Report, unless we can find a better way of ensuring proper scrutiny, but for now I beg leave to withdraw my amendment.

Amendment 1 withdrawn.

16:30

Debate on whether Clause 1 should stand part of the Bill.

Member’s explanatory statement

This opposition to Clause 1, together with my opposition to Schedule 1, would remove the changes to the Consumer Credit Act 1974.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I oppose Clause 1 and Schedule 1 standing part of the Bill. I shall speak also to my detailed amendments to the schedule, which appear as Amendments 4 to 17.

We all know how consumer agreements work, whether for credit or anything else. There is always an asymmetry of power between the provider and the consumer. Nowadays, it is often impossible to speak to a person rather than a bot. If you do get a person, it is a call centre with scripted questions and answers, often including a recital of terms and conditions faster than it is possible to understand. You cannot get to the next stage without saying, “Yes, I have understood and agreed”, when, in truth, you have not. You do not even see the terms and conditions until after you have clicked “Yes”, then you are given a time-limited right to withdraw. This back-to-front impatience to get boxes ticked first is now a feature of the modern consumer environment—one that I fear we have now replicated in the legislative procedures in the Bill, only here, once Parliament ticks the box, there is no cooling-off period and no right to withdraw.

The Bill repeals parts of the Consumer Credit Act. It gives the Government open-ended regulation-making powers before there has been any consultation and before we have seen the shape or operation of any FCA rules. I cannot support that. It goes too far, too fast and too unseen. That is not the way to make irrevocable changes. So I will not tick the box. I want to know what I am signing up to, just as the consumer must. I want to know that what are presented as rights are, in fact, rights.

Clause 1 repeals statutory rights before replacements exist. The Government take powers to make regulations before consultation. At the very least, that is a reason to take a great deal of notice of what is being said by Parliament. I also question whether this approach meets the Government’s own statutory duties under the Legislative and Regulatory Reform Act 2006, which requires regulation to be proportionate, accountable and transparent. Repealing rights before replacements exist does not seem to meet those tests. This is a fundamental change from the status quo, where rights are in statute and rules are made to assist in negotiating the statute.

Clause 1 reverses that. It removes statutory protections now and offers only a possibility of regulatory rules later. Rules are not rights. Rules can be changed by the rule-maker, whereas rights bind everyone, including the regulator. The Government’s approach is, therefore, constitutionally backwards. Parliament is being asked to repeal rights without knowing what will replace them. It is like signing a credit agreement without knowing the terms, and we are being asked to sign it on behalf of the public.

My solution would be to preserve a statutory floor, both now and in future, and not a temporary one that could be slowly eroded at the whim of the Government or a regulator. My amendments to Schedule 1 are intended to show how this can be done; I thank Which? for its assistance in preparing them. They aim to preserve important provisions in relation to notices of arrears and default sums, as well as the unenforceability sanctions attached to them in the Consumer Credit Act. These are the legal backstops—the protections that ensure that rights are real.

I shall explain what my amendments do and why they matter. First, they would preserve the requirement to serve notices of arrears and default sums and the statutory consequences of failing to do so. These provisions apply, for example, where a borrower has fallen behind on payments. A default notice must be served before a creditor can take certain drastic steps such as terminating the agreement, demanding early repayment or recovering goods and land. Default notices also play an important part in determining when debts become statute barred, because, once served, lenders have six years to take court action. Secondly, they would keep these protections in legislation but allow the FCA to modernise the form and content of the notices. That is the right balance. Technology changes, as does the way in which information is presented, but the underlying rights do not and should not.

The Government’s approach is to repeal the majority of the CCA provisions with the suggestion that they could be recast into FCA rules at some future point, subject to consultation. That means there will be no parliamentary scrutiny of what these protections might look like once they are repealed. My amendments would guarantee that the core protections remained mandatory legal requirements while allowing the FCA to update the way in which information is provided. That is what the legislation should have done from the start—modernise the form, not abolish the substance.

I turn to sanctions, which is where the Consumer Credit Act is at its strongest and where the Bill is at its weakest. The sanctions in the CCA were included in 1974 because Parliament recognised the significant imbalance of power between a consumer and a creditor. Parliament wanted proactive compliance with the law, not a system where an individual consumer must detect a breach, voice a complaint, and then pursue slow and time-consuming legal or ombudsman remedies, particularly when those consumers are likely to be vulnerable, stressed or in financial difficulty.

The sanctions ensure that a creditor cannot take steps against a debtor while the creditor is non-compliant with the law. They are automatic. They work because they require compliance up front, not after the harm has occurred, and they cannot be replicated in FCA rules. Without those sanctions, consumers may face new threats from being pursued for debts, particularly when debts are sold to unauthorised debt purchasers. The burden shifts on to the consumer to detect breaches and seek redress. Vulnerable consumers are disproportionately harmed, and the automatic reprieve that Parliament deliberately created is lost.

My amendments would ensure that those sanctions on arrears and default notices remained in legislation while allowing the FCA to modernise the way information was presented. That would preserve vital individual rights while recognising that flexibility is needed in a digital age. That is not an unusual approach. The CCA and the FCA’s existing consumer credit rules already operate in a complementary way.

The amendments I have tabled focus on arrears and default notices because that is where the greatest harm would arise if protections were removed, but they are only exemplary. They show the balanced approach that should have been taken across the whole reform of the Consumer Credit Act: move form and content to the FCA rules where appropriate but keep the substantive protections in legislation. I am looking for that complete reform.

There are other areas, such as the form and content of credit agreements, the duty to provide information under fixed-sum and running-account agreements, and the sanctions for improperly executed agreements, where the same balanced approach could and should be taken. I would be happy to meet to discuss those. The Government’s own consultation on CCA reform was meant to have two phases. Phase 1, on information requirements and sanctions, took place, but phase 2, on key consumer rights, was scrapped. That is not a sound basis for repealing rights now and promising rules later.

The CCA was ground-breaking for creating automatic protections, even if at times those protections have been bitten for trivialities. That is a reason for modification, not cancellation. Their purpose is still relevant: ensuring active compliance, preventing regulatory creep and protecting vulnerable consumers. They cannot be replaced with certainty in FCA rules. Their removal shifts the burden on to consumers. This is a regression in consumer protection at a time when modern communications already curtail the time for circumspection.

If the Government were bringing forward a coherent replacement for the Consumer Credit Act, it would look something like this: statutory principles of fairness, transparency, good faith and protection against unequal bargaining power. Those are not exotic ideas; they exist in other jurisdictions. Australia’s unconscionable conduct regime is one example. At the end of the day, businesses must think and exert conscience and play fair, but that is not what Clause 1 does. It removes rights without replacing them. Modernisation is possible but I will not tick the box on behalf of the public until I have seen the replacement and until I know that it preserves rights now and in the statute. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I must apologise: I was not in the country for Second Reading, so this is my first intervention on the Bill.

I support wholeheartedly the amendments in the name of the noble Baroness, Lady Bowles, and the rationale that she has just explained. I thank Which? for the work that it has been doing on the Bill and to try to help consumers.

I cannot support this leap in the dark for parliamentary scrutiny and I cannot support imposing this leap in the dark on consumers. At the end of the day, that is what the provisions in Schedule 1 are at risk of doing. I believe that the noble Baroness, Lady Bowles, with her amendments, and the amendments that we have seen from other noble Lords in the first group, are seeking to help the Government to achieve their aims more safely for consumers. I believe that what the Government are trying to do has the right motive; it is about whether the manner in which this is being done is safe for us to agree to—and I do not believe that it is.

If we think one step ahead, what protection will consumers have against the FCA making a significant error in its regulation? What protection will consumers have if the asymmetry of information and power that we know already exists in the financial services industry, especially for retail customers, continues along its current lines? I hope that the Government and the Committee will recognise that leaving consumer protection to the regulators is not a safe thing to do if you want to improve consumer protection—and, as I say, I believe that is what the Government would like to do.

The FCA has a peculiar regulatory style. For example, if it has discovered or suspected wrongdoing, it does not, as you might expect, do mystery shopping on behalf of consumers. It will ask firms generally to investigate how they behave and then to report to the FCA. That may work but it will not always work, and there is no fallback protection such as we have in the Consumer Credit Act if the consumer experience is not as it has been portrayed or as the FCA might have expected. There is a consumer panel as part of the FCA, but, in my experience with a number of financial scandals or problems that have arisen for consumers, the FCA consumer panel has little or no power. It is not listened to and does not form part of the FCA regulatory decision-making process that perhaps one would need to be confident that it represents in the case of passing on this protection to the FCA.

I hope that the Minister and the Government will listen carefully to the arguments that have been made so far in the first two groups and recognise the damage that could be done by pursuing the proposed actions.

16:45

[Lord Blackwell (Con)]

My Lords, I am more sympathetic to the approach that the Government are taking here. I think that we need to be careful what we ask for when we interpret parliamentary oversight as potentially meaning Parliament being involved in the drafting and redrafting of every detailed regulation. Not only is that time-consuming and likely to lead to long delays, but I fear that the political process will inevitably mean that it is weighted to the highest level of consumer protection regardless of the costs or the side consequences. There are other ways of having parliamentary oversight of the regulator. The Government can appoint the chairman, the chief executive and the board members. It does not have to be ex ante writing and approval of all the rules in primary legislation or committee. Parliament can excise oversight by holding the FCA ex post to account on whether it is fulfilling its remit in a sensible and proportionate manner.

We have chosen this system of having regulators. We should allow those regulators to operate properly and then hold them to account. When Members refer to the long list of protocols that consumers are led through in order to buy products, a lot of that is belt-and-braces protection that the financial institutions have been forced to put in place because of the complexity of the regulation and the risks of action against them if they do not ensure that the consumer has satisfied every detail of the consumer protection. The role of the regulators here is to exercise proportionate regulation. I think that we should hold them to account ex post rather than trying to insert Parliament in the process ex ante.

[Baroness Noakes (Con)]

My Lords, I disagree with what my noble friend Lord Blackwell has just said. He has fallen into the trap of believing that an accountability process can be effective within Parliament. The experience that I and my committee have had is that there are limits to what can be achieved in terms of parliamentary accountability. That is one of the reasons why there are other amendments later in this Bill to find other mechanisms for improving accountability.

It is important to differentiate between those areas where Parliament has a right to be democratically involved in the decisions and those areas that can safely be left to the regulators to carry out the detail and to be held accountable for that. It is the balance that we are concerned about. I would probably end up with a different decision on whether certain of the protections in the existing legislation need to be retained as well as on improving the way in which the legislation works by updating it to a modern digital age. There is genuinely a case for looking again at whether the sanctions that exist in the consumer credit legislation are right for today’s world. I believe that some of them are too severe or can be disproportionate to the issues that are involved in practice—for example, minor breaches in relation to enforcement notices.

I would not necessarily end up with the view that what is currently in the legislation must be preserved for all time, but I think that Parliament needs an involvement in some of those key decisions about the parameters of where liability exists and what sort of sanctions can be applied. That is why I think that we must constantly differentiate between democratic oversight and parliamentary accountability. They are complementary but different things.

[Lord Carlile of Berriew (CB)]

My Lords, I speak with diffidence on this matter, as I am not an expert on consumer credit. I have been involved in many cases over the years when consumers have been dissatisfied with the consumer credit arrangements that they have undertaken and have felt that there was a serious breach of contract. I am concerned that we are suggesting here that parliamentary process is the answer to many consumer credit complaints, even though parliamentary process is just about the least living instrument in our possession. It seems that the purpose of Clause 1 and Schedule 1 is to ensure that what is created is a living instrument that will modernise the consumer credit framework—not weaken consumer protection—and will become more effective because it sits in FCA rules rather than in primary legislation. It has been suggested that FCA rules are not subject to the courts, but there is already an elaborate system in place in the FCA rules.

In this debate so far, no one has mentioned the Consumer Duty, an extremely detailed document that has been in existence for three and a half years and that has, in my view, served the FCA well. If you look at the comments from law firms, which one can find all over the internet, the result is that there has been a much more informal resolution of difficulties than relying on the old system before the Consumer Duty was created. Therefore, I believe that FCA rules are part of a living instrument: they are binding, enforceable and subject to consultation and scrutiny. At the end of the day, if someone breaks the law, they are of course subject to the courts as well. That goes without saying and to suggest the contrary would be nonsense.

[Baroness Lawlor (Con)]

My Lords, I hesitate to follow the noble Lord, Lord Carlile, who, although he is not a specialist in this area, is a lawyer. I will speak in support of this group of amendments; I would have done the same for the first group, had I been here. It is important that businesses and consumers alike have the protection of a law that is predictable and transparent and where no doubt arises about its interpretation. Many doubts have arisen around the judgments and rulings of the FCA and its lack of consistency. Therefore, I am sympathetic to the wish of the noble Baroness, Lady Bowles, to have something done on paper, so that we can see something before putting it through.

Both businesses and consumers are used to having a legal surround for such transactions. They go back to the 1850s in the Bills of Sale Act 1854, which was modernised throughout the end of the 19th century and then followed by the Money-lenders Act 1900, obliging the registration of moneylending and allowing the courts to be involved. It is important that we have judicial oversight, not just by updating the process—although I agree with noble Lords on that—but with a legal framework that is transparent and consistent and that allows people to see what is expected.

I am also concerned about the impact of rushing through legislation to empower an as yet uncertain regime of rule-making, about which nothing of substance is known. The FCA appears to be as unprepared for this as others. In its response last month to the Treasury’s announcement of the reform of the Consumer Credit Act, the FCA said that such reform

“is an important step towards a more flexible regime that supports effective competition and innovation, while maintaining appropriate consumer protection both now and in the future”.

It acknowledged that it would put

“greater emphasis on FCA rules and guidance rather than prescriptive requirements set out in legislation”.

It states that it intends

“to consult on the key elements of the … framework … set out in legislation”.

One problem with being flexible—or moving to what the FCA calls

“a more flexible regime that supports effective competition and innovation, while maintaining appropriate consumer protection both now and in the future”—

is that flexibility can be inconsistent and lack transparency. What is appropriate for one firm may not be so for another. It brings doubts into the minds of businesses. We have heard of businesses being concerned about the arrangements run by the FCA. For example, given that many of the requirements to disclose information in the CCA and associated regulations are to be repealed, how transparent will the rules be? How consistently will they operate? Will the FCA’s rulings be published? If they are to be less prescriptive and more in line with the FCA’s consumer duty principle, how certain can businesses be about what counts as being in scope?

Before closing, I would like to mention another concern: the considerable compliance costs. Most of the disclosure of information obligations on the CCA, and in the linked regulations being repealed and replaced by FCA rules, will bring costs. I am grateful to Addleshaw Goddard LLP for its analysis, published on its website, which suggests:

“Reforms in relation to arrears, default notices & in-life information are likely to create major operational impact for collections and arrears handling. Given the high litigation risks attached to these requirements firms should carefully consider these changes and monitor how these requirements will be re-designed in FCA rules”.


Here, we should think of the start-up costs for this new system, along with the continuing compliance costs, which will be considerable. Take, for instance, the information requirements. How will they affect the estimated 30,000 firms that will have to amend documentation that does not align with the consumer duty?

With those thoughts, I support the thinking behind the stand part notice in the name of the noble Baroness, Lady Bowles, with its question mark around the wholesale transfer of such powers without any information on how they will be operated or regulated—or, indeed, what they will be now.

[Lord Altrincham (Con)]

My Lords, I declare my interest in South Molton Street Capital, which is regulated by the FCA.

The amendments in this group reflect concerns similar to those raised in our previous debate. As the noble Baroness, Lady Bowles, and my noble friend Lady Neville-Rolfe have argued, it is for the Government now to set out a compelling case for moving Consumer Credit Act provisions into the FCA rulebook. This is a serious new precedent and they must meet it with an equally serious explanation. Regulatory flexibility, or, as we have heard from my noble friends, the living instrument arguments, may be appropriate for matters of form, process and technical detail. However, that flexibility comes with risks. Consumers, firms and the courts all benefit when substantive rights and remedies are stated clearly in law. Notwithstanding the comments made by the Minister, moving them into regulatory rules may reduce their visibility, create uncertainty about their permanence and make their enforceability less clear. I hope that the Minister will be able to assure us further on how the proposal before us will avoid that issue.

There is an important constitutional principle at stake. If rights established by Parliament can, in effect, be rewritten through regulator-made rules, Parliament’s role in determining the proper balance between consumer protection and regulatory proportionality is diminished. More broadly, public confidence depends on protections being visible, accessible and readily understood. This is particularly important in consumer credit, where people may be making difficult or significant financial decisions while facing difficult or vulnerable circumstances. Rights are of limited value if consumers cannot identify or understand them and cannot be confident about how they will be enforced.

Fundamentally, we need a lot more clarity on this process and on what the Minister described as the orderly transition. We shall listen carefully to his response on this group, in addition to his previous reply.

17:00

[Lord Stockwood (Lab)]

My Lords, I thank noble Lords for the opportunity to set out the Government’s position on this important set of issues. I start by addressing why Clause 1 and Schedule 1 should stand part of the Bill. However, I do not want to duplicate what I said on the previous group, where I set out at length the Government’s policy for the CCA. Suffice it to say that the case for reform is straightforward. The Consumer Credit Act is more than 50 years old and was enacted long before the creation of the FCA. It no longer delivers as it should for today’s consumers, who engage with modern products in an increasingly digital world. That is why the Bill continues the work that began in 2012 of repealing this outdated legislation, such that it can be replaced with updated rules that better meet the needs of consumers and are fit for this digital age.

I understand the strength of feeling on the question of delegation, but I note that the noble Lord, Lord Blackwell, said that this is not a consensus. As I have said, this is entirely consistent with the model of regulation established by Parliament in the Financial Services and Markets Act 2000. The Government strongly believe that those replacement rules should, in the main, reside in the FCA rulebook, not in primary legislation.

The noble Baroness, Lady Bowles, expressed concern about how the FCA will replace some key protections, including information requirements. In the last group, I already explained the process that the FCA will follow. As I said, in practice, Parliament, the sector and consumer groups will see the FCA’s detailed proposals at the consultation stage, before the new regime takes place. I am happy to assure the noble Baroness that the FCA’s recent public statement confirmed that it aims to consult on key information requirements, rights and protections, including cancellation and withdrawal, the termination of agreements, including early settlement, and on looking across the consumer credit journey, with this approach being underpinned by the consumer duty. This will be supported by consultation and cost-benefit analysis, consumer research and stakeholder feedback.

Amendments 4, 5, 7, 8, 9, 10, 11, 12, 13, 14 and 16 would retain information requirements and related sanctions in legislation or limit the FCA to prescribing only the form and content of notices. That would preserve the rigidity we are seeking to address. I cannot accept these amendments, as the provisions are not fit for the digital age. The Bill repeals these rigid statutory requirements so that the FCA can develop a more effective, rules-based regime. This is not about reducing information but about improving its timing, its quality and its clarity. The aim of the regime is that it provides consumers with better information in a clearer form and at a time that is most useful to them.

The consequence of repealing these information requirements is that certain related sanctions will fall away. These sanctions were designed for a different era. The Office of Fair Trading had limited powers for supervision and enforcement, so the regime was designed to be draconian to act as a robust deterrent. The sanctions apply automatically, regardless of the seriousness of any breach or whether any consumer harm has arisen. For example, a lender that used the incorrect wording in an arrears notice is required to refund any interest and fees charged from the point at which that breach was originally made, even if the error was in no way harmful to the borrower. Much has changed over the years since these sanctions were designed, and this approach is poorly suited to the modern approach to regulation. The FCA has strong supervisory and enforcement powers, and under consumer duties firms must deliver good outcomes. Unlike when the CCA was enacted, any consumer who suffers harm can straightforwardly access redress through the Financial Ombudsman Service, the FOS.

I recognise the concern behind Amendment 2, which seeks to ensure that FCA rules can supplement but not replace or diminish rights and remedies in the CCA. However, the Bill already preserves statutory rights that need to remain in legislation. Because FCA rules are not capable of eroding such rights, the amendment is not necessary.

