Consumer Rights Bill

Debate between Baroness Drake and Earl of Lytton

Wednesday 22nd October 2014 Grand Committee

[The Earl of Lytton (CB)]

My Lords, I had not intended to intervene and before doing so I ought to explain that, as a latecomer to the issues in this Bill, I have various interests to declare, not least in this instance that I am a chartered surveyor and, by dint of my professional activities, a registered valuer.

I pick up the point made by the noble Baroness, Lady Hayter, in connection with negative equity, for example, and I think of the circumstances that arose when the wheels, if I can term it thus, came off the banking situation and mortgage lending in 2008. That resulted in the mortgage lenders—I will not say to a man, but certainly in large numbers—pointing the finger at valuer members of my profession. I should make it clear that the mortgage lenders select whom they will have on their panel of valuers, they set out the form in which