I have already set out, in the last group, several examples of protections that remain in primary legislation, including Section 75 and provisions connected to criminal offences, which must of course remain in legislation. Amendments 6 and 15 would retain withdrawal, cancellation and early settlement rights in the CCA rather than allowing them to be recast into FCA rules. These rights are an important feature of consumer credit products that ought to be preserved. However, the current framework is complex and outdated and, as a result, not always well understood by consumers. The purpose of reform is to ensure that these protections work better for consumers, which is why the FCA has committed to consider cancellation rights alongside other rights including withdrawal, termination of agreements and early settlement, as part of its future framework. The amendments would prevent the FCA taking forward this vital work.

Lastly, Amendment 17 covers certain important rights, such as time orders, and seeks to retain these provisions within legislation without changes. However, changes to these provisions are necessary to ensure that they work together with the new information requirements recast into FCA rules.

I hope that I have been able to reassure noble Lords that the Government are taking forward these changes for the benefit of consumers, and convince them that the changes the Bill makes are necessary to modernise our protections and ensure that they are serving their intended purpose of protecting consumers. I acknowledge that we will come to the scrutiny of the regulators, especially the FCA, in future groups. I therefore propose that Clause 1 and Schedule 1 stand part of the Bill and respectfully ask the noble Baroness not to press her opposition to them.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister and all who have spoken in this debate. I am sorry that, to some extent, having it in two separate bits has made it more awkward. We are at a kind of impasse here. The Minister replies as though we are saying that nothing in the Consumer Credit Act can be changed and it will all have to stay there. In fact, all I am saying is that there are some basic core rights in statute, similar to the sorts of core rights that exist in many other Commonwealth countries, that should remain, because you do not have rights with the regulator. As my noble friend Lord Sharkey explained, the consumer duty does not give you any rights. It is about the opinion of the FCA, and it can change how it will apply it.

The main thing that we are objecting to is that the Bill is shoot first, ask questions later: “Give us all the power now and we’ll consult and tell you what we’re actually going to do later”. That is not the way to make legislation right—it is not how you would hire a telly, for heaven’s sake. We are being asked to tick the box on behalf of the public for something that is fundamentally unseen. The Bill does not retain core rights. It says that some things will change and gives an open-ended power to change everything else automatically when the Government want to. The fact that the Government are not taking rights away now does not mean that they cannot take them away later.

That is the impasse that we are at. We need some core rights that stay. The rest can all be simplified, streamlined and handled by the FCA and made more modern. The two should be able to work together, but it is not a simple fix. This has been pushed through without that second consultation, and that is why it is now falling apart as unsatisfactory. I will return to this when we come to Report, but, for now, I will not press my opposition to Clause 1 standing part of the Bill.

Clause 1 agreed.

Amendment 2 not moved.

Schedule 1: Consumer credit

Amendments 3 to 17 not moved.

Amendment 17A

Moved by

[Baroness Neville-Rolfe]

17A: Schedule 1, page 65, line 35, at end insert—
“38A In section 140A (unfair relationships between creditors and debtors), after subsection (4) insert—“(4A) An application under section 140B(2)(a) shall not be made, and no action for an order under section 140B shall be brought, after the expiration of six years from the date on which the relationship between the creditor and the debtor ends.””Member's explanatory statement
This amendment would retain the six-year limitation period, running from the end of the creditor-debtor relationship, for applications or actions seeking relief under sections 140A and 140B of the Consumer Credit Act 1974 in respect of an unfair relationship.

[Baroness Neville-Rolfe (Con)]

My Lords, before I turn to the detail of these amendments, I should briefly set the scene. Noble Lords will be aware that last week the Conservative Party announced a new policy in relation to the Financial Ombudsman Service. An amendment on our proposal for an alternative approach, a financial adjudication service, is currently being discussed with the Table Office, and I do not intend to pre-empt that discussion. We will have the opportunity to debate that proposal at a later stage of the Bill.

The clauses before us, by contrast, change the landscape of dispute resolution in financial services in the immediate term. Our policy announcement does not prevent us engaging properly with the provisions before us now. Indeed, it makes it more important that we do so. We want whatever system Parliament agrees on now to work as well as it can. The amendments in this group are concerned with certainty, timeliness and fairness. They are intended to ensure that the framework being created by the Bill does not introduce unnecessary uncertainty for firms, does not allow yet further delay to become embedded in the system and does not create open-ended liabilities or an undesirable degree of retrospection.

I turn first to Amendment 17A, which relates to unfair relationships under Sections 140A and 140B of the Consumer Credit Act 1974. Its purpose is to retain the six-year limitation period running from the end—I emphasise “end”—of the creditor-debtor relationship for applications or actions seeking relief in respect of an unfair relationship. These can of course go back many years. This reflects a concern that has been raised with us following the Supreme Court ruling in THG plc v Zedra Trust Company (Jersey) Ltd, which found that unfair prejudice petitions under Section 994 of the Companies Act 2006 are not subject to statutory limitation periods. I appreciate that that judgment arose in a different statutory context, but it has prompted a serious and practical question. Does that reasoning have any implications for applications or actions seeking relief under Sections 140A and 140B of the Consumer Credit Act?

If there is any doubt about the applicable limitation period, the consequences could be significant. Credit agreements, and the relationships arising from them, may have ended many years earlier. Banks and other lenders do not keep records indefinitely. They cannot reasonably be expected to defend claims on the basis of files, communications, systems and decision-making processes from an indefinite period in the past. That is why limitation periods matter. They reflect a basic principle of fairness: that after a certain period evidence may be lost, as memories fade and documents are no longer available. Without a clear time limit, firms could be exposed to open-ended liability and a significant increase in vexatious or speculative claims, often fired up by claims management companies.

Amendment 17A therefore seeks to preserve the existing position that, where relief is sought under Sections 140A and 140B in respect of an unfair relationship, the relevant limitation period should be six years from the date on which the relationship between the creditor and the debtor ends. I would be grateful if the Minister could give some clear answers here. As my noble friend Lady Lawlor said in the previous group, it is important to have predictability. Does the Government’s understanding remain that the six-year period applies? Has the position been affected in any way by the Supreme Court’s reasoning in THG v Zedra? If the Government consider the position is already clear, will the Minister set that out on the record? If there is any doubt, will he commit to preserving the current six-year period?

I turn next to Amendment 36, which concerns referrals from the Financial Ombudsman to the FCA. The Bill creates a new mechanism by which the Financial Ombudsman may refer matters to the FCA where there is an issue of wider significance or where FCA rules may be ambiguous. In principle, that is sensible and an important mechanism, but one of the recurring criticisms of the current system is that firms can find themselves judged against interpretations or expectations that were not clear at the time.

A route for the FCA to provide clarity is therefore welcome. However, that mechanism will work only if it operates at pace. If a complaint is referred to the FCA and then sits there for months, the result will be uncertainty for everyone. The consumer is left waiting, the firm is left with a live and unresolved complaint and the ombudsman cannot proceed. The wider market may be left in doubt about the meaning or application of the rules.

17:15

Amendment 36 is therefore designed to ensure that the system operates at pace and with clarity about the timeframes in place. It would require regulations governing referrals from the Financial Ombudsman to the FCA to include a 30-day time limit for FCA opinions, subject to appropriate exceptions. Where an interim response is given, it would require the FCA to provide reasons and to set the expected timing of a final response. It would provide for the annual publication of data on referrals and delays. Is the Minister confident that the FCA can deliver opinions within a 30-day timescale? If the answer is yes, why not put that in the Bill? If the answer is no, the Committee is entitled to ask how the Government expect the new referral mechanism to improve certainty rather than introduce a new source of delay.

Finally, Amendment 44 has echoes of Amendment 17A, but makes a different point, so I hope that the Committee will bear with me. This amendment concerns the interaction between the Bill’s changes to FOS time limits and the FCA’s power to impose consumer address schemes under Section 404 of FSMA. The immediate issue arises from Clause 6, which changes the time limit for complaints under the compulsory jurisdiction of the Financial Ombudsman. The current six-year time limit corresponds broadly to the limitation period for a legal claim. In the case of a credit agreement, that will generally be six years after the agreement expires. There is rightly a saving provision in legal proceedings where there has been deliberate concealment or fraud. The Bill removes the alternative three-year time limit from when a complainant becomes aware of a claim. I am concerned that alternative limits can produce uncertainty and complexity.

Clause 6 goes further. It increases the overriding time limit from six years to 10 years. That is a significant change in itself, but the real concern arises when Clause 6 is read with Clause 10. At present, Section 404 of FSMA allows the FCA to impose a consumer redress scheme where it considers that there has been widespread or regular failure causing loss to consumers. We all know that the impact of such schemes can be enormous. The proposed motor finance consumer redress scheme has been estimated to cost around £9 billion. Under the existing Section 404 framework, the FCA can impose a consumer redress scheme only where there would be a remedy in legal proceedings. In other words, the FCA cannot use a redress scheme to revive claims that would be time barred. That is an important safeguard. It means that the regulatory redress powers broadly track the position that would apply in court.

Clause 10 changes that. It removes the requirement that redress must be available in legal proceedings. Instead, the FCA need only have regard to the possibility of consumers obtaining redress under the ombudsman scheme, but Clause 6 extends the ombudsman time limit to 10 years. I do not think that the Government have justified that change. The six-year limitation period exists for good reasons. Six years is the standard period in UK civil law under the Limitation Act 1980. It reflects the point at which claims become stale, evidence becomes unreliable and firms may no longer have the records needed to defend themselves properly. To extend that period to 10 years for the purposes of consumer redress schemes is a serious step. Amendment 44 therefore provides a simpler proportionate safeguard. It would ensure that the FCA cannot impose a consumer redress scheme in respect of loss or damage where, by reason only of the lapse of time, no remedy or relief would be available in legal proceedings on the date the rules are made. It also preserves appropriate exceptions for cases equivalent to fraud or deliberate concealment.

This is not about preventing redress where redress is properly due, nor is it about protecting firms from legitimate claims. It is about ensuring that the FCA’s redress powers do not become a route to overriding ordinary limitation principles without Parliament clearly and expressly deciding that that should happen.

Will the Minister explain the Government’s position on three points? First, do the Government accept that the combined effect of Clauses 6 and 10 is to extend, in practice, the period within which the FCA may impose a consumer redress scheme from six years to 10, and does he anticipate that the change we described in Amendment 17A has an effect on these notices and on the time limits applicable? Secondly, if they accept that, what is the justification for such a significant extension? Thirdly, if they do not intend to allow the FCA to impose redress schemes where no legal remedy would be available because of limitation, will they accept the principle behind Amendment 44?

These amendments are all directed at the same underlying concern. Consumers need a system that is fair, timely and capable of delivering redress where it is properly due. Firms need a system that is clear, predictable and not retrospective in effect. The wider market needs confidence that regulatory powers will be exercised within defined and proportionate limits. I hope that the Minister will be able to provide the clarity that we seek. This is very much a Committee-style discussion, and I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

I would like to join in this discussion because it is probing thoughts. I shall make a few comments on Amendment 17A, because the issue overlaps with an amendment of mine that comes later in the main FOS group.

Amendment 17A raises an important point about limitation periods and the concept of when a relationship ends. It seeks to preserve the six-year limitation period for unfair relationship claims, running from the end of the creditor-debtor relationship. I understand the intention, but it exposes a deeper difficulty. The end of a relationship is not, or may not be, the same as the end of rights and it is certainly not the same as the end of enforcement powers. In many cases, firms retain continuing benefits or enforcement rights long after the consumer’s remedies have expired. Debts can be sold, pursued, securitised or enforced years after the practical relationship has ended, yet the consumer’s ability to challenge an unfair relationship may already have fallen away. That is an asymmetry.

As I said at Second Reading, while I understand the industry’s desire to get a grip on long-tail risk and liabilities, especially where regulators are interested in it, that cannot be done off the back of consumers. If we are to move parts of the Consumer Credit Act into the FCA rules, at the very least those rules must be required to secure, as far as reasonably practicable, symmetry between the duration of rights, remedies and redress available to consumers and the duration of rights, remedies, enforcement powers or continuing benefits to firms arising from the same act, omission or relationship. Without that symmetry, we risk creating a regime where firms retain long-tail powers but consumers lose long-tail protections. Limitation periods cannot be considered in isolation from the underlying rights. The two must move together or we distort the balance that Parliament intended. That is why the statutory framework has a place.

The FCA has already announced, a year or so back, a shift in emphasis to allow more risk in the interests of growth, which is a recurring theme. That was an important statement by the FCA and it feeds into the need for proportionate regulation and acceptance that there may be more failures, which Parliament must accept, but it cannot mean a bias advantage towards business in ways where firms retain recourse against consumers while consumers lose recourse against firms.

Under that process, companies may enjoy growth by escaping the consequences of some bad actions, but that gain is extracted from consumers and effectively added to the cost of living. Fleecing consumers is not growth, but I fear that this may be the consequence of the asymmetry in rights that could arise under Amendment 17A. I may return to this issue with my own amendment on Report.

[Baroness Kramer (LD)]

My Lords—

[Lord Davies of Brixton (Lab)]

Sorry. Were you winding?

[Baroness Kramer (LD)]

Yes.

[Lord Davies of Brixton (Lab)]

I just wanted to say that I have a lot to say on the Financial Ombudsman Service but I shall save it all for group 6.

[Baroness Altmann (Non-Afl)]

My Lords, first, I declare an interest, which perhaps I should have done at the beginning. I am a director of a pension company that is regulated by the FCA. I apologise for not having declared that earlier.

I will reflect on an issue that could arise because the Financial Ombudsman Service is in charge of complaints about pensions. We know that many people who are taking out pensions products may have problems that do not become apparent to them for six or 10 years or beyond. Perhaps we could consider an amendment that would carve out the extent to which the Financial Ombudsman Service deals with a pension complaint in relation to this element of the Bill.

[Baroness Kramer (LD)]

My Lords, I have only a few comments on this group. As I listened to the comments on Amendment 17A, particularly those of my noble friend Lady Bowles and the noble Baroness, Lady Altmann, I understood what reminded them of mortgage prisoners. In that case, people who held mortgages with banks that failed, and who were rescued by the Treasury, were then sold on to private holders who were not themselves lenders of mortgages. In effect, they lost the ability to refinance, and so they remained imprisoned in very high-rate mortgages at a time when everyone else was able to remortgage. We can see echoes of that in some of the limitations that would be introduced by these amendments. I am therefore always concerned about those time limitations, particularly in situations where assets can be sold on, as they often and increasingly are today.

Amendment 44, from the noble Baroness, Lady Neville-Rolfe, seeks to deal with the issue of consumer redress. If a consumer has been abused in some way and has a moral right to redress—a right in law—should that be lost simply because we have a regulator that fails to act promptly and within a reasonable time? I understand that it is tough for the industry, because it leaves it with uncertainty, but some of these products are life-changing for individual consumers and have life consequences. That is what made me think of mortgage prisoners; their lives were completely ruined by that process.

Where there are such consequences for the individual, it is very concerning to take away the right to redress because there was a delay in the functioning of the regulator. I understand that it means that the industry has to live with uncertainty, but my advice to it is to behave well to your customers. That really is the very best way not to get into these issues.

[Lord Stockwood (Lab)]

My Lords, I begin by considering Amendments 17A and 44. The Government’s reforms to the FOS are aimed at ensuring that the legislative framework in which it operates supports it to perform effectively the role that it was established to do, providing quick, informal and impartial dispute resolution between financial services firms and their customers.

Given the nature of the FOS and the way it operates, it can be effective at resolving the majority of disputes between customers and financial services firms, but it cannot do everything, and some things are more suited to other routes. The alternative routes include the courts and a consumer redress scheme established by the FCA. These routes are more appropriate when addressing systemic issues, such as widespread mis-selling. The reforms that the Bill makes to Section 404 of the Financial Services and Markets Act 2000 are designed to enable the FCA to act quickly to prevent disruption and uncertainty when it finds that a mass redress event has occurred.

Turning to Amendment 17A, I thank the noble Baroness for raising this important issue. I recognise that there have been questions about the time limits that apply to claims brought under Sections 140A to 140C of the Consumer Credit Act 1974 in the light of the Zedra ruling. The Government understand that there is an interest in and desire for clarity in this area. The noble Baroness, Lady Neville-Rolfe, asked me about the Government’s position following the Zedra ruling and its implications for the Consumer Credit Act 1974. The Government’s position remains that the limitation period runs from the end of the credit agreement. That approach provides legal certainty and reflects the nature of these claims. That understanding is consistent with existing case law, including the Supreme Court’s judgment in Smith v RBS.

17:30

There is, however, an important nuance. Consistent with the way limitation operates more broadly, it would be suspended where there has been deliberate concealment. It is right that claimants should not be prejudiced in circumstances where relevant information has been intentionally withheld from them. The amendment before us would go significantly further. In effect, it would represent a substantial departure from the settled case law established in Smith v RBS, weakening the certainty that that judgment provides. For those reasons, although I appreciate the intention behind the amendment, the Government cannot support it. I respectfully ask the noble Baroness not to press it.

Turning to Amendment 44, I recognise that many stakeholders desire clarity around the eligibility of older complaints for the FCA’s consumer redress schemes under Section 404 of FSMA, also known as mass redress schemes. Certainty around historic liabilities matters and the bar for regulatory action must be high. This is why the FOS, which was never intended to deal with complex, systemic issues, will be made subject to an overall 10-year limit for the age of complaints, subject to key exceptions set by the FCA for long-term products such as pensions.

However, complex, systemic issues often take time to come to light. By the time the harm is understood, an ordinary court timeline may already have run out, so tying the FCA’s power under Section 404 to that timeline would mean that, in exactly those cases, consumers had no route to redress at all. The wrong would be clear but nothing could be done about it. Consumers need to have confidence in the UK’s financial system and the ability of the FCA to act on systemic compliance failures, wherever it finds them. For that reason, the Government cannot accept this amendment.

Turning to Amendment 36, the Government recognise and welcome the desire to avoid introducing unnecessary steps into the FOS’s casework process. The Government have publicly stated our intention to require the FCA to provide a response to the FOS within 30 days, in most circumstances. However, the Government consider that it is appropriate to set this requirement in secondary legislation to provide flexibility and ensure that the new process can be effectively operationalised. The FCA and the FOS are already trialling a version of the referral mechanism to learn lessons and ensure that, when fully implemented, it works effectively in providing clarity for the FOS while not leading to significant delays in its casework.

The Government recognise that it is important for firms to have certainty around historic liabilities, which is why the Bill introduces a 10-year backstop time limit for bringing cases to the FOS. However, the Government are clear that there are some circumstances where such a timeframe is not appropriate. Consumers must have confidence that they will be treated fairly by the financial services sector, and the regulator must have the ability to act decisively in cases where there have been widespread issues. These amendments would undermine this. I therefore ask the noble Baroness not to press her amendment.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to all noble Lords who have contributed to this brief debate and to the Minister for his response and clarification of THG v Zedra, which I will certainly consider.

My central point is that a redress and complaints system must be fair in operation. It must be capable of delivering justice for consumers, but it must also give firms a reasonable degree of certainty about the liabilities they face, the standards against which they are judged and the timeframes within which matters will be resolved. If we create a system in which liabilities are open-ended, where regulatory redress powers can go beyond ordinary limitation principles, and where referrals can remain unresolved for an indefinite period, I do not think it will produce a better system for consumers.

I agree that we must look after consumers—this is obviously a very important part of consumer law—but I worry that we will produce a slower, more uncertain and more contested system for everyone if we do not get these judgments right. I do not accept a bias towards business, as the noble Baroness, Lady Bowles, suggested. Actually, we are seeing a shift the other way in some of these areas, which is why I have had the representations I have had on these points and why I think is it is very important to find clarity.

I note what my noble friend Lady Altmann said about pensions. The Minister has answered and explained that he sees pensions in a slightly different way. I am not sure what the limitation rules are there.

I hope that the Minister will reflect further on the thrust of these amendments. In particular, I hope that he will consider whether the Government can provide a clearer statutory safeguard on limitation—clarity is certainly important—as well as a firmer timetable for FCA opinions. I worry that just delegating it to the FCA will mean it being in charge of its own timetable. If there were an enormous problem in the financial services industry that required the diversion of staff elsewhere, for example, things could slip, and redress for the consumer could then slip as well.

All of these amendments go in the same direction: towards fair, timely and certain decision-making, with predictability for both consumers and the businesses involved. For now, I beg leave to withdraw my amendment.

Amendment 17A withdrawn.

Schedule 1 agreed.

Clause 2 agreed.

Clause 3: Access to banking services

Amendment 18

Moved by

[Baroness Noakes]

18: Clause 3, page 1, line 21, at end insert—
“(1A) Before making regulations under this section the Treasury must consult persons which provide banking services and such other persons as the Treasury consider may be affected by the regulations.”Member’s explanatory statement
This amendment requires the Treasury to consult banks and others who might be affected by regulations on access to banking services.

[Baroness Noakes (Con)]

My Lords, in moving Amendment 18, I will also speak to my Amendments 19, 20 and 25 in this group; I am grateful to the noble Lord, Lord Vaux, for adding his name to them.

We now move on to Clause 3, which gives a very wide power for the Treasury to make pretty well any provision it feels like about providing access to banking services. It is a fact of life that major banks in the UK have been reducing their branch footprints for several years, in response to the massive shift from in-person banking to online and mobile banking. Branch visits have fallen by more than 90% since the 1980s, and debit cards overtook cash transactions in the 2010s. In 2024, only 9% of transactions were made in cash, while 93% of adults used online or mobile banking. At the same time, the activity that banks could conduct safely via branches diminished. Some might think nostalgically of the era of autonomous bank managers making lending decisions and offering investment advice, but those days have been largely risk-managed out of retail banking.

Noble Lords will be aware that the 2023 Act gave the FCA powers to protect access to cash services. I did not think that those powers were necessary, because I could see that cash was definitely on its way out, but I accept that banks have to continue to provide cash until cash-only users drop to an insignificant number. The banks have agreements with the Post Office and have voluntarily signed up to the provision of 350 joint banking hubs that provide not only cash services but, to a more limited extent, the services of community bankers.

I know that some consumer lobby groups have had statutory protections for more than cash services in their sights for some time, but it is far from clear whether more needs to be done beyond the banking hubs, which are still being rolled out. I have never seen a clear exposition of what services are missing, so I have no idea whether they are realistic in terms of continuing provision, hence I am unconvinced about the case for either statutory intervention or further regulatory powers.

The case may be made when the review being undertaken by Mr Richard Lloyd reports, but that is the time for the Government and Parliament to decide whether a statutory remedy is necessary. Frankly, it is bizarre that the Government set up the Lloyd review in the very month when they announced in the King’s Speech that they intended to legislate. Normally, we consider matters then determine whether legislation is necessary, but not in this case. Even if Mr Lloyd’s review finds that further banking services are needed, that does not inevitably lead to the need for further laws. The banking hub arrangements that I referred to are not in existence as a result of the 2023 Act, as the banks had already started to set them up. The banks are generally well aware that they are an essential part of the fabric of our society and that responsibilities go with that.

I turn to my amendments. Amendments 18 and 19 are straightforward. Amendment 18 says that the Treasury would have to consult the banks and anyone else who might be affected before making regulations. I am quite sure that Mr Lloyd will be diligent in discussing the issue of banking service provision with the banks during his review, but that is no substitute for the Treasury itself being required to consult the banks before any regulations are made. Whatever Mr Lloyd’s review concludes, it is the Treasury in the first instance that needs to decide what, if any, burdens to impose on banks, hence it is absolutely necessary that they are consulted. Amendment 19 would require the Treasury to be satisfied that the banking services which might be covered by regulations would not be provided voluntarily. There is no need to create regulatory burdens where the desired outcomes can be achieved by other means.

As I have already said, retail banks are aware of their societal responsibilities; they will also be aware of the Treasury’s power under Clause 3 to require them to do things. Hence it is highly likely that, if Mr Lloyd comes up with reasonable recommendations, there will be a voluntary agreement. That would in effect leave the power in Clause 3 to make regulations in place to make less than reasonable recommendations into law, which is particularly why Amendment 18, which requires consultation, would be essential.

My other amendments in this group, Amendments 20 and 25, are intended to ensure that any use of the regulation-making power in Clause 3 is rooted in the findings of independent reviews. At present, the regulation-making power is unlimited and its only restriction is to have regard to the findings of the Lloyd review. It does not even have to follow the findings of the Lloyd review. That review might make recommendations which the Treasury does not wish to pursue at this time. Amendment 25 would ensure that if the Treasury wished to resuscitate such recommendations at a later date, or indeed to pursue other approaches to the provision of banking services, then it would have to have another independent review to validate the necessity for using the power.

Amendment 24 in the name of the noble Baroness, Lady Bowles of Berkhamsted, would tie the use of the Clause 3 power to the Lloyd review. I see the rationale for that, but I wonder whether her amendment might ossify the concept of banking service provision into mid-2026. I am sure that the need for in-person banking services will carry on changing long after Mr Lloyd has submitted his report.

I predict that we will end up with only a very small number of bank customers who actually need in-person services. The last thing that we want to do is to make the banks carry on providing them if those services are not generally needed, because the costs would be borne not by the banks but by all bank customers, so we would be shifting burdens from one small set of consumers to another.

The noble Lord, Lord Vaux of Harrowden, has tabled a Clause 3 stand part notice, with which I have very much sympathy. The Government have stated in the Explanatory Notes, and the Minister repeated at the Dispatch Box at Second Reading, that the Government intend to narrow the power during the Bill’s passage. My own view is that it is unacceptable for the power to leave your Lordships’ House in its current wide form. The Government must narrow the power while we are scrutinising it in your Lordships’ House, since it is unacceptably wide as it stands. I beg to move.

17:45

[Lord Vaux of Harrowden (CB)]

My Lords, as this is the first time I have spoken on the Bill, I would normally apologise for not taking part in Second Reading but—how I can put this—I was enjoying my temporary retirement from the House.

[Noble Lords]

Oh!

[Lord Vaux of Harrowden (CB)]

It is very nice to be back to do another Financial Services and Markets Bill. As it is the first time I have spoken, I should declare a registered interest in Fidelity National Information Services, Inc., which is a large American company that provides services and software to a wide range of financial services companies around the world.

I have tabled Amendment 26 and given notice of my intention to oppose that Clause 3 stand part of the Bill. I have also added my name to a number of amendments in the name of the noble Baroness, Lady Noakes.

I have another interest to declare. I lost my local bank branch in my village some years ago, and I have just been informed that the last remaining bank in my nearest town is also about to close. To visit a bank branch for me will now involve a 100-mile round trip, so I am sympathetic to the idea that we need to do something to ensure continuation of access to banking services, especially in rural areas such as mine. At the same time, I am conscious that I probably visit a bank branch less than a couple of times a year, so I understand why banks feel it necessary to close them. They are not economic. We need to find a sensible balance to this. I accept that we may need to do something, but what?

There is the old joke: “We need to do something; this is something, so let’s do it”, but Clause 3 is not even something. It is just a vague—I was going to say promise, but it is not even that—intention to do something completely unspecified at an unspecified time, or indeed times, in the future. This Government have an unfortunate track record of putting sweeping powers into legislation before deciding what they actually intend to do with them, and this is yet another example. As the Delegated Powers and Regulatory Reform Committee pointed out really strongly, this is a very sweeping power with no meaningful limitations at all other than, as we have heard, the need to have regard, and only to have regard, to the independent review currently being undertaken by Richard Lloyd.

Clause 3(3), which has only examples rather than limitations, is one of the widest I have seen. It includes the express ability to make changes to any Act of Parliament, a really strong Henry VIII power. It starts by saying:

“Regulations under subsection (1) may (among other things)”


do the things listed below that. Will the Minister explain what these other things might be? Am I being old-fashioned to suggest that this is not the right way to create law? It would surely be better to wait until after the review has been undertaken, decide what is needed and then legislate—if legislation is actually necessary, since, as the noble Baroness, Lady Noakes, says, we got these banking hubs without legislation—and have the legislation subject to proper scrutiny by Parliament, which it will not be if we go down this route.

The Minister will no doubt try to reassure us about how this power will be used. Of course I—and, I am sure, everybody else in this Room—will have complete faith that the Minister would not try to misuse the power, but he will not always be the Minister. That may be a comment that has particular resonance today. Who knows? It is even possible that this Government may not always be the Government, but this power is unlimited and will be the law for the foreseeable future. Who knows what a future Government might wish to do with such an unlimited power? Indeed, as written, they could even use it to reduce the rights of access to banking.

I have a few specific questions for the Minister. First, will he explain in more detail how the Government currently expect, subject of course to the review, to use this power? What do they expect to do with it and when? Secondly, will he explain which Acts of Parliament he has in mind that might be changed under Clause 3(3)(b) and what changes he would expect to make to them? I put on record now that if I do not get a very convincing answer as to why this wide Henry VIII power is required, I will push Amendment 26, which would remove the power to amend primary legislation, to a Division on Report.

Finally, the Explanatory Memorandum recognises that this is a broad power. It says it is “necessarily broad”. At the same time, and in contrast to that, it also seems to recognise that it is broader than really needed, as it goes on to say,

“the Government would expect to narrow it once the review has concluded”.

I am somewhat baffled by that. We are in Grand Committee now, and the timetable for the Bill seems pretty tight. Will the Minister explain how it would be possible to narrow it, given that the Bill is likely to have completed all its stages before the review is completed and they have worked out what they want to do with it? Once the Bill has become law, the power cannot be narrowed.

This is another example of the Government trying to show they are doing something before they have decided what they want to do, and therefore giving themselves inappropriately broad powers that avoid proper scrutiny when they do finally decide. It is not the right way to make laws that will outlast this Government, and I do not believe this clause should stand part of the Bill without at least very significant narrowing and safeguards.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak briefly to Amendments 24 and 27 in my name. I support what has just been said by the noble Lord, Lord Vaux. To some extent, we are again fishing in the same constitutional pond that regulators are not Parliament. Parliament should not give away powers it cannot get back, and it should not make decisions before we know what we are deciding about.

Amendment 24 would ensure that any regulations made under this clause can only make provision that arises directly from the statutory review. A review is not a blank cheque. If Parliament asks for a review of access to banking services, the regulation-making power should be, if not confined to, at least in some way related to what the review identifies and not what a future Minister or regulator might wish to do. That is my real target. It may be that I have drafted he amendment a little too tightly but, as has been explained, this is a very open-ended power to do anything. Looked at constitutionally, the fact that the consultation has not yet been completed and assessed more than stretches proper procedure.

Amendment 27 addresses a different but related concern. As drafted, the Bill creates machinery in which FCA rules effectively drive changes to legislation, including primary legislation. The FCA pulls the lever, the Treasury presses the button and the law moves to reflect the regulator’s rulebook. The Government will no doubt say that Parliament can always reject the regulations, but we all know how that plays out: Parliament is presented with take-it-or-leave-it unamendable statutory instruments, and if it dares to reject them, we are told we are precipitating a constitutional crisis. That is not meaningful parliamentary control.

I am not opposed to the FCA modernising rules or streamlining processes—far from it—but where those rules have the effect of altering rights or obligations that were created by Parliament, the change must meaningfully come back to Parliament. Otherwise, we risk creating a system where the regulator can, in substance, rewrite Acts of Parliament by changing its rulebook. That is not proportionate regulation; it is law-making without accountability. Again, this seems not to be the sort of thing expected under the Legislative and Regulatory Reform Act. These amendments do not prevent modernisation; they simply ensure that modernisation happens within a statutory framework, with Parliament retaining oversight of the rights it has created. It does not mean going into the detail, but it does mean monitoring the rights. I hope the Minister will recognise that these are modest but important constitutional guardrails.

[Baroness Tyler of Enfield (LD)]

My Lords, I shall speak to Amendment 22 in my name. I apologise for not being able to speak at Second Reading, as I was overseas on a parliamentary delegation. I declare an interest as a member of the Financial Inclusion Commission and president of the Money Advice Trust.

My amendment is specifically about banking hubs, a subject I have been very interested in ever since they came on the scene. There is a need, as I see it, for a far clearer definition of what constitutes a banking hub. Looking at the range of other amendments in this group, I am pleased that we are having a broader and much-needed debate on access to banking and, in particular, in-person services than we managed to have on the 2023 Act, despite my best efforts, which did not really get us anywhere.

To explain why a definition of “banking hubs” is so important, I will briefly look at the context. As we all know, over the past decade banking in the UK has changed profoundly. More than 6,700 high street bank branches have closed since 2015. Of course, at the same time, the way that people pay for goods and services has shifted dramatically: 10 years ago, more than half of all payments were made in cash, and today that figure is closer to one in 10.

For many people, that transition has been quite manageable, and indeed welcome, if they like the convenience of digital banking online, apps or card payments. But, for others, the shift away from local branches and cash-based services has created real barriers. For someone who cannot use online banking, the closure of a local bank branch can mean losing independent access to their own money. For someone who is blind or partially sighted, inaccessible digital systems can make everyday banking difficult or, frankly, impossible. For an older person without reliable transport, the nearest banking services may simply be out of reach. For those who use cash to budget—a proportion of people still do—or to pay carers, support relatives and retain control over household spending, the disappearance of in-person banking is not just a minor inconvenience; it can affect that feeling of control, autonomy and financial security.

Banking hubs emerged as a response to this new reality, providing shared in-person access to basic banking services, including cash withdrawals and deposits, as well as a limited amount of face-to-face support. I welcome banking hubs, as I have throughout this debate. I have been pleased to visit one and see what it involved. The Government have committed to rolling out 350 hubs by 2029. For me, the questions around banking hubs are: what do they actually do? Are they doing enough and being rolled out quickly enough? Are they addressing the needs of the people who need them most? These questions are ever more pressing following the announcement, which I very much welcome, of an independent review into the impact of bank branch closures, looking at what further interventions might be needed to protect access to in-person banking services.

The noble Baroness, Lady Noakes, raised whether this is all about nostalgia and looking back to how it was in the old days—a sort of “Dad’s Army” view of banking—but we really need to recognise that it is not a question of nostalgia for traditional banking. Banking services have and will continue to evolve, and digital services will remain central, in my view, to the future of financial services, but inclusion has to be built into that transition. At the moment, we have not seen quite enough emphasis on inclusion. That key gap remained and was baked into the 2023 legislation, which is why it is so important that the independent review looks at this and comes up with good recommendations, so that the FCA can specify what a banking hub is and what qualifies as one.

Frankly, at the moment, the industry could meet all the terms of regulation without a single banking hub. It can offer services virtually, in theory—namely, through video conferencing—which might have some merit in setting out the minimum requirements for a hub and holding the industry to them in the long term. The FCA might also choose to define hubs to suit rural areas. It might be a lighter-touch model. We have to make sure that this does not impact on the Post Office and that it allows further rollout. All the evidence I have seen so far has pointed to the importance of sustainability for the Post Office and the basic banking services that it provides under the framework agreement.

Moving forward, there are big challenges. At a recent meeting of the All-Party Group on Fair Banking, there were strong calls for the FCA to prevent closures of banks—the last branch in town—until replacement access is in place. There was a feeling that the current approach is frankly too reactive, with a response often coming only after the closure occurs, and there were questions of whether communities losing their final branch should automatically receive a hub, so that there should not have to be a review. The Post Office was very much recognised as a key national asset in supporting access to cash and basic banking services.

18:00

Where hubs have been established, however, they have not always been suitably located or designed. Some are situated away from high streets or public transport links, or they operate only on limited days. Critically, they do not offer the full range of services previously available. My amendment is designed to achieve some basic and agreed definition of what constitutes a banking hub.

Most people want to be able to speak to someone face to face and access physical banking services; that is important. They might need help and advice on complicated issues to do with a loan or mortgage—they are not all done digitally—or, in particular, on powers of attorney, probate or third-party signatories when a family member becomes incapacitated or passes away. At moments of great emotional stress, and I speak from personal experience here, people want and need a real human being to talk to and navigate them through unfamiliar territory. They do not want to do it over the phone, on live chat or in a distant town.

Everyone will have their own view of what that tighter definition, which I think is needed and is what my amendment is all about, should include. For me, the minimum would be not only access to accounts for payments and transfer, but support when fraud or scams happen and for registrations of death, probate inquiries and powers of attorney. There must still be some access to face-to-face services for those sorts of things.

[The Lord Bishop of Manchester]

My Lords, it is a great honour to follow the noble Baroness., Lady Tyler. As I listened to her speech, I was crossing off most of the things that I was going to say, because she said them much more eloquently than I could have, and I am thankful for that. We need to be able to provide everybody with the best possible services, locally available. As the noble Baroness said, when people are at their most vulnerable, at the most crucial moments of their lives and taking the big decisions, being face to face makes all the difference.

I gather that an article in the Spectator says that Bishops do not mention the word Jesus enough when we are speaking in your Lordships’ House—well, I have just covered that one, for Hansard’s benefit. In my theology, when God had something really important to do, He did not send an email or text message or put writing in the sky. He sent a person, in Jesus Christ, to meet other human beings face to face. We lose face-to-face services at our peril.

Occasionally, yes, I am involved with the closing of a church. But very few churches, certainly Anglican ones, have been closed in England over the past 40 or 50 years, because we recognise the importance of providing face-to-face encounters for people to meet other people. While I appreciate that we do not want to overregulate, I feel that, as I said at Second Reading, making face-to-face banking services available to people when that is what they need, because they have a big decision and are feeling vulnerable, gains priority over the convenience of the banks. They might pass some small costs on to the rest of us, and it might affect the bonuses that some bankers get and the shareholders’ dividends at the end of the day, but that is a price to pay for seeing that everybody is included in the banking world.

[Lord Davies of Brixton (Lab)]

I shall speak to Amendment 23 in the name of my noble friend Lord Sikka. He very much regrets not being able to be here, but I hope that the Minister will still respond to the point that it raises.

The key issue is that there is a public service element in banking. It goes beyond commercialism; it is reasonable to ask that the review which is taking place should consider that issue, and specifically whether it requires an amendment to the Bill to effectively pre-empt the issue and say that villages, towns and districts need some form of banking services. I think there could well be broad agreement on that—the issue is that banks are competitive commercial organisations and so are not going to do it. They will do it only if there is some sort of collective scheme, funded by a levy, that provides good services for people where they live. I very much enjoyed the contribution of the right reverend Prelate, and indeed churches have closed down far less frequently than banks and post offices. I hope my noble friend will respond positively to that point on the public service element.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I speak for the first time in Committee on my third Financial Services and Markets Bill. I reflect on the curious circumstances in which we find ourselves and offer reassurances to those who do not like Clause 3 in particular. Surely under the new regime, which we expect to see in a month or so, we are unlikely to see the Bill in anything like its current form given that it aims overall to deliver the so-called Leeds reforms of Chancellor Reeves. Those intend to give the financial sector a boost of growth, at an inevitable cost to the real economy—a boost to London and the tax havens at a cost to the rest of the country—and to reduce the regulations which were brought in as protections for all our security after the last financial crash. However, there is still a point in all of us going through the Bill in detail as we are doing now, because we are also making bids for what a future Government will look like.

On that basis, I will speak in particular to Amendment 22, in the name of the noble Baroness, Lady Tyler, and Amendment 23, in the name of the noble Lord, Lord Sikka. We are expressing very important issues, as the right reverend Prelate put so well. He was speaking about religion but also about humanity and human need, which these amendments particularly address. Your Lordships do not need to listen to me with my radical voice; reading around this, I found an article in March from the Civil Service Pensioners Alliance. It quoted figures which state that about 53 bank branches close each month, and pointed out that this was forcing older people in particular into digital exclusion, stripping away their independence and leaving them highly vulnerable to scams. No one has yet brought that up, but speaking to local persons in a local branch can be an important prevention against scams, and there is also the premium on having to pay more for things because you are poor.

Picking up the point made by the noble Baroness, Lady Tyler, the pensioners alliance talks about circumstances of bereavement or the need for a power of attorney, which are circumstances that can happen to any of us. They will continue to happen, and technology cannot make them disappear. On that, I take issue with a couple of points made by the noble Baroness, Lady Noakes. The noble Baroness said that we can get rid of branches when cash users drop to an insignificant number. First, we should not be treating anyone in our society as insignificant, but more broadly, that assumes that we are heading—both as individuals and collectively—only in one direction. You may, at a certain age, be able to cope very well with digital banking and be perfectly comfortable with it, but that is not to say that later in life you might not want to use a different system. You might not be able to see the screen of your phone or manipulate its buttons, or you might not be able to hear on the telephone anymore. At that point, cash being available is an absolutely crucial thing.

Finally, I will pick up a point from the noble Baroness, Lady Noakes, which the right reverend Prelate also discussed. It is not the case that customers have to pay for the provision of these services. I point out that the big four UK lenders made £14 billion total profit in the first quarter of this year, and their profits last year were £46 billion. The financial sector depends on government support to survive. That is a licence, and we can comment on the conditions under which that licence is held. If this legislation goes forward, surely we can add a provision on local banking services—having a person to speak to when you really need it. Whatever future legislation comes in, there clearly needs to be action in this area.

[Baroness Kramer (LD)]

My Lords, there seem to have been two themes in today’s discussion; I will address both because I agree with them both.

The first is on whether we value banking hubs. There have been so many voices that say that we value them, but they are calling for a much-improved framework, including the noble Baronesses, Lady Tyler and Lady Bennett, the noble Lord, Lord Davies, and the right reverend Prelate the Bishop of Manchester. I suspect that there is a universal consensus that we need to think through this issue, which is exactly why the Richard Lloyd review is now anticipated. I think that most people who see the value of banking hubs in their community—most MPs have been asking for banking hubs in their constituencies—very much appreciate the direction of the Lloyd review. On the background and evidence for the need for banking hubs, I will address some of those issues much more when I discuss community development financial institutions in a later group, so I will not repeat all that.

That does not take away from the fact that we have a constitutional issue here. According to its report, the Delegated Powers and Regulatory Reform Committee is very concerned that the problem has not been clearly identified and that a power as extensive as the one provided for here in the Bill severely compromises effective parliamentary scrutiny. The Select Committee asks for the power to be removed from the Bill. I say to the Government that it is important that there will be some real clarity before this hits the Commons—otherwise, this clause will be very much in trouble.

I support banking hubs. I suspect that I will be very pleased when I read the Lloyd review. What is sauce for the goose is sauce for the gander. I cannot just say to Parliament that, if it is something that I like, we do not need oversight, scrutiny and a proper process and that we do not need to consider the role of the regulator versus the democratic decision-making that should be happening in Parliament. This is a very good instance where I suspect that I would be very much in favour of the Lloyd review, but I would be very sad if that is not brought before Parliament for discussion, scrutiny and proper oversight. It is unfortunate that the Bill follows a procedure and process that seems to be completely unnecessary and that does not allow for that oversight. Oversight is valid, whether or not you think you will like what the regulator will do.

[Baroness Neville-Rolfe (Con)]

My Lords, Amendment 21, in my name and that of my noble friend Lady Noakes, would ensure that any government intervention in the provision of in-person banking services is evidence-based, proportionate and properly balanced. It would require Ministers to consider not only the needs of consumers but the legitimate commercial reasons why firms may reduce their physical banking provision.

More widely, Clause 3 raises two distinct but closely related concerns. Our amendment speaks to the first: banks do not close branches simply on a whim. Consumer behaviour has changed profoundly, more banking is conducted digitally, and maintaining a physical network carries substantial costs. The Government may decide that wider social considerations justify intervention, but they cannot responsibly make that decision while ignoring the commercial realities facing the firms they intend to regulate.

18:15

There is a broad Conservative principle at stake here: private enterprise exists to serve customers successfully and generate a return, not to discharge social obligations imposed by government regardless of cost. As Adam Smith famously wrote:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”.

That principle remains relevant. If banks such as Nationwide judge that maintaining in-person services gives them a competitive advantage, I welcome that, and customers can reward that choice. However, compelling firms through law to provide services at a loss is a very different matter.

Such an approach would not be cost-free. Those costs may ultimately be borne by customers through higher charges, poorer rates or reduced investment elsewhere. It would also send a damaging signal to business that the Government are prepared to override commercial judgment without clearly establishing the need, calculating the cost or considering less burdensome alternatives. As we heard from the noble Lord, Lord Davies of Brixton, the noble Lord, Lord Sikka, even wants this to be done through a levy on banks. There is a public service element in many private services, yet we do not try to impose such levies on them.

Amendment 21 asks for something entirely reasonable: evidence before intervention, proportionality in design and proper consultation with the firms that will be expected to deliver it. None of this is to deny the importance of access to in-person banking; I have heard and agree with a lot of what has been said about its importance. For some customers—particularly those with disabilities, people in vulnerable circumstances and those who are digitally excluded—it can be essential. We therefore welcome the banking sector’s commitment to establish 350 banking hubs, as well as the 240 or so that are currently up and running. These banks recognise the power of direct access. Like my noble friend Lady Noakes, I see merit in a flexible, and possibly voluntary, approach.

I understand that my noble friend Lady Coffey, who cannot be with us today because she is at the Council of Europe, would have liked to address the role of post offices, and how they can provide further access to in-person banking services. This has already been raised by the noble Baroness, Lady Tyler of Enfield, with her Amendment 22. I hope that the Minister can address their role in his response.

Our second concern is constitutional and even more serious. I pick up where I left off in our debate on group 1. Clause 3(3) would give the Government extraordinarily broad powers, including, in Clause 3, the power to amend an Act of Parliament. Yet, as my noble friend Lady Noakes said, Ministers are seeking those powers before they have decided what policy they intend to pursue. She called this “bizarre”. The consultation has not concluded—in fact, it has barely begun—and the Government’s plans remain unknown. We are told that clarity will come only after the summer and that the power may be narrowed then.

As we heard from my noble friend Lord Goodman, who was a member of the committee, the Delegated Powers and Regulatory Reform Committee has said that the power in Clause 3 is inappropriately wide and should be removed from the Bill, and other noble Lords have echoed that. The Government are, in effect, asking Parliament to sign a blank cheque to grant far-reaching powers now and trust Ministers to determine their nature later. However much confidence we may have in the Minister—I have every confidence in him—that is no substitute for proper legislation.

Constitutional safeguards exist because powers granted to government endure beyond the individuals who first exercise them, as I remember from some of the Bills I put through Parliament. Parliament should be told what problems the Government have identified and what policy they propose as a result of Mr Lloyd’s review—or, indeed, on a whim—as well as why powers are necessary, how they will be used and what safeguards will constrain them. The proper sequence is straightforward: complete the consultation, develop the policy, publish the evidence, then bring a defined proposal before Parliament if legislation is needed. The noble Lord, Lord Vaux, put it very well.

In my view, what the Government must not do is obtain the power first and decide what to do afterwards. That would be constitutionally outrageous. I therefore ask the Minister: why do the Government require powers of this breadth before the policy is settled? Why can they not return to Parliament once the consultation has concluded with a new Bill that both Houses can examine properly? What limits will apply to these powers, and what meaningful opportunity will Parliament have to scrutinise their use? We need a good answer on these questions and the others that the forensic noble Lord, Lord Vaux, set out. This is a very serious matter, and I will be listening carefully to the response from the Minister. I strongly urge him to reconsider his approach, which risks entrenching a deeply damaging precedent to parliamentary oversight and will prove unpopular in this Committee.

[Lord Stockwood (Lab)]

My Lords, I will begin by setting out why Clause 3 should stand part of the Bill. The way that UK citizens bank has changed significantly in recent years, with many customers choosing to use digital channels such as mobile banking. As such, we have seen many firms reviewing how best to meet these changing needs, and banks are closing branches in response.

However, for some people who require access to in-person banking services, these changes may have resulted in detriment. The Government are committed to ensuring that people who need in-person banking, including vulnerable customers and those with specific needs, can continue to access essential services. Last month, as mentioned, the Government launched an independent review into access to banking services led by Richard Lloyd, former executive director at Which? and a former board member of the FCA. I encourage noble Lords to engage with him. As they have noted, he conducts this critical work. I am glad to hear much agreement from many noble Lords today as this is a critical issue and the Government are right to be exploring it.

Clause 3 ensures that we can act swiftly and proportionately if the evidence from the Access to Banking Services review supports intervention. Once the Access to Banking Services review has concluded and made its recommendations, the Government will assess whether any further legislative change may be required. I appreciate that the power is broad and that many of the amendments in this group are aimed at scrutinising or reducing the breadth of that power. I also recognise that the Delegated Powers and Regulatory Reform Committee has drawn Clause 3 to the attention of the House and recommended that the power be removed from the Bill. The Government have considered that report and will be responding in writing in the normal way before Report.

We accept that this is a broad power, but we consider that it is needed now so that, once the independent review reports, the Government can respond promptly and proportionately in light of the evidence and recommendations that it provides. As the review is still ongoing, it is not yet known what detriment exists, which customer segments are most affected, whether further intervention is needed or what form it should take. The Government are committed to keeping all aspects of this power under review as the independent review completes its work.

I pass on my personal welcome back to the noble Lord, Lord Vaux. His comments about Ministers changing is indeed pertinent on a day such as today. I am not casting too far in the future; indeed, I keep checking my phone just to see whether I make it through Committee stage.

The noble Lord whether this power could be narrowed. I can confirm that the Government expect to narrow the power once the review has concluded in October and we have had the opportunity to consider the recommendations. This will provide further clarity on any appropriate interventions that will allow the power to be refined.

[Lord Vaux of Harrowden (CB)]

If the review is going to be completed in October, presumably there will then be a period of time when the Government will consider it. In my experience, that usually takes several months, by which time the Bill will be law. I struggle to understand how the power can be narrowed, given that we are probably at the end of the year before proposals have come forward.

[Lord Stockwood (Lab)]

I was coming on to that point. The noble Lord asked what the power can do and how that scrutiny can take place. It allows the Government to introduce targeted secondary legislation or to confer functions on the FCA, including the power to make rules in the future. When using this power, the Treasury must have regard to the recommendation made by the Lloyd review.

I think the noble Lord made a point about what legislation could be amended. I can only answer this in part at this time: the Treasury expects to use the power if needed to amend relevant legislation, for example, financial services legislation.

[Baroness Kramer (LD)]

I would just like to clarify this. Is the Minister saying in effect these powers are going to be one time only? Is that the implication?

[Lord Stockwood (Lab)]

No, that is not what I am concluding.

[Baroness Kramer (LD)]

Then I cannot see how they can be narrowed.

[Baroness Noakes (Con)]

My Lords, the Minister said that they may need the power to change financial services legislation. Since financial services legislation is in the hands of the Treasury, I think we are entitled to a slightly more specific explanation of how the power might be used to change primary legislation. Can he be more specific about which bits of financial services legislation the Treasury will likely use the power for?

[Lord Stockwood (Lab)]

With all these examples, I will have to come back in some detail at a later stage. The idea of narrowing the powers means that we can take into consideration the conversation and debate, while acknowledging that there will be some work to do in the intervening period. We believe we have the time to do that before the Lloyd review comes into play, allowing us to make the amendments necessary.

On Amendment 18, from the noble Baroness, Lady Noakes, I reassure noble Lords that the Treasury engages very regularly with the retail banking sector as part of its policy-making process. In addition to the Treasury’s ongoing regular engagement, the Access to Banking Services review will engage closely with as wide a range of stakeholders as possible, including the industry, consumers, local authorities, small and medium-sized businesses, and trade bodies. Furthermore, if regulations are made under this power to confer functions on the FCA, the Government would expect the regulator to follow its usual processes and to fulfil its statutory duty to consult before it imposes any new requirements.

Amendment 21, in the name of the noble Baroness, Lady Neville-Rolfe, contains a similar requirement for the Treasury to consult before making any regulations. It would require the Treasury to have regard to other sources of evidence, including the burdens that any regulations would place on banks, and for the Treasury to publish a statement alongside any draft regulation summarising its consideration of the evidence. The review will consider these sources of evidence, and, in considering the review’s recommendations, the Treasury will naturally take into account the impacts on banks and other relevant businesses. If the Treasury brings forward regulations under this clause, it will publish an impact assessment that will consider the impact on firms, as well as the proportionality of regulation.

Similarly, Amendment 23—in the name of my noble friend Lord Sikka and spoken to by my noble friend Lord Davies of Brixton—would require the Treasury to have regard to the need for local banking services when making regulations under Clause 3. I reassure my noble friends that the review will consider the need for in-person banking services and the impact on any specific cohorts or demographics. Funding will be considered once the review has identified the scale and nature of the consumer detriment and once the Government have considered how to respond.

Likewise, Amendment 22, in the name of the noble Baroness, Lady Tyler of Enfield, seeks to require the Treasury to have regard to several matters relating to the existing provision of banking services, including through banking hubs and the Post Office. The review will consider these sources of evidence when forming its recommendations. On her specific point on the time between bank branch closures and the opening of a banking hub, I reassure her that, if a banking hub is recommended, FCA rules already require banks not to close existing cash-access services, such as branches, until the recommended solution is in place.

Amendments 20 and 25 would require the Treasury to commission further independent reviews if it wishes to make subsequent regulations after first exercising the power in this clause. There is an existing requirement in Clause 3 for the Treasury to have regard to the recommendations of the current review when making regulations. The review was commissioned to bring together proactively the evidence from across the UK and to look at the trajectory for access to in-person banking services, not just the position as it currently stands. If the Government consider it necessary to make further provision in future, they would envisage this to follow the usual process of consultation and impact assessment, beginning from the baseline of evidence provided by the ongoing review. Further wide-ranging independent reviews are likely to be disproportionate.

Amendment 24, in the name of the noble Baroness, Lady Bowles of Berkhamsted, is similar: it would limit the power to be used only to implement matters arising directly from the independent Access to Banking Services review. As I have made clear, the Government’s intention is for the power to be used to implement the recommendations of the review. However, it is important that the power is not limited solely for this purpose, in case further relevant evidence outside the scope of the review comes to light as Ministers consider the review’s recommendations. The Government should be able to consider all relevant evidence, not just the review itself, before making any regulations.

Amendment 19 would require the power to be used to make regulations only if the relevant banking services would not be provided on a voluntary basis. The Treasury welcomes action taken by industry to support customers and welcomes the voluntary commitments, such as services provided in banking hubs, that the industry has taken forward. The Treasury will consider relevant information in determining any regulations to take forward following this Bill, including any relevant voluntary arrangements already in place.

18:30

Amendment 27, in the name of the noble Baroness, Lady Bowles of Berkhamsted, would remove the ability of regulations made to be ambulatory and would require the Treasury to update regulations if any rules they reference change. However, it is necessary for the power to make ambulatory provision to provide sufficient scope for the regulation to operate in a practical way. In particular, it may be necessary for regulations to reference other instruments that may be amended, such as FCA rules, in order to act rapidly if there is clear evidence of consumer detriment that must be addressed.

Amendment 26, in the name of the noble Lord, Lord Vaux of Harrowden, would remove the ability for regulations made under this clause to amend Acts of Parliament. As the recommendations of the independent Access to Banking Services review are currently unknown, it is necessary for Clause 3 to be able to amend primary legislation to respond to any recommendations that are made.

I hope I have explained why the breadth of this power is necessary at this point and reassured that, once the review has concluded, the Government will consider how this power can be narrowed while still achieving the desired outcomes. The Treasury will engage with all stakeholders and carefully consider the evidence ahead of making any regulations.

I therefore suggest that Clause 3 stand part of the Bill and that the noble Baroness does not press her amendment.

[Baroness Noakes (Con)]

My Lords, I thank all noble Lords who took part in this debate. A number of noble Lords expressed their views on what kinds of services should be made available, but we have the Lloyd review and we now await its outcome. That may or may not answer questions to all noble Lords’ satisfaction, but at least we will have a starting point.

That brings me to one of the key issues that arise from our debate: sequencing. It is normal to identify a problem, then decide whether legislation is required to deal with it, and then legislate. That has been how we have done business through Parliament for time immemorial. Not just in this case but in other cases as well, the Government are starting to flip that on its head: “Let’s take some powers. Then let’s see if we’ve got a problem and then see if we can use the powers to solve the problem”. That is not responsible legislation.

The Minister acknowledged the breadth of the powers but he has failed to articulate in a way that will satisfy the Committee the reasons or the rationale for having such a broad power. He referred to the DPRRC report, which gave a clear finding. The Minister will find that the House will generally take a lot of persuading not to follow such an explicit finding of the Delegated Powers Committee.

This will not rest here; the Minister will be aware of that. This power is being taken at the wrong time, without sufficient evidence or definition. In consequence of it being taken at the wrong time and without any evidence, it is being drafted in a way that is deeply offensive constitutionally. The only thing I need to say in closing is that we will return to this on Report. I beg leave to withdraw.

Amendment 18 withdrawn.

Amendments 19 to 27 not moved.

Clause 3 agreed.

Amendment 28

Moved by

[Baroness Kramer]

28: After Clause 3, insert the following new Clause—
“Access to affordable credit(1) The Financial Conduct Authority must—(a) within 12 months of the passing of this Act, establish, publish and maintain a framework for assessing and rating the performance of relevant deposit takers in providing access to affordable credit, and(b) annually publish updated ratings and scores produced by the Authority under the framework.(2) The framework must—(a) assess the extent to which relevant deposit takers serve the credit needs of individuals, households and small businesses, including those who are underserved by mainstream financial services, and(b) enable comparisons to be made between relevant deposit takers.(3) In developing the framework, the Authority must have regard to—(a) the distribution of lending across income groups, geographic areas and customer characteristics,(b) the availability of affordable credit to consumers who may otherwise be at risk of financial exclusion,(c) the provision of affordable credit to small and medium-sized enterprises, and social enterprises,(d) the extent to which a bank supports access to affordable credit through partnerships, referral arrangements and funding agreements, with credit unions, Community Development Finance Institutions or other community-based lenders, and(e) such other matters as the Authority considers relevant to the objective of promoting access to affordable credit.(4) For the purposes of subsection (2), the Authority may—(a) make use of regulatory data already collected by it, including product sales data,(b) require relevant deposit takers to provide such information as it reasonably considers necessary for the purposes of the framework, and(c) make different and proportionate provision for different sizes of business.(5) For the purposes of this section, “relevant deposit takers” are—(a) banks, within the meaning given of section 2 of the Banking Act 2009;(b) building societies, with the meaning of section 119 of the Building Societies Act 1986;which meet an Authority-set threshold for the total volume of personal and small and medium business lending.”Member’s explanatory statement
This amendment requires the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit, including via partnerships with credit unions and CDFIs. It uses existing regulatory data where possible, with proportionate requirements for firms of different sizes.

[Baroness Kramer (LD)]

My Lords, Amendments 28 and 29 are in my name. Amendment 30 is in the name of my noble friend Lady Bowles and I am very supportive of it, but I am going to focus my remarks on Amendments 28 and 29.

I thank the Fair Banking for All campaign, a coalition of 38 organisations co-ordinated by Finance Innovation Lab, bringing together civil society organisations, anti-poverty groups, community development financial institutions, fintech researchers and people with lived experience of financial exclusion. Their work on drafting Amendments 28 and 29 assures that these amendments work in law and in practice.

Access to affordable credit, which is the subject of these two amendments, is now one of the biggest challenges we face in the UK. Millions of individuals and businesses are excluded from fair and affordable credit despite being financially viable. More than 3.5 million people are handling this by taking out high-cost credit. The consumer duty on banks does not result in any attempt by banks to fill this market failure, nor have they been directed to do so by the FCA.

My focus has been very much on SMEs, which need credit to grow as the backbone of our communities and the source of new jobs. The Federation of Small Businesses records that more than half of all small businesses rate the availability of affordable credit as poor. When I talk to conventional banks about these customers, they say to me that they are very open to lending to small businesses, then I quickly find that they mean they will offer high-priced loans backed by property, not cash flow, and they want personal guarantees from the owners of the SME. It is a consequence of a change in the business model of the high street banks, as, in many ways, the noble Baroness, Lady Noakes, acknowledged earlier. Local banking as we once knew it has disappeared. Decisions are made by bankers or algorithms which do not know the customers or the businesses except on paper. They do not know that Jo has a convincing expansion plan or that Jane always repays her debts. They are detached from the reality of individual banking that is able to take individual proposals into consideration.

Adding to that, small businesses have become suspicious of the banks. The way the banks behaved to customers following the 2008 financial crisis—I mean small customers—shocked many people. They seized assets even when loans were being paid on time and in full, because various property-to-value or loan-to-value ratios had changed with the fall in property values in that era. Paying on time and in full would seem to me to suggest that you are a viable customer, and finding that your loan was called in and the asset seized was really destructive.

Many people thought that challenger banks and new fintechs would be willing to provide credit where conventional high street banks failed. That has not turned out to be true. The new players market themselves primarily to the same pool of SME businesses that the banks seek to service. Indeed, they have now taken a 60% share of that market, because new challenger banks and fintechs typically offer better products and efficiency. However, the access to finance problem has remained and indeed worsened. It has not been resolved by the entry of these new players.

I am pleased that the Bill makes some small moves to improve the situation by expanding the role of credit unions and mutuals and strengthening open banking but, frankly, it does not begin to touch the scale of the problem. My Amendments 28 and 29 follow the pattern of the United States, which dealt with the issue of exclusion head on with the Community Reinvestment Act 1977. In effect, the Act led to the creation of a layer of community development financial institutions, mostly CDFI banks and credit unions, which tackle the problems of exclusion by the big banks.

In the USA, there are now 1,400 CDFIs extending across the whole nation, which manage more than $450 billion in loans, both to small businesses and to individuals. They provide advice, financial education, patient lending and individual assessment. They are also the backbone of economic success in the United States by providing stability in any economic crisis, making sure that disadvantaged communities, including rural areas, are not ignored and growing the businesses of the future. The big American banks, which so opposed the scheme originally because they were required to fund it to remedy exclusion, are now strong supporters, realising that the CDFIs develop their customers of the future.

We have CDFIs in the UK and the British Business Bank, which is an enthusiast, has an ENABLE fund from the Government of £150 million over two years to expand the sector and an ENABLE growth guarantee scheme to reduce borrowing costs. But we still have only some 60 CDFIs in the UK, lending by different estimates something between £250 million and £400 million a year. That is an important contribution, as CDFIs report that 94% of the businesses receiving their loans have previously been rejected by a bank, but, frankly, it is a pathetic number compared to the US.

The Government have set up a UK community finance partnership taskforce to develop partnerships between banks and CDFIs. It is chaired by Bob Annibale, the former director of inclusive finance at Citibank who is a very strong advocate for this agenda, but frankly, I am fed to the teeth of small steps. My Amendment 28 follows the US pattern and would require the FCA to set up a rating system to measure the performance of banks and building societies in providing affordable credit to individuals, households and small businesses, and rating it against appropriate measures to test for exclusion. Rating systems such as this are not a US invention. Similar set-ups are used in the UK by the care inspectorate and the food and health inspectorate.

Amendment 28 would set up the framework of the rating system. Amendment 29 goes beyond that and would enable the FCA to require a proportionate remedy where any bank or building society falls below the threshold required by the FCA. Benchmarking is critical: the language permits the banks to avoid changing their business model. This speaks in a sense to something that the noble Baroness, Lady Neville-Rolfe, raised earlier, which is that banks have changed fundamentally and we are not asking them to change back. What we are doing with this system is giving them the opportunity to find another way to deal with the exclusion, so the language permits the banks to avoid changing their business model and instead allows them to support other arrangements for affordable credit, including credit unions and CDFIs. As I have said, the model is tried and tested in the United States and is understood by every major bank.

I anticipate that some people will say that this proposal is a burdensome data-gathering exercise for the banks, but it is not. In 2013, this House passed an amendment, drafted by me and my noble friend Lord Sharkey, to set up a voluntary scheme for banks to report most of the relevant data—and by postcode, so it was very granular—to UK Finance. With a few tweaks, the relevant data for the rating scheme proposed in Amendment 28 is already available and in usable format. The problem is that the data has not been used to create a remedy: another example of the way the FCA does nothing in the face of market failure without being dragged kicking and screaming, usually by this House. That is why the remedy amendment, Amendment 29, is so important.

At Second Reading, a number of Peers spoke out in support of CDFIs and credit unions. Many of us recognise that the high street banks will never return to their local roots and that dragging them to lend when it does not fit their business model means poor service. New challenger banks and fintechs have not filled the gap. The Government are committed to a growth agenda. I can think of few measures that would drive growth more rapidly and sustainably across all parts of the country to fix the loss of local and community banking than these amendments. I beg to move.

Amendment 29 (to Amendment 28)

Moved by

[Baroness Kramer]

29: After subsection (4) insert—
“(4A) Where a relevant deposit taker receives a score or rating below a minimum threshold prescribed by rules made under this section, the Authority must require the deposit taker to take proportionate remedial action to improve its rating.(4B) The Authority may—(a) make such rules or issue such guidance applying to designated persons as appear to the Authority to be necessary or expedient, and(b) give a direction under this section to a designated person if it considers that it is desirable to give the direction;for the purpose mentioned in subsection (4A).”Member’s explanatory statement
This amendment to Baroness Kramer’s amendment gives the FCA a duty to ensure, through rules and guidance, that relevant banks and building societies which fall short of a minimum threshold performance in providing access to affordable credit are required to take proportionate steps to remedy the situation.

[Baroness Kramer (LD)]

I beg to move.

18:45

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I shall speak briefly to Amendment 30 in my name, which would introduce a fiduciary-style duty on firms in their dealings with consumers and small businesses.

This group is about affordable credit and consumer protection. The problem that we see time and again is not that firms set out to behave badly but that good intentions drift under pressure to increase revenue, under pressure from internal incentives and, sometimes, under pressure from government to deliver growth. When that drift occurs, the cost is pushed on to consumers and, as I said earlier, passing costs on to the people is not growth in any meaningful, national sense.

Motor finance, the example that keeps on giving, shows this clearly. The FCA did not intend to create misalignment, firms did not intend to breach the law, but because the rules were not anchored in a well-understood legal framework, the system drifted. The FCA’s rules permitted the non-disclosure of commission unless asked. The statute required disclosure. The gap widened over time and nobody noticed until the consequences were enormous.

We see similar patterns in insurance add-ons and premium finance arrangements. These products did not begin as bad faith practices, they began as convenience, but over time, margins accumulated, incentives shifted and the products drifted into a place where the consumer’s interests were no longer the anchor. That is not malice but drift, the same drift that we saw in motor finance, and it happens when rules are not anchored in well-understood legal principles. This is what happens in a rules-based system—that is what we have, however we may pretend—rather than a principles-based system.

Parliament has been here before. As the noble Baroness, Lady Kramer, has already explained, when this House supported my noble friend Lord Sharkey’s proposal of a duty of care, the intention was to create a principle, a relationship-based obligation, that firms must not exploit unequal bargaining power or information asymmetry. What emerged instead was the FCA’s consumer duty. Is it valuable? I suppose so, but fundamentally it is a rules-based construct, shaped in part by industry pressure for something that their compliance departments could tick. Rules can be changed, narrowed or reinterpreted. Principles such as duty of care and fiduciary duty are legally understood, durable and resistant to drift.

My amendment does not attempt to rewrite the consumer duty. It would simply provide a well-understood statutory anchor—a benchmark against which to assess products and detect the kinds that end up exploiting imbalance. The test becomes, “Is it fair?”, and not merely, “Is it the next step on a path that might already have drifted?” In other words, it is about fairness versus incrementalism.

[Lord Massey of Hampstead (Con)]

My Lords, I declare my interests as a shareholder and a director of financial services companies in asset management and wealth management.

I have considerable sympathy with the objectives that the noble Baroness, Lady Kramer, is seeking to advance. Access to affordable credit is a genuine problem in this country, as in many others, and the Committee is right to view financial exclusion as a problem. However, I am unable to support Amendments 28 and 29 on the grounds that the proposed solution will not solve the problem and may in fact exacerbate the issue that the Bill is partly designed to alleviate: excessive and complex regulatory demands on our financial institutions, which are making us less competitive.

My first concern is one of basic commercial economics. Banks and building societies are not lending to certain sections of the community, however deserving they might be, not because of a lack of understanding of the opportunity or a lack of data; they are not serving those clients at scale because the risk-adjusted returns of lending to higher-risk borrowers at affordable interest rates, and indeed the compliance risk of so doing, do not work commercially. A rating framework published by the FCA will not change that calculus, but it creates yet another compliance exercise, another box to be ticked and another issue to be managed without addressing the underlying economic reality that makes such lending unworkable.

My second concern is the risk of unintended consequences. A rule that would rate banks on their willingness to provide credit to financially-excluded populations—in some cases, very high-risk borrowers—could create an implicit incentive to lend more to people and companies who cannot really afford the loan. The amendment contains no credit quality safeguard and no minimum standard of affordability assessment, yet banks could be incentivised to lend just to improve their ratings. The pressure to improve ratings would not be cost free, of course. In practice, banks will not be carrying out this lending for solid financial reasons, so if they feel forced to extend credits into markets with reduced or zero margins, they will seek to restore those margins elsewhere, through higher charges on other products, reduced rates on savings or increased lending spreads in other parts of the business. The cost will not disappear; it will be redistributed invisibly to existing clients, who also deserve protection.

Moreover, I draw noble Lords’ attention to the stated purpose of the Bill, which is to reduce regulatory burden, not add to it. Yet here we are, being invited to add a new mandatory framework, new data collection requirements, new publication obligations and new performance ratings, all enshrined in primary legislation. This is precisely the regulatory ratchet: the cumulative, seemingly endless new measures that damage our competitiveness. The Financial Services Regulation Committee of this House, chaired by my noble friend Lady Noakes, concluded in its report last June that:

“The cumulative burden of regulatory compliance in the UK is perceived to be disproportionately high, diverting resources that could otherwise support … growth”.


As a serving practitioner in the sector, I strongly agree with this finding. Diverting lending from growing businesses to those effectively in financial need is not going to improve our economy. If anything, it will lead to loan losses for the banks and encourage excessive borrowing from those who cannot afford it, while piling even more costs and regulatory obligations on financial firms. We should resist the urge to reach for intervention every time a market imperfection is identified. Not every problem has a regulatory solution. Indeed, those solutions can often have unintended consequences that increase bureaucracy and undermine growth, so I cannot support the amendments.

[The Lord Bishop of Manchester]

My Lords, I support Amendment 28, to which I have added my name. As we have heard, the amendment would require the FCA to establish a framework assessing banks’ and building societies’ provision of affordable credit. I spoke at some length at Second Reading on the importance of equal access to credit. I welcome what is already in the Bill, as I did then, but we can and should do more.

We are witnessing a crisis of deepening economic inequality in this country. For the most vulnerable communities, it is worsened by a lack of choice. Struggling to meet their most basic day-to-day needs, long-term financial planning is not an option for many families today. Daily life is a battle to put food on the table and to keep the house warm in winter, though perhaps not today. It is often the most impoverished who are forced to accept riskier loans, to turn to loan sharks—many of those operate in my diocese of Manchester—or to enter credit agreements that they are unable to pay back. In doing so, they find that they are paying a poverty premium, which then exacerbates and ratchets the problem round and round, deepening the financial injustice.

As I said earlier, I am trying to be more overtly religious in my speeches on the Bill today, so I assure the Committee that this is not merely a modern phenomenon. I could point to specific places in the Hebrew and Christian scriptures where specific rules are set out to ban the most egregious practices around unfair credit arrangements—things like extortionate interest charges, or the taking of essential items like protective clothing or workers’ tools as a pledge for credit.

Yet the alternative to unfair credit cannot be no credit but instead must be fair and affordable credit. Across the country, in churches, food banks and charitable organisations, the impact of financial exclusion on human dignity—another important Biblical concept—and well-being is being made apparent. We also see how certain communities are at a particular disadvantage: this includes if you are a migrant without a long-standing credit history, or an adult with little financial literacy, unable to navigate complex financial systems on your own, or a family experiencing living pay cheque to pay cheque—and about 10 years ago we passed the point at which most families in poverty began to be working families, rather than families in which no person is in work. The services that community institutions provide to such communities are essential but are not enough. In order to truly flourish, individuals and households facing financial insecurity need access to credit which gives them choice and independence and creates opportunities for them to become full participants in economic life.

One thing I learned when I worked on responsible investment for the Church of England’s national investment bodies was the phrase “social licence to operate”. That is an important part of this conversation today, though I have not heard it mentioned yet. The banks—not only those which were bailed out so expensively to the taxpayer less than 20 years ago—are required to operate not simply as best turns a profit, but as fits the needs for the society in which they are working. That requires a willingness to provide social goods, not merely the most profitable products to the most eligible customers.

What is set out in Amendment 28 will not only enable us to measure where affordable credit is and is not reaching people but will lay the foundation to make targeted improvements. I am told that the banks already have much of that data and that it is simply a question of making it more available by providing and publishing it. With a clearer understanding of the barriers that minoritised communities face, we can work beyond this Bill toward financial policy which tackles financial exclusion at its very root, creates new opportunities for families in debt, and promotes economic growth on a wider scale.

[Baroness Noakes (Con)]

My Lords, I support what my noble friend Lord Massey said earlier on these amendments, and in particular on Amendment 28.

When people talk about affordable credit, what they mean is subsidised credit, because the terms on which financial institutions are prepared to advance money to the kinds of individuals and organisations which have been referenced so far are always provided on a risk-adjusted basis. That reflects the likelihood of default and the amount of loss given a default, which drives pricing and causes people to say that they cannot afford the prices at which a product is advanced to them. We must be clear on this: we are saying that some groups in society need to have access to credit at below a risk-adjusted rate. A fairly simple question is whether we think we should impose on banks the requirement to subsidise one way or another—whether through the vehicle of community finance organisations or directly by charging lower non-risk-adjusted rates to certain groups. My answer is that it should not be; the banks already have quite considerable costs imposed on them, such as the banking hubs which we discussed earlier and which would not be set up for pure economic reasons, or the provision of basic bank accounts. There must be a point at which we stop saying that the banks can just provide more things to groups of people who could not otherwise afford access to them, so I am very much opposed to Amendments 28 and 29, which are an unreasonable imposition.

On Amendment 30, in the name of the noble Baroness, Lady Bowles, I am very unclear as to how she sees her amendment relating to the consumer duty, which has been in existence only for a couple of years, and the full effect of which we have not yet seen. I assume the noble Baroness is trying to set up an actionable right for consumers, although she is not explicit in saying that. I think that would be taking regulation one step too far. We already have the complicated arrangements of the FCA overseeing consumer requirements with its enforcement powers to set up a parallel ability of giving individual consumers rights of action under a rather ill-defined fiduciary duty, and this amendment would be an unwise addition to the regulatory landscape.

19:00

[Lord Altrincham (Con)]

My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Bowles, for bringing these amendments—and to the right reverend Prelate for his reference to scripture. They raise important questions and will facilitate a useful debate about access to finance, the responsibilities of financial institutions and the right way to support small businesses and underserved communities.

I will begin with Amendments 28 and 29 in the name of the noble Baroness, Lady Kramer, and in the case of Amendment 28 also in the name of the right reverend Prelate the Bishop of Manchester. These amendments seek to require the FCA to establish and maintain a framework for assessing and rating banks’ and building societies’ performance in providing access to affordable credit, including for underserved groups. Amendment 29 would go further and require firms falling below a minimum performance threshold to take proportionate remedial action.

Access to financial services and appropriate credit is of course extremely important. That is particularly true for small and medium-sized businesses, micro-businesses and those parts of the country where access to finance can be more difficult. If we can improve the flow of capital to productive businesses, we can simulate growth, increase employment, allow firms to develop and generally improve the health of our economy. Many of the most successful businesses in this country began as small enterprises. They require confidence, access to working capital and a banking system willing to support their growth. When credit is unavailable or available only on unreasonable terms, good businesses can be held back, investment delayed and opportunities for employment and innovation lost.

However, my concern is with the mechanism proposed. I am not convinced that this can or should be done from a centrally mandated position. Banks and building societies have to make lending decisions on the basis of risk, affordability, regulatory capital, commercial judgment and the circumstances of the borrower. They are complex assessments, not straightforward public policy levers that can simply be pulled from the centre. If banks are going to make these decisions on the basis of their commercial interests, in many cases they will already have done so. Where lending is not happening to the extent that the noble Baroness would like, there is a reason for that. It may relate to risk appetite, capital requirements, information gaps, the lack of security, regulatory burdens, compliance costs or wider economic uncertainty, but the answer, it seems to me, is to work out why that is the case and then address those underlying barriers.

The answer should not be to move towards a system in which the Government through statute begin to direct the lending priorities of banks from the centre. Once we go down that road, we risk blurring the line between commercial banking and public policy allocation of credit. That is not a small step. It could have unintended consequences for financial stability, risk management, and ultimately for consumers and taxpayers. This would also send a worrying signal that the UK is a jurisdiction in which private interests are essentially subordinate to political objectives.

I support efforts to promote investment into SMEs, micro-businesses and underserved communities, but I do not think the right mechanism is one enforced by the Government in statute through ratings, thresholds and mandatory remedial action. I would therefore be grateful if the Minister could explain what work the Government are doing with banks and financial service providers to improve access to affordable credit, particularly for SMEs and underserved groups. I hope he can reassure the Committee that this work is being done with those organisations rather than over them.

I turn briefly to Amendment 30, in the name of the noble Baroness, Lady Bowles, and follow the words of my noble friend Lady Noakes. This amendment would introduce a fiduciary duty requiring firms to act in the best interests of retail customers, including small businesses. It would include duties around avoiding exploitative practices, ensuring suitability and fairness and taking reasonable steps to prevent foreseeable harm.

I understand the concern that sits behind this amendment. We all want financial services to treat customers fairly, we all want to prevent exploitative practices and we all want suitable products, clear terms and proper regard to foreseeable harm. Those are important principles. However, I am against imposing a broad fiduciary duty of this kind across regulated financial services. The concept of fiduciary duty carries with it a particular legal character and a potentially very wide set of implications. If applied broadly to all retail customer relationships, including small business relationships, it could create significant uncertainty about the legal obligations of firms, the interaction with existing FCA rules and the extent to which ordinary commercial relationships are being recast as fiduciary ones.

We are also concerned that this step could lead to a serious increase in the regulatory and compliance burden, which would fall on firms that are already struggling. Indeed, there is already a substantial framework governing conduct, consumer protection, fairness, suitability and foreseeable harm. The question for the Government and the FCA should be whether that existing framework is operating properly and proportionately, not necessarily whether a new overarching fiduciary duty should be imposed on top of it.

My concern is that such a duty could invite litigation, uncertainty and defensive behaviour. It might also make firms more reluctant to serve marginal or higher-risk customers if they fear that any adverse outcome could later be characterised as a breach of fiduciary duty. That would be the opposite of what many of us want to achieve in this group, which is broader and better access to financial services. Indeed, it would make providers and regulators more risk-averse.

These amendments raise an important debate about access to credit, the treatment of customers and the role of financial institutions in supporting growth. I support the objective of improving access to finance for SMEs, micro-businesses and underserved communities and hope to hear support for this from the Minister, but we should not seek to achieve that by central direction of lending decisions or imposing broad new legal duties whose consequences would be uncertain and work against the Government’s broad objective of simplifying regulation and reducing burdens.

[Lord Stockwood (Lab)]

My Lords, Amendments 28, 29 and 30 are aimed at increasing access to finance and ensuring that the customers of financial services firms are protected. I recognise the intention behind these amendments. However, I do not believe that either solution is workable.

On Amendments 28 and 29, I agree that data on access to finance and holding the sector to account are important. However, these proposals would introduce a new, prescriptive and burdensome framework on the FCA and firms that I am not persuaded would deliver the desired output.

Amendment 28 would require the FCA to establish a framework to monitor, assess and publicly report on certain banks’ and building societies’ performance in providing access to affordable credit. Amendment 29 would require the FCA to take action against firms that do not meet a minimum standard. As the noble Baroness, Lady Kramer, said, this approach resembles the United States’ Community Reinvestment Act 1977, but we should not assume that it would have the same effect here. Our starting point is different: we are working nearly 50 years later, in a digital age, with a far more diversified credit market. In any case, lenders already publish significant data. Chapter 7 of the FCA’s Conduct of Business Sourcebook requires extensive disclosure on personal and business current accounts. We also have the FCA’s Financial Lives Survey, the SME Finance Monitor and the British Business Bank’s annual SME finance publications, among others.

Amendment 29 would require the FCA to act against firms that do not meet a minimum lending standard. Striking the right balance on access to credit has long been a challenge. We want consumers to be able to access credit where it supports financial resilience and businesses to secure the finance needed to grow, but inappropriate credit can lead to overindebtedness, with serious consequences. The amendment could, in effect, compel lending to more vulnerable groups or SMEs. Even a well-designed regime could be a blunt instrument, with a risk of unintended outcomes. It would also represent a significant intrusion into firms’ commercial decisions.

More fundamentally, it is difficult to see how firms could increase lending and take on greater risk without raising prices to reflect that greater risk. If firms do not price risk appropriately, it opens us up to financial stability risks. The FCA would be placed in the invidious position of having to mandate affordable credit, while the mechanism required to expand provision could increase costs and potentially increase risk for the borrower and the firm. That runs directly counter to the intended objective for vulnerable customers and SMEs.

Although I cannot accept these amendments, I stress to noble Lords that the Government are not complacent about financial inclusion or the availability of SME finance. The noble Lord, Lord Altrincham, asked me to set out what the Government are doing, and I am happy that noble Baroness, Lady Kramer, mentioned several of these interventions already. The Government published their Financial Inclusion Strategy last autumn, and we are supporting practical interventions for consumers, including a small sum credit pilot enabling mainstream lenders to test lending to customers outside their usual risk appetite. Monzo was announced as the first participant in the scheme earlier this month.

We have launched a transformation fund for credit unions, alongside common bond reforms in this Bill, to strengthen their lending capacity. We are also advancing targeted SME finance measures to improve competition and supply, including enhancing the consumer credit data sharing scheme through Clauses 41 and 43 of this Bill. We are supporting up to £150 million of lending through the Community ENABLE funding programme over the next two years. We are establishing a CDFI taskforce and working with industry to improve bank referrals. Indeed, tomorrow I am meeting several large asset managers as chair of the place-based impact investment scheme. We will set out next steps on open finance later this summer. This has significant potential to support SME lending across a wide range of providers, alongside broader work with the Bank of England on capital and ring-fencing.

I highlight community development finance institutions, which I know are a priority for the noble Baroness, Lady Kramer. In addition to the CDFI taskforce and the Community ENABLE funding programme that this Government have funded, the sector benefits from Fair4All Finance’s affordable credit scale-up programme, which has committed more than £40 million in social investment in England to date. The financial inclusion strategy further includes measures to strengthen community finance, including promoting partnerships with mainstream lenders. Taken together, these measures support access to finance in the UK in an appropriate and responsible way.

Amendment 30 would introduce a new fiduciary duty on firms when carrying out FCA-regulated activities. It would place specific legally binding requirements on firms. I agree with the noble Baroness that it is vital for firms to act in a way that delivers good outcomes for consumers. However, I believe that FCA regulation is able to achieve this, and I am concerned that this new duty would risk creating overlapping requirements, causing confusion and reducing consumers’ access to finance.

The FCA’s consumer duty is designed to set a high standard of protection for retail customers by requiring firms to act to deliver good outcomes in line with the outcome sought by this amendment. It requires firms to put consumers’ needs at the heart of their business, including by acting in good faith, avoiding foreseeable harm and supporting consumers to pursue their financial objectives. In practice, this means that firms must design products and services that meet consumers’ needs, provide fair value, communicate clearly and offer effective support.

I am concerned that the requirements set out in this amendment would risk making more vulnerable customers more expensive and risky to serve, which would reduce their access to products such as credit and insurance. Introducing a novel statutory fiduciary duty, the precise scope of which would fall to be settled through litigation over a number of years, would create significant legal uncertainty. That uncertainty would carry a cost, which firms would be likely to manage by withdrawing from, or repricing, services for higher-risk customers. I recognise that there is some precedent for a fiduciary duty in trust-based pension schemes. However, the dynamics of the market are very different from wider consumer financial services. Typically, employer pension schemes do not choose which individual customers to serve, and the fiduciary duty applies at the membership level.

I genuinely understand the importance of lending for all parts of the economy, and I understand the need for borrowers to be protected, but I am convinced that the Government are taking the right set of actions, and I am afraid that Amendments 28, 29 and 30 would bring significant unintended consequences. I therefore ask the noble Baroness to withdraw her amendment.

[Baroness Kramer (LD)]

I thank the right reverend Prelate the Bishop of Manchester for signing Amendment 28 and for speaking so eloquently in this debate. The noble Lord, Lord Massey, and the noble Baroness, Lady Noakes, are both involved in the world of finance and meet international financiers. I will give them a challenge. When they meet American financiers and bankers, whether here or in the United States, will they please raise CDFIs? The noble Lord, Lord Massey, will find that basically everything he said flies completely in the face of the US experience, and I say the same thing to the noble Baroness, Lady Noakes.

19:15

The loss ratio for CDFIs in the States is in fact slightly lower than for banks as a whole. They have capacity to manage risk because they know their customers in a way that many banks do not and because they build structures around their customers. If somebody comes in with a good business idea, they enforce that with advice, help on marketing or whatever else is necessary because they see their role as making that entrepreneur a success, so they bring in those additional resources. A loan book of $450 billion is to me a great success. This is not some marginal experimental idea that has floated around and that I am echoing. I am talking about almost the premier strategy to provide the background and backbone of small business and small business growth across one of the most successful economies on the globe.

The Minister says that we are a different place, but I say that in this area we are almost identical. Exclusion by banks is not necessarily risk-based. Of course, there will be some customers who come in and when the risk is assessed it is not appropriate to lend them money. But our high street banks today do not have the capacity, and it is not in their business model, to do that kind of detailed individual digging and to understand, if it is a shop that wants to open a second premises, what that business is about, what it does, what the owner is like and what its record is like—and then work with them. They no longer have the capacity for any of that. This is the remedy to fill that substantial missing layer of community banking. I suggest that, if we want growth in this country, we will have to do that. I recommend that everybody who thinks that this is some sort of “not applicable here” idea should talk with the American financial institutions because I can tell you that—whether you are talking to JPMorgan Chase or to the smallest bank, or whether you are talking to the largest multinational or to the smallest business—you will get confirmation from them of the effectiveness and success of this sector. I beg leave to withdraw the amendment.

Amendment 29 (to Amendment 28) withdrawn.

Amendment 28 withdrawn.

Amendment 30 not moved.

Clauses 4 and 5 agreed.

Clause 6: Time limits for making complaints under the compulsory jurisdiction

Amendment 31

Moved by

[Lord Davies of Brixton]

31: Clause 6, page 5, line 10, leave out from the second “the” to end of line 16 and insert “end of the period of ten years beginning with the act or omission to which the complaint relates, determined in accordance with the rules (which may provide for different times in relation to different cases).
(1B) Among other things, rules made under sub-paragraph 13(1) must provide in specified circumstances for the applicable time limit to end at a later time where—(a) in the opinion of the Financial Ombudsman, the failure to comply with that time limit was due to exceptional circumstances;(b) the complainant only became aware (or ought reasonably to have become aware) of material facts or detriment to them relating to the act or omission complained of after the expiry of that time limit.”Member’s explanatory statement
This amendment amends Clause 6 to ensure that the ten-year longstop is the default position for Financial Ombudsman complaints, in line with the preferred option in the Impact Assessment and as opposed to the six-year provision in current FCA rules (DISP 2.8).

[Lord Davies of Brixton (Lab)]

This extensive group of amendments is focused on the role and functioning of the Financial Ombudsman Service—the FOS. We have already had a taste of that debate with group 2, but I am concerned that there is not going to be enough time for me in my 15 minutes—perhaps the Whip is already thinking that I should get on with it—and I will not be able to finish it all. I have said that I will take the opportunity, if I have not been able to ask my noble friend the Minister all the questions that I want within my allotted time, to ask further questions when we get to Clause 8 stand part.

This group of amendments deals with three issues: time limits for taking cases to FOS, the proposed system for the referral of issues to the FCA and, significantly, the changes to the “fair and reasonable” test. This is a lot to deal with, and in fact it is about the interaction between these three different changes. They might appear separate, but their overall impact has led to real concern that the interests of consumers are not being given sufficient attention.

I must pay tribute to the support that I have received from the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services, of which I am vice-chair, as well as Which? Money and Fairer Finance. They have all expressed concerns that consumers’ interests are being adversely affected, and those concerns most definitely need to be addressed.

Starting with Clause 6 and my Amendment 31, I am concerned about the changes to the 10-year longstop on complaints to the Financial Ombudsman Service. The case for some kind of time limit is not unreasonable in itself. Firms do not wish to face indefinite exposure to complaints about events that happened decades earlier, and I understand why the Treasury wants certainty on that point. But Clause 6, as drafted, creates a hard structural barrier that applies regardless of when the consumer could reasonably have known they had grounds to complain. That is the flaw. It is not that a longstop exists; it is that it takes no account of discoverability. That matters most for long-term products such as pensions and mortgages, areas where I have personal and professional experience and where consumers often do not find out for years, sometimes decades, that they have been poorly advised or missold something.

The Explanatory Notes accompanying the Bill suggest that allowing complaints years later creates problems with data retention. I do not think that holds up. The appropriate rule, rule 9.5.2 in the FCA’s Conduct of Business Sourcebook, sets out the record-keeping requirements for firms that give personal recommendations on certain pension-related transactions. The rule as it stands requires firms to retain their records that were the basis of a personal recommendation indefinitely in cases of pension transfers, pension conversions, pension opt-outs and FSAVCs—which, for those who are not up on the jargon, are free-standing additional voluntary contributions. For other types of advice, COBS sets shorter retention periods, but these four pension categories are singled out precisely because of the long-term nature of the harm that can arise and, originally, because of the personal pensions misselling scandal of the late 1980s and early 1990s, a scandal that is too often forgotten but that led to £13 billion being paid in compensation.

The practical significance for the Clause 6 argument is that the justification for 10 years does not stand up. Firms advising on pension decisions are already legally required to hold the records, so the 10-year rule does not serve that data problem. The “indefinitely” formulation is worth noting. Most compliance obligations come with a defined shelf life, so the fact that the FCA made an exception here reflects a considered regulatory judgment that pension transfer advice is different from other forms of pensions advice. The consequences can take many years to materialise, and records need to be available when the problems are eventually seen.

Of course, I am most familiar with the issue in relation to pensions, but it is not just about pensions: endowment mortgages are a good past example where problems that arose for which compensation had to be paid were found outside the 10-year period. For the very products most exposed to long-delayed discovery of harm, firms already have the data that they need to defend themselves—they have to have the information that is being required.

It is worth asking how this is being played out against real cases. I believe, and I would be interested in a response from the Minister on this, that if a strict 10-year limit without proper exceptions had been in place during the PPI scandal, it would have blocked the mass redress exercise altogether. The worst mis-selling happened between 1998 and 2005, but public awareness did not peak until after 2011.

This was not a case of deliberate concealment; it was total misunderstanding and wishful thinking on the part of the people being sold to, but compensation was still due. A rigid longstop could well have disqualified millions of older claims in law before most of the consumers involved would have known that they were affected. I would be grateful if the Minister could say how these new arrangements will affect such cases and, as I mentioned, endowment insurances, appropriate personal pensions and the discretionary commission scandal in car finance, which is more recent.

As it stands, Clause 6 gives the FCA a power to create exceptions to the 10-year limit, but the legislation does not say what those exceptions must be at a minimum, so there is no statutory obligation on the regulator to build in protection for the consumers most likely to need it.

My amendment goes further than that in the name of the noble Lord, Lord Sharkey, by writing two specific circumstances into primary legislation itself, rather than leaving them to be worked out later in the FCA rules. First, it is just cases where the consumer faced exceptional circumstances, such as serious ill health or other incapacity, so people will know that they have a special claim in those circumstances. Secondly, there are cases where the consumer could not reasonably have known about the financial detriment within the 10-year window. These could be exercised on a discretionary basis, but my argument essentially is that those cases should be laid down in statute. It does not preclude the possibility of other exceptions being made, but for consumers it is a question of trust, and that trust requires consumers to know that those exceptions will be available. Putting these exceptions in the Bill removes the ambiguity, gives firms the certainty that they are after and makes sure that deserving consumers are not shut out of redress by an accident of drafting rather than a deliberate policy choice.

On Clause 8 and the powers of the ombudsman, I want there to be a proper debate about what is actually being changed here, and I look forward to guidance from my noble friend the Minister. The question underneath this debate is a simple one. What is the ombudsman for, and why do we have one, instead of just relying on the courts for people to get good tests? For the FOS, the “fair and reasonable” test is not something that has been put in and invented by the FOS itself; it comes from Section 228 of the Financial Services and Markets Act 2000 and provides that:

“A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”.


What the test displaces is important. The court applies the law strictly: the relevant statute, regulations, contract terms and case law. That is what the courts do. The ombudsman is not bound to decide a case the way a court would. That is the whole point of having the ombudsman—it is not a court that is able to take a view as to what in the overall circumstances is fair and reasonable.

19:30

The FCA rules require the ombudsman to take into account relevant law, regulators’ rules and guidance, codes of practice and good industry practice at the time, but none of these is determinative on its own. FOS can currently find that if a firm acted within the strict letter of its contract, or the relevant regulations or guidance, it can still rule and say, on behalf of the consumer, a consumer who is in a much weaker position, both financially and in terms of knowledge, than the provider that is being questioned, that overall, it was not fair and reasonable. All the guidance might have been followed, all the rules might have been followed, but still it may seem to the ombudsman that it was not fair and reasonable. That is the point of the ombudsman. Unless I am mistaken, in which case I will be happy to hear an explanation from my noble friend the Minister, that is the problem. It is taking away that ultimate discretion for the ombudsman to decide, in all the circumstances, that it is not fair and reasonable. Is this an asymmetry of knowledge and power?

My amendment is intended to be probing. Can the Government explain why Clause 8 is the right way to deliver greater clarity and certainty in FOS decisions? What evidence base justifies a change of this scale? How can they assure the Committee that the consumer’s access to fair, impartial and timely redress will not weaken as a result? As drafted, Clause 8 raises several risks. First, it weakens the ombudsman’s impartiality. The current wording removes that discretion, as I have explained. Secondly, it undermines how FOS can act as a fast, informal dispute resolution body.

Thirdly—I am rushing at this stage—it creates a structural weakness that could erode consumer protection over time without Parliament having decided that it should be weakened. If a future regulatory shift dilutes high-level protection, the consumer duty being the obvious example, then because Cause 8 ties FOS’s decision-making to FCA rules, consumers’ access to address would shrink automatically alongside it. Parliament would have no way to intervene, short of primary legislation. Fourthly, it puts FOS out of step with every other consumer ombudsman scheme in the UK. Will the Minister address the absence of any thematic evidence to justify a change of this scale? Despite the scope of what is proposed and the risk that it carries for consumers, no public evidence of systematically problematic FOS decisions has been presented.

To conclude I have three questions for the Government. What historic cases have driven the need for change? How many FOS decisions are expected to come up differently as a result of it? If the answer is “many”, do the Government accept that this comes at consumers’ expense? If the answer is “not many”, what are the changes for, given how many consumer groups are concerned by it?

[The Deputy Chairman of Committees (Baroness Barker) (LD)]

I have to advise noble Lords that if Amendment 31 is agreed, I cannot call Amendments 32 or 33 because of pre-emption.

[Lord Sharkey (LD)]

My Lords, I will speak to my Amendments 33, 35, 37, 42 and 43 in this group. All these amendments, and my Clause 7 not-stand-part question, relate to the FOS and its regime. I will try very hard not to repeat too much of what the noble Lord, Lord Davies, was saying a moment ago. The proposed reforms of the FOS regime are extensive and fundamental, but there is nowhere a clear and convincing explanation of why such fundamental changes are necessary. In fact, I see no real evidence at all of the need for reform on the scale being proposed here.

What we see, looking at the far-reaching proposals in the Bill, is an assault on the four key pillars designed into the FOS by Parliament: independence, speed and simplicity, time limits on bringing complaints, and the “fair and reasonable” test for determining those complaints. Taken together, Part 2 replaces each of those pillars with subordination to the FCA, a rather undefined change to time limits, and a heavy qualification of the “fair and reasonable” test amounting to its entire abandonment. This raises the question of why such a radical reform can be seen as necessary and/or beneficial. At Second Reading, I asked the Minister what evidence there was of systemic failure in the current operation of the FOS, and for evidence, for example, that the FOS was acting as a quasi-regulator. I have had no reply.

The obvious question in all this is: who benefits? The answer is: not the ordinary consumer. My amendments are aimed at eliminating, or at least reducing, the weakening of consumer protection. To that end, my Amendments 33 and 35, to Clause 6, address the time limits for complaints to the FOS, which the noble Lord, Lord Davies, has dealt with extensively; I agree with most of what he said. What my amendments offer as an alternative to his is that they are perhaps not quite as strong—that might be their virtue. It is often very difficult to get things written into a Bill; it is sometimes easier to deal with them via secondary legislation, as I do rather obliquely.

In Part 2, the Bill proposes other very substantive changes to the way in which the FOS operates. One of these changes, in Clause 7, sets out the circumstances under which the FOS must notify the FCA of a matter relating to a complaint, under which the FOS must request an opinion from the FCA as to the interpretation of FCA rules. It then sets out in detail how consultation should take place on the matter. There really is detail: five whole pages of the Bill set out in great detail the various stages required in the referral process. It adds complexity for no obvious gain and subordinates the FOS’s judgments to the FCA’s. I have no doubt that the byzantine array of subclauses or qualifications will, overall, introduce greater complexity for no foreseeable benefits and will greatly increase the workload of the FCA. The FCA is already under pressure and is planning to absorb the PSR. The last thing we need is the creation of new systems, rules and powers that show no clear promise of benefit, or at least no benefit to the retail complainant.

On necessity, we have to take into consideration whether the current FOS methods are faulty or unproductive. I have seen no compelling evidence that this is the case, only a rather unconvincing summary of the consultation responses. The FOS received 214,000 new complaints in 2025-26. It is projecting a resolution of 207,000 complaints in the coming year, of which 206,000 concern banking and consumer credit companies. It has a target of 70% of cases being resolved within three months and 90% within six. It does not seem as though it is having difficulty operating, and I am not aware of any significant problems for the average consumer. I hear from the industry that the FOS acts inconsistently and that it has strayed into becoming a quasi-regulator, but I have seen no evidence of that, and I am unconvinced by the simple assertion. Taken as a whole, Clause 7 in effect subordinates the FOS to the FCA, removing yet another foundational pillar: independence. We should remove Clause 7.

I turn now to the proposed amendments to Clause 8. I will speak to Amendments 37, 42 and 43, which deal with how a complaint to the FOS is to be determined. This is a controversial matter; the Bill proposes very significant changes. This has already provoked calls to have the whole clause removed from the Bill, and I recognise the strength of feeling behind that.

How the FOS decides on complaints is absolutely critical to its operations and to their general acceptability. At the moment and historically, the FOS rules on complaints on the basis of what is fair and reasonable under all circumstances. The Bill changes that. It says:

“A complaint may be determined in favour of the complainant only if, in the opinion of the Financial Ombudsman … at the time the disputed act or omission occurred, either … the act or omission did not comply with an FCA rule applying to the respondent, or … there was no FCA rule applying to the respondent that related to the act or omission, and the disputed act or omission was not fair and reasonable in all the circumstances of the case”.


This adds one of two requirements not present now, in addition to the “fair and reasonable” test. In essence, it removes the FOS’s current and critical independent status and reduces the FOS’s scope to a subset of FCA rules. If you ask who benefits from all this, the answer, it seems to me, is not likely to be the consumer.

The small print of the Bill makes the situation for the complainant even less attractive. The Bill specifies a long list of other requirements to be considered in making a determination, most of them tilting the scales in favour of FCA rule-based compliance. This long list includes

“any other matters specified in regulations made by the Treasury”

and the general principle that consumers should take responsibility for their decisions. Here, we are a very long way from the “fair and reasonable under all circumstances” test.

The net effect for the Bill’s proposals will inevitably be to increase bureaucracy and to increase a remoteness from practical circumstances and a reliance on box-ticking procedures. It will convert the independent FOS into a compliant subsidiary of the FCA. We have not seen spelled out any evidenced justification for such a radical narrowing of the FCA’s reach and independence. I ask the Minister again to provide the evidence that supports these radical changes. By “evidence”, I mean hard data, not simply a headcount of consultees’ opinions, as interpreted by HMT.

As I noted at Second Reading, the UK’s financial sector thrives not merely because it is competitive but because it is trusted. For it to be trusted, consumers must have confidence that, when things go wrong, there is an independent, accessible and effective route to redress. We have one of those already: the FOS. My Amendments 37, 42 and 43 would remove the new bureaucratic and complex restrictions, qualifications and subordinations in the Bill. In their place, the amendments would restore a simple and clear operating framework. They would restore the primacy of the “fair and reasonable” test, and they would update the list of things that the ombudsman must or may take into account.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, my Amendment 34 again concerns symmetry of enforcement and redress periods. The Bill introduces a 10-year hard stop on complaints to the Financial Ombudsman Service, but the problem is that the 10-year figure is already riddled with exemptions: for long-dated instruments, for latent harms, for products with extended maturities and for situations where the consumer could not reasonably have known they had a claim. The Government have already conceded that the 10-year period cannot sensibly apply in a wide range of cases. I have a concern that, once Parliament writes “10 years” into statute, that becomes the headline. Consumers may assume they have 10 years, even when they are in one of the many categories where the long stop does not apply. That creates a real risk that people will time themselves out because they believe the headline rather than the detail.

Then there is the deeper structural issue that I have referenced before: firms’ enforcement rights do not end at 10 years. They can enforce debts, pursue arrears, securitise portfolios and benefit from long-tail revenue streams well beyond that period. Yet the consumer’s ability to challenge an unfair relationship or to bring a complaint may fall away far earlier. That is the same kind of asymmetry that I raised before. My solution is that at least the starting point should be that the duration of rights, remedies and enforcement powers for firms must be aligned with the duration of rights and remedies for consumers arising from the same act or relationship.

I have addressed only that aspect of asymmetry in my amendment; I have not attacked the 10-year hard stop and the impact that that might have on consumer perception. My amendment would not interfere with the exemptions that the Government have already accepted. It would simply ensure that, where a firm retains enforcement rights beyond 10 years, in various circumstances, the consumer retains the corresponding right to challenge the fairness of that relationship for the same period—in other words, symmetry. I need not say any more, as we have been around this loop, but it is the same argument in a different place.

19:45

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to noble Lords across the Committee. I have noted the variety of concerns expressed on this part of the Bill. As noble Lords have heard, my party has announced proposals to remove the Financial Ombudsman Service and replace it with a new financial adjudication service. That proposal is not before the Committee in this group, but we have an agreed amendment; we will have the opportunity to debate it properly at a future stage.

I start by speaking to Amendment 32 in my name and that of my noble friend Lord Altrincham. The amendment would retain the existing six-year longstop rather than extending it to 10 years, as Clause 6 would do. As I have already said, I am concerned about this move, albeit for different reasons to some other Peers who have spoken. I accept that there is a balance to be struck here: consumers must have access to proper, effective and fair redress mechanisms. Where a consumer has suffered detriment because of misconduct, poor practice or a failure by a firm, there should be a clear route through which a complaint can be considered and, where appropriate, redress can be provided. However, this does not mean that time limits are unimportant. On the contrary, time limits are an essential part of a fair system. Claims can be heard fairly only when sufficient information is available to both sides to allow them to mount a proper case. That means records, correspondence, product documents, internal decision-making, staff recollections and the wider factual context in which the relevant decision was made.

The further back in time a complaint goes, the more difficult this becomes. Evidence may be incomplete and documents may no longer exist. The people involved may have left the organisation, systems may have changed, products may no longer be offered and the regulatory context may have moved on. A complaint may still be sincerely brought, but the ability of the firm to respond fairly and fully may be materially impaired. That is why limitation periods exist: they reflect the basic principle of justice that, after a certain period, it becomes harder to determine matters fairly and reliably. That principle applies in the courts, and I believe that it should continue to be properly reflected in the ombudsman’s framework. I am concerned that extending the longstop from six years to 10 years risks pushing the system beyond that fair balance.

I have noted the comments made by the noble Lord, Lord Davies of Brixton, in particular his references to pensions and endowment mortgages. I will be interested in the Minister’s response on how those products are dealt with and whether the exemptions are intended to cover that area.

On this occasion, I do not agree with the noble Lord, Lord Sharkey—although we often agree on other matters—because there is a genuine concern in the industry about vexatious or speculative claims. We should not be naive about this. There is a whole claims management industry dedicated to identifying and pursuing potential claims. Some of those claims may be legitimate, and consumers should not be denied redress where redress is due, but others may be weak, opportunistic or based on limited evidence. If the period is extended significantly, the volume of such claims may increase, so firms will have to devote more resource to investigating and defending matters from many years ago.

All this has a cost and makes all concerned more risk-averse, so it becomes more difficult for providers to accept customers at the margin. This matters for not only firms but the wider economy. We cannot stimulate growth, support lending, encourage investment and improve productivity if banks and financial services firms are pouring ever more resources into fighting historic claims, rather than serving customers, lending to businesses, supporting economic activity and innovating. There is a real opportunity cost here.

My noble friend Lord Roborough is unable to be here today, but I understand that his Amendments 38 to 41 are intended to probe whether the reforms in the Bill provide sufficient certainty for regulated firms that, where they have complied with the relevant rules and requirements, the Financial Ombudsman Service will not be able to go substantially beyond that framework in finding fault or imposing redress. This is not to question the proper role of the ombudsman in cases such as car finance commissions, where the courts have confirmed the relevance of undisclosed conflicts of interest; rather, it is to test whether the current “fair and reasonable” jurisdiction risks giving the FOS a quasi-regulatory role, including through inconsistent interpretation, the retrospective application of standards or decisions that go beyond the rules in force at the time. This is the core issue that has been raised time and again: the FOS needs to be reined in, but does the Bill do it?

At the same time, I recognise the number of views on this question. It is for the Minister to show that the proposed changes do not weaken the ability of consumers, including vulnerable consumers—particularly those in serious circumstances, such as terminal illness—to obtain fair redress. I have been told, for example, that there is a variance between companies over acceptance rates in such cases. The Minister might want to look into that.

Serious concerns have been raised. I look forward to hearing the Minister’s response to this group. My own concern remains that, as drafted, the Bill shifts the balance too far. It extends exposure to firms in a way that may appear consumer-friendly at first sight but risks generating delay, uncertainty and large volumes of contested claims. The six-year longstop strikes the right balance, so why 10 years? What evidence has led the Government to conclude that six years is insufficient? Can the Minister break that down by product or financial services type? What assessment has been made of the impact on firms, on complaint volumes, on the claims management sector and on the resources of the ombudsman itself? How will the Government ensure that extending the longstop does not simply create a larger backlog of older and more difficult cases?

I would be grateful if the Minister could also address the practical point about record-keeping. Do the Government now expect banks and other firms to retain detailed customer records for 10 years in anticipation of potential FOS complaints? If so, what assessment has been made of the cost and operational burden of doing so? I speak as a former company secretary in a large company; I know about the problems in keeping data. Indeed, what about doing it retrospectively?

I hope that the Minister will reflect carefully on the points I have made on the possibility of retaining the six-year longstop. I very much look forward to his response.

[Lord Stockwood (Lab)]

My Lords, as we have heard today, the Financial Ombudsman Service—the FOS—plays a vital role in providing quick, informal and impartial dispute resolution between customers and their financial services providers. It offers an accessible route for dealing with complaints that is designed to act as an alternative to resolving cases through the courts, which can be costly, lengthy and a process that often does not work for firms and consumers. The Government are clear that an effective ombudsman provides consumers with confidence in our financial services sector and is a key element of an effective system.

The Government’s review of the FOS found that, although the FOS fulfils its role in the majority of cases, in a small but impactful minority of cases, it has acted as a quasi-regulator. That conclusion was supported by the Financial Services Regulation Committee, chaired by the noble Baroness, Lady Noakes, in its report, Growing Pains: Clarity and Culture Change Required, which was published in June 2025. It recognised that the FOS’s

“actions have regulatory impacts by creating precedents that the FCA requires firms to follow”,

and that this

“generates an unacceptable level of uncertainty for firms, stakeholders, and investors”.

I want to be clear that the review was not suggesting that the FOS was acting improperly; rather, it concluded that the way in which the legislative framework operates made such issues unavoidable by creating a disconnect between the FCA’s rules and the FOS’s decisions, giving rise to unpredictability and a lack of certainty across the regulatory environment. That unpredictability is damaging for everyone and harms consumers’ confidence in the financial services products and services they rely on, as well as firms’ confidence to invest and innovate in the UK.

There is a large number of amendments before us. I will start with Amendment 31. This proposal would substantially extend the timeframe for bringing complaints to the FOS and would require the FOS to spend even more of its time and resources investigating, considering and attempting to resolve historic cases than it does today. We know from current experience that this would substantially increase costs while delivering comparatively limited increases in redress awarded. Further extending the timeframe beyond 10 years in an open-ended way to accommodate a complainant’s reasonable awareness of an issue would increase uncertainty for firms around historic liabilities, reducing appetite to invest in the UK’s financial services businesses.

The Treasury’s analysis of data from the FOS on historic cases is clear: they are more likely to be withdrawn or abandoned and have lower success rates than the average, often due to limited evidence and information being available. The Government’s analysis concluded that complaints to the FOS that are over 10 years old cost firms, on average, more than £18 million per year in case fees but deliver only £600,000 per year in redress for consumers. This is not a proportionate or balanced approach, nor is it consistent with the FOS’s quick and simple purpose. Extending the timeframes would slow down the FOS’s resolution of cases that are more recent and have a higher chance of being upheld, delaying consumers access to the redress they are owed.

Turning to Amendment 32, the Government considered carefully the options for different time limits to be set in legislation, including a six-year limit, and published their analysis in the impact assessment. Although this is a matter of judgment, the Government concluded that a 10-year time limit would strike the appropriate balance between consumer protection and providing certainty to firms, with a six-year limit resulting in too many people losing access to redress. However, I assure the noble Baroness and the noble Lord that the new limit introduced by the Bill is designed to act as a backstop to the existing limits set in rules made by the FCA. In most cases, the time limit will remain at the existing six years, with the 10-year backstop kicking in for cases where the customer could only reasonably have become aware of the problem at a later date.

On Amendments 33 and 35, the Government agree that, where the cause for complaint may take longer to come to light, such as with pensions, it is important that complaints can continue to be brought to the FOS. This is why the Bill gives the FCA discretion to make exceptions to the time limit in specified circumstances, where it is appropriate to do so. The Government carefully considered their approach to defining these exceptions and determined that the FCA is best equipped to develop proportionate and fair exceptions and to define these in its rules, given the FCA’s supervisory role and oversight of the sector and the level of technical detail that is required for the definitions.

The noble Lord is right to recognise the careful balance needed between ensuring that we do not undermine the certainty that this reform is intended to deliver while maintaining consumers’ trust and confidence that they will have access to redress when things go wrong. The Government are working closely with the FCA as it develops these exceptions and the FCA will set out its proposals in due course.

Amendment 34 relates to cases where there is an ongoing relationship between the consumer and a firm. Some complaints may be about acts or omissions that continue to occur or have effect in the context of an ongoing relationship between a consumer and a firm. The Financial Services and Markets Act 2000 does not place a restrictive definition on “acts” or “omissions”, so there is no reason why such an ongoing act or omission could not be the basis for a complaint within the time limit. The Government’s reforms in the Bill will not change the FOS’s discretion to identify the act or omission to which a complaint relates for the purposes of applying relevant time limits. It will continue to be for the FOS to make those judgments, based on the circumstances of the case and in line with the rules set by the FCA.

I will now explain the Government’s purpose behind Clause 8 and why it should stand part of the Bill. The noble Lords, Lord Davies of Brixton and Lord Sharkey, asked about the evidence base behind the Government’s policy. The Government’s review found that, in a small but significant minority of cases, the FOS has acted as a quasi-regulator. This means that, in some cases, the FOS has held firms to a standard that is different from those set by the FCA. The majority of responses to the Government’s consultation on the proposals to reform the legislative framework in which the FOS operates were broadly supportive of aligning the FOS’s fair and reasonable test with the FCA rules.

[Baroness Kramer (LD)]

Can the Minister clarify something? Is he saying that, provided you comply with an FCA rule, you are then always fair and reasonable? That is what I am taking away from this. I can list so many examples, such as Libor and mini-bonds—all kinds of things—where the perpetrators ticked every single compliance box. I am curious to know.

[Lord Stockwood (Lab)]

I apologise for taking a moment to ask my officials a question; I want to make sure that I give the right answer. Where the FOS has complied with the FCA rules, it still has the discretion to make judgments, as long as it believes them to be fair and reasonable.

20:00

[Lord Sharkey (LD)]

Would the Minister mind repeating that?

[Lord Stockwood (Lab)]

Certainly. We are trying to align the FOS’s “fair and reasonable” test with the FCA rules, but it retains some discretion.

I apologise for taking another moment to consult my officials. For clarity, where the FOS has aligned with the FCA rules, it has to believe that that is the case, and that determination has to be upheld.

[Baroness Kramer (LD)]

For absolute clarification, “fair and reasonable” must be interpreted by the FOS as a standard that is met if there is compliance with FCA rules. I just want to understand because we can then go back historically and see where FCA rules might not have been perceived as fair and reasonable. It is interesting.

[Lord Davies of Brixton (Lab)]

To pursue that, are we being misled by the use of the word “rules” here? There is guidance as well as rules. The principles are not rules, but the principles have to be followed, and they include things such as treating the customer properly. Is that right? There are some general principles within what the FCA lays down—

[Baroness Kramer (LD)]

I am not sure that is what the legislation says; I think it says “rules”.

[Lord Sharkey (LD)]

Looking at the legislation itself, it seems clear that if the act or omission is in breach of the FCA’s rules or the consumer duty that absolutely qualifies it as being okay. There is no subordinate reference to “fair and reasonable”.

[Lord Stockwood (Lab)]

I will take the opportunity to write because this definitely needs clarification. The note that I have says that in cases where the omission being complained about is governed by FCA rules, if the firm has met its obligations under those rules, the FOS will be required to find that it acted fairly and reasonably. All the FCA’s handbook is relevant here, including the principles for businesses and, therefore, the consumer duty. There will be coherence between those determinations but only when the FOS believes that the fair test has not been met can it challenge the FCA. I will write to noble Lords because this is an important point that needs a definitive answer. I apologise for that.

On Amendments 37, 42 and 43, as I have set out, the reforms to the FOS’s fair and reasonable test are designed to preserve the FOS’s existing discretion in areas not covered by FCA rules. The Bill specifies the matters that the FOS must take into account when making determinations, taking this out of FCA rules and making it subject to parliamentary oversight. The matters listed include the law, relevant guidance, codes of practice and further materials published by the FCA or other regulators. This provides greater clarity around how the FOS makes its decisions. As I explained earlier, the Government’s view is that where there are relevant FCA rules, there are benefits from ensuring that FOS decisions are consistent with them. I will write to clarify further in case I have created confusion in this conversation.

On Amendments 38 and 41, the Government recognise the important role the FOS plays within the wider financial services regulatory environment. The reforms included in the Bill are about making sure that the FOS and the FCA are able to carry out their respective roles effectively, co-operating where necessary but maintaining their separate responsibilities. These amendments would go further and require the FCA to become involved in the determination of individual complaints. This is a role that the FCA is not designed or equipped to undertake. It is, and should continue to be, the role of the FOS as the independent, impartial dispute resolution service.

Turning to Amendments 39 and 40, the Government’s review of the FOS concluded that the “fair and reasonable” test works well in the majority of cases to enable a quick and fair resolution of complaints. Removing the “fair and reasonable test”, as proposed by these amendments would undermine the FOS’s quick and informal role and put in its place a more legalistic approach based on strict adherence to the FCA’s rules. This could introduce additional costs and delays, and reduce the FOS’s effectiveness as an accessible and simple alternative to the courts.

I turn to Clause 7 and the new referral mechanism, which will require the FOS to seek a view from the FCA where it considers that a matter relating to a complaint may indicate ambiguity in the FCA’s rules or have wider implications for consumers and firms. As well as enabling the FOS to make decisions that are consistent with FCA rules, the referral process will ensure that systemic questions and issues are identified at an early stage and the FCA can consider whether a regulatory or supervisory intervention may be appropriate, rather than continuing to consider each individual complaint separately. Alongside the new reporting requirements provided for in Clause 9, this will improve understanding of the FCA’s rules and the standards expected of firms, in turn improving confidence in financial services and ultimately reducing the number of consumers who experience poor treatment, which all noble Lords will agree is preferable to providing redress after the fact.

Given the important role that the FOS plays, this is a clearly a matter of huge interest, and there is a range of views on exactly what the best system would look like. Notwithstanding that, I will write on the specific things that I might have caused confusion about.

I have listened carefully to the representations. The Government’s view is that the reforms set out in the Bill strike an appropriate balance, improving the clarity and consistency of redress arrangements while allowing the FOS to continue to make fact-specific decisions on individual complaints. They ensure that both the FOS and the FCA are equipped to fulfil their respective roles and responsibilities so that consumers can have confidence in the key financial services on which they rely, and so that firms understand what is expected of them and can act on it. I therefore ask the noble Lord to withdraw the amendment.

[Lord Davies of Brixton (Lab)]

As one always says in this situation, I will read what the Minister said with care. I have to admit that I was a little disappointed on the “fair and reasonable” test, but on close analysis it may prove to be better. In particular, I hope I will have a copy of the letter. It is clear that the rules include the principles, such as:

“A firm must observe proper standards of market conduct”.


Is it the ombudsman who would decide what was the proper standard of market conduct, or is that one of the issues that will have to be referred to the FCA? I am not expecting an answer now, particularly as—

[Baroness Kramer (LD)]

I have a question for the noble Lord, Lord Davies. My understanding of the principles is that they sit at the top, and the rules are derived from them. But this is a focus on the rules, so it is only as derived. I do not know, and we will get an answer.

[Lord Davies of Brixton (Lab)]

That is what the Minister will need to make clear in the letter. I urge him to make that point clear. Who decides whether the principles have been followed—or is that one of the issues that have to be referred to the FCA under Clause 7?

On time limits, I am disappointed that the Minister did not address the specific cases that I addressed. Some figures were provided—I will start a war on people providing figures in this sort of debate, because they whistle past your ear and it is very difficult to make a quick assessment. The problem is the counterfactual: if the existing system did not exist, would those same figures apply? The Minister has effectively said that, under this change of rules, some people who previously would have received compensation will not do so. That is absolutely clear from the Minister’s statement, and that is reasonable because the providers will save an even larger sum of money. But of course that is under the existing system. We have to think about what those figures would be under the new system.

Again, I hope the Minister will write to me about the specific examples, which could be large sums of compensation—in the case of inappropriate personal pensions, £13 billion was paid in compensation. Would that have been possible under the revised rules? I say that because £13 billion is quite a figure to miss out on for ordinary policyholders. I beg leave to withdraw the amendment.

Amendment 31 withdrawn.

Amendments 32 to 35 not moved.

Clause 6 agreed.

Clause 7: Referral of matters to the FCA

Amendment 36 not moved.

Clause 7 agreed.

Clause 8: Determination of complaints under the compulsory jurisdiction

Amendments 37 to 43 not moved.

Clause 8 agreed.

Clause 9 agreed.

Clause 10: Consumer redress schemes: general

Amendment 44 not moved.

Clause 10 agreed.

Clauses 11 and 12 agreed.

Amendment 45 not moved.

Clause 13 agreed.

[Lord Wilson of Sedgefield (Lab)]

We are about to move on to the last group of amendments and we have 35 minutes to go. I hope we can finish this group before we finish at 8.45 pm. If we do not, unfortunately we will have to break mid-group and reconvene on the same group on Wednesday, so it is in noble Lords’ hands what we do.

Amendment 46

Moved by

[Baroness Kramer]

46: After Clause 13, insert the following new Clause—
“Reimbursement of fraud: liability of technology companies(1) The FCA must make rules providing that, where a person is to be reimbursed in respect of losses arising from an authorised push payment fraud, the cost of that reimbursement is to be borne, in whole or in part, by any relevant technology company on whose service the fraud was initiated, facilitated or communicated.(2) Rules under subsection (1) must provide for—(a) the apportionment of the cost of reimbursement between relevant technology companies and payment service providers, by reference to the extent to which each contributed to the fraud occurring,(b) a process by which a payment service provider that has reimbursed a victim may recover the apportioned cost from a relevant technology company, and(c) the information that a relevant technology company must provide to the FCA and to payment service providers for the purposes of the rules.(3) In making rules under this section, the FCA must have regard to the principle that the cost of reimbursing victims of fraud should fall, so far as is reasonable, on the persons best able to prevent the fraud.(4) In this section—“authorised push payment fraud” means a transfer of funds executed by a payment service provider on the instruction of a payer, where the payer was deceived into giving that instruction;“relevant technology company” means a person who provides—(a) a user-to-user service or a search service within the meaning of the Online Safety Act 2023,(b) an electronic communications service, or(c) any other online service by means of which an authorised push payment fraud may be initiated, facilitated or communicated.”Member’s explanatory statement
This new Clause would require the FCA to make rules placing liability for the cost of reimbursing victims of authorised push payment fraud, in whole or in part, on the technology companies on whose platforms the fraud originates, rather than solely on payment service providers, and to apportion that cost according to who is best able to prevent the fraud.

[Baroness Kramer (LD)]

My Lords, I will take that as an encouragement to speak only to my amendment, so I shall just say that the other amendments in the group from the noble Lords, Lord Faulks and Lord Hunt, make a great deal of sense to me, but mine is slightly different. They are dealing with the issues of reporting, review duties and requirements; I am addressing the same underlying issue of authorised push-payment fraud, coming from the perspective of who needs to act to prevent that and be on the hook when there is abuse.

The tech firms—and it is primarily the US tech giants—are now major players in the payments system. They are not merely an inanimate part of the plumbing; the way that they set up and police their systems, or fail to, makes them significantly responsible when their platforms are used to initiate, facilitate or communicate fraud. With AI, the risks become yet greater for ordinary people unless proper guardrails are put in place, so we have to look ahead, not just put in place protections for current circumstances and the past.

The financial incentive for tech firms to ignore fraud is huge. Some analysts have estimated that in 2025, in the UK alone, scam ads generated income of £3.8 billion for the tech companies. My amendment dealing with authorised push-payment fraud deals with a sector of that, but a huge one: authorised push-payment fraud in the UK exceeds £576 million a year. Under present legislation, victims are reimbursed most of that money by the banks, but the techs who have provided the mechanisms are off the hook. I think that is preposterous, because the techs are typically best placed to prevent the fraud.

Amendment 46 would require the FCA to apportion reimbursement by reference to which part each player contributed to the fraud occurring. I strongly suggest that, if passed, this amendment would lead to the tech companies suddenly finding that it is in their interest to prevent APP fraud. As I said, I have great respect for the other amendments in this group, but the payment system is a complex one. There are now many new participants and everybody, not just the banks, should be playing their appropriate role in providing both protection and reimbursement. I beg to move.

20:15

[Lord Vaux of Harrowden (CB)]

My Lords, I have a number of amendments in this group on the subject of fraud and scams. I have also added my support to the lead amendment, which was tabled by the noble Baroness, Lady Kramer, and to which she has just spoken. Most of my amendments arise, at least in part, from the abolition of the PSR and the absorption of its activities into the FCA; I will quickly run through each of them.

The noble Baroness, Lady Kramer, has already explained the need for her Amendment 46, which would require the FCA to make rules to ensure that the tech or communications company on whose platform or service the fraud arises is responsible for a proportion of the cost of reimbursing the victims. Whether or not the mechanism in her amendment is the right one, the principle here is obvious. At the moment, it is the banks that must compulsorily fully refund victims of fraud. There is some sense in the banks having to reimburse victims, because almost every fraud goes through some sort of bank account to allow the fraudsters to cash out. It is clear that the mandatory reimbursement requirement has incentivised banks to do more to protect customers. However, we also know that fraud does not originate from banks’ services. According to UK Finance’s latest report, some 66% of scams arise on online services and a further 17% originate via telecoms. Let us be clear: the highest proportion of that arises on Meta platforms.

Despite voluntary charters, this is not improving at all. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, recognised this in its report nearly four years ago; if the Minister has not read it, I recommend it as some bedtime reading. It said:

“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act”.


We were right. Nothing has changed since then to change that conclusion. If anything, matters continue to worsen as technology such as AI starts being used by criminals. It is time that the platforms were at last forced to step up and take financial responsibility for the losses that arise from their platforms, not just leaving it to the banks to pick up the full liability. I say this to the Minister: in your answer, please do not tell us that the Online Safety Act will solve this. It is too limited; it covers only directly paid-for advertising and is unlikely to make much difference.

The Government’s fraud strategy recognises all this. It says that,

“if industry partnership and market incentives alone remain insufficient to drive improvements, the Government will take legislative action within this Parliament”.

This has been going on for years. The voluntary online fraud charter was signed three years ago. Nothing material has improved. Fraud is still around 45% of all crime, and the percentage arising on tech platforms has not fallen; if anything, it has risen. The Bill is the perfect opportunity finally to take action on this and not leave it until thousands more people have fallen victim. We know that tech companies will not take action unless they have to—they continue to prove that—which is why the Government are at last taking action in respect of child protection. This is no different. It is now time to act without further delay.

My Amendment 47 would introduce a requirement for the mandatory reimbursement rules for APP fraud, which came into force in October 2024, to be reviewed after three years of operation. It is unlikely that we got everything right at the first attempt, so a review of how effective they have been in meeting their objectives of protecting consumers and incentivising the banks to improve protections—as well as, importantly, whether there have been any unintended consequences—must make sense.

I have tried to set out in the amendment—I will not go through all the detail—the key matters that were discussed when the requirement was introduced in 2022-23 as the matters that ought to be reviewed. I would have also included the tech platforms, but I did not want to duplicate the amendment that we have just discussed.

I completely agree with the noble Lord, Lord Holmes, who sadly is not with us at the moment, on his Amendment 58, which would add specific fraud prevention duties on payment service providers. I also have a lot of sympathy with the principle behind his Amendment 125, which would introduce a financial fraud prevention secondary objective to the FCA, although I caveat that by saying that I am not sure that adding yet more objectives to the regulators is necessarily the right way to go.

My Amendment 59 is designed to ensure that the FCA continues to collate and to publish the fraud data that the PSR has been collating and publishing for the past few years. This has been extremely valuable. It has identified several PSPs that were clearly not taking their fraud prevention duties seriously and led to action being taken against them. The pressure of shining a light on some of the bigger players has clearly incentivised them to step up and improve their systems. The information identifies very clearly which PSPs are protecting their customers best and which are doing it worst, which is important information for consumers when choosing a bank or payment provider.

To give just one example to show the value of this reporting, the last report by the PSR identified that, for every 1 million transactions received by Guavapay, 109,744 were APP scam payments—that is more than 10%. As a result of that information, the company has been forced to close by the FCA. In the meantime, consumers would have been able to see that this was an unsafe operator if the report had been issued in a timely manner—an issue that I will come to in a second.

This reporting was started as a result of efforts by Members of the House during the passage of FSMA 2023, and it followed undertakings by the then Minister. But there are already signs that, since moving the PSR’s activities into the FCA, this has started to slip. As I said, the last report of this nature was for the period up to 7 October 2024, when the mandatory reimbursement requirement was introduced. That was not published until February 2026, some 16 months later. My amendment would add a time limit of three months for the publication of these reports. No further report has been published since, so I hope that the Minister will recognise the value of this reporting, and that he will confirm that it should continue and that this amendment—which does not create any new burdens at all but just continues the status quo—should be accepted.

Amendment 64 would reverse the deletion of Clause 72 from FSMA 2023—it was the clause that introduced the requirement to introduce a mandatory reimbursement requirement. In the Explanatory Memorandum, the Government explain that this is being removed because it has already happened. But Clause 72 does not only introduce the requirement; subsection (9) also includes the ability

“to vary or revoke a relevant requirement”

or

“to impose further relevant requirements”.

So I am not sure that deleting it in full works—that is something to look at. Most importantly, can the Minister confirm that the mandatory reimbursement requirement is intended to continue, even if reviewed and amended in the future—particularly in relation to tech companies, which we have talked about—and that this Bill is not intended to change anything in that respect?

[Baroness Neville-Rolfe (Con)]

My Lords, for reasons that will become apparent, I start by referring to my register of interests, including my shareholding in Meta.

I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord Vaux, and my noble friend noble Lord Holmes, who is absent, for bringing forward this important group of amendments. I am sorry that this debate is so late and that the Grand Committee is so thin under the new five-hour arrangements—of which I am not a fan—because, collectively, these amendments raise an important and timely point. As online retail platforms and digital marketplaces become more popular and AI makes fraud easier, there has been a concurrent increase in the risk that people face from online fraud, as we have heard from the noble Lord, Lord Vaux.

We have seen concerning figures suggesting that Facebook Marketplace is now the single most scammed UK consumer platform. Very large sums are stolen through it every day in the UK, and a very high proportion of UK purchase fraud begins there. We have also seen banks such as Santander taking active steps to block suspected Marketplace transfers to protect customers. Those examples raise very important questions: how easy is it for consumers to obtain redress when they are defrauded in this way? Who holds ultimate responsibility when a fraud is facilitated through an online platform, and how can the regulatory framework ensure that the firms best placed to prevent the fraud have a real incentive to do so? It is also important to consider how changes can be made without introducing new rafts of regulation that put up costs and prices.

Banks and payment service providers have significant responsibilities, and rightly so. They process the payment, have duties to their customers, and have tools available to detect and prevent suspicious transactions. Yet they are often not the place where the fraud originated, and may see only the final payment instruction, by which point much of the harm has already been set in motion. By contrast, technology companies and online marketplaces may be much closer to the source of the problem. They host the listings, provide the communications infrastructure, enable the interaction between buyer and seller, and in many cases have access to data which could help identify suspicious behaviour before money ever leaves a consumer’s account.

Amendment 46 is based on the principle that fraud should be paid for by those best placed to prevent it, not simply those who happen to process the payment at the end of the chain. If platforms know that they may share liability where fraud is facilitated through their systems, they will have a much stronger incentive to identify fraudulent listings, remove scam accounts, improve verification, share data and co-operate with banks and regulators, and indeed help consumers to avoid fraud, as we can do a lot ourselves as consumers. This is not about saying that technology firms should always be liable in every case, nor is it about absolving banks of responsibility. Yet it recognises that the current model may place too much of the burden on one part of the system, while allowing other actors, including very large and profitable tech companies, to avoid the financial consequences of fraud which often begins on their platforms.

The goal should be to stop fraud before it happens, which means better consumer warnings, transaction monitoring, real-time data sharing, and use of technology by all relevant firms. It also means transparency. If particular platforms, channels or types of transaction are consistently associated with fraud, that information should be visible. Sunlight is an important tool of accountability, which is why Amendment 59 is valuable in principle. As the experienced noble Lord, Lord Vaux, has explained, regular publication of data on APP fraud performance, including where fraud originates, would help Parliament, regulators, firms and consumers to understand the real shape of the problem. It would put pressure on firms whose systems are repeatedly linked to fraud to improve their performance.

Before we take a definitive view on these amendments, I would be grateful if the Minister could address several questions. First, what is the Government’s view on the principle of shared liability for APP fraud across the wider ecosystem, including technology companies and online marketplaces? Secondly, is there a place for greater transparency on APP fraud performance? Thirdly, what discussions have the Government had with tech platforms about fraud originating on their services, and what more does the Minister believe those firms should be required to do? Fourthly, does the Minister accept that online platforms should have stronger incentives to prevent fraud where they host the marketplace, the listing or the communication through which the scam takes place? Finally, how do the Government envisage tackling this problem? Do they have plans to introduce legislation on this issue, or do they believe that changes within the existing framework will be sufficient?

APP fraud causes real harm to individuals, families and businesses. It can undermine confidence in digital payments and online commerce, which is increasingly the direction of travel. It also imposes costs on the wider financial system. I recognise that this may go even wider than our Bill, but this is an important group and I look forward to the Minister’s responses, and to seeing how we can improve this important area.

[Lord Stockwood (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Kramer, and to noble Lords for tabling these amendments and to all noble Lords who have contributed to this important debate. The scale of fraud and the devastating impact of that crime on victims remains a concern for this Government. The Government take the issue of fraud very seriously and are dedicated to protecting the public and businesses from this appalling crime.

20:30

Amendment 46, tabled by the noble Baroness, Lady Kramer, would require the FCA to make rules so that where a victim of authorised push payment fraud is reimbursed, some or all of the cost can be recovered from technology companies when an online service is used to facilitate fraud. The Government have been clear that every sector must play their part in preventing fraud. Technology companies should take robust action to stop services being abused by criminals, but the Government do not consider this amendment the right vehicle to achieve that.

The Government are already taking forward a broader programme of action. The Online Safety Act, while not a catch-all, as the noble Lord, Lord Vaux, points out, requires tech companies to take proactive steps to stop fraudulent content appearing and to remove it quickly when they become aware of it. This Government are committed to ensuring that Ofcom is sufficiently resourced to undertake swift and decisive action against illegal online harms, including fraud, and we agree that tech companies should rightly bear the relevant costs of Ofcom’s regulatory oversight under that regime.

This summer, Ofcom will publish a register of categorised services subject to more stringent rules and consult on fraudulent advertising codes, to come into effect in 2027. Earlier this year, we also published a new fraud strategy, announcing an online advertising taskforce to improve transparency, new fraud prevention metrics to build platform accountability, and an online crime centre to strengthen intelligence sharing. As tech companies are already liable for the costs of implementing the systems and processes to prevent, detect and remove online fraud, alongside the costs of Ofcom’s fraud prevention work and any penalties for non-compliance, this amendment is not necessary.

Moving on to Amendments 58 and 125, tabled by the noble Lord, Lord Holmes, the Government agree that it is important that sufficient fraud prevention and protection measures are in place. However, we do not believe that these amendments are necessary. In recent years, we have seen welcome advances in firms’ systems and controls to detect and prevent fraud, including the use of advanced technology such as AI. Payment firms have also implemented “confirmation of payee”, the name-checking system which matches account information to the name of the account holder. This applies to nearly all payments made over the Faster Payment System and CHAPS. Further, Pay.UK, the operator of the Faster Payment System, has been working on enhanced data exchange, which involves the exchange of specified data points between payment service providers before a payment transaction is made, providing more available data in the payment journey.

Moving forward, the Government are clear that fraud prevention must be built into the future payments infrastructure. The Strategy for Future Retail Payments Infrastructure, published in November 2025, notes that a key outcome must be that consumers and businesses can trust that their payments are protected from fraud and wider financial crime. The Retail Payments Infrastructure Board will soon be consulting on the design of the future infrastructure and how to meet that outcome.

Finally, I come to Amendments 47 and 59, tabled by the noble Lord, Lord Vaux, on authorised push payment fraud reimbursement and the PSR’s fraud performance data publications. Since 2024, the PSR has required that all in-scope payment system providers must reimburse victims of APP scams within five business days, and up to the value of £85,000 where these scams take place over the faster payments system, subject to specified exemptions. The Bank of England has introduced equivalent requirements for CHAPS.

The noble Lord, Lord Vaux, asked about the mandatory reimbursement requirement. The Bill provides for the PSR’s requirement to transfer to the FCA once the consolidation is complete. Firms will therefore continue to be responsible for reimbursing victims of APP fraud once the PSR’s functions are consolidated into the FCA. The FCA will be able to make further rules regarding APP reimbursement. The PSR has also commissioned an independent review of the reimbursement requirement, the results of which will be published shortly.

Regarding the amendment to require the FCA to publish an annual report on payment service providers’ authorised push payment fraud performance, the Government agree it is important that payment service providers are taking adequate measures to prevent fraud. The PSR has previously published data regarding the performance of individual payment providers, alongside data on where fraud was initiated. The PSR will consider its approach to these data releases following the conclusion of the independent evaluation of its APP scams policies and will shortly provide a public update on its future plans.

The noble Baroness, Lady Neville-Rolfe, asked a number of questions, including on shared liability. In the interests of time, I will write to her.

In summary, the Government are committed to tackling fraud. I hope I have demonstrated that there is significant ongoing work to tackle this threat and protect victims. I therefore ask the noble Baroness to withdraw her amendment.

[Baroness Kramer (LD)]

My Lords, the noble Lord, Lord Vaux, and the noble Baroness, Lady Neville-Rolfe, both gave far better speeches then I could, and covered the whole area substantially. I am grateful to them, but this gives me a few moments to reply.

Did the Minister say that the financial responsibility that will fall on tech platforms is the cost of prevention, detection and removal, and does he consider that all they need to do? He did not answer the question on shared liability or full reimbursement, and I find that reasonably preposterous, to tell you the truth. If these firms were effectively putting in place prevention, detection and removal, we would not have very much APP fraud, and therefore they would not be making very much reimbursement. We are not asking them to double up what they pay but to pay effectively.

There is a lot more that the Government need to take note of on this. They must also remember that the victims are among the most vulnerable people in our society, as well as others who think of themselves as capable and then find they have fallen for a scam.

I suggest that something far more vigorous is required, and it must be effective in making the tech companies respond, because, as the noble Lord, Lord Vaux, said, the history is that tech companies simply absorb the various requirements on them and make little move to act, because of the income that comes when they simply look the other way.

Amendment 46 withdrawn.

Amendment 47 not moved.

Committee adjourned at 8.36 pm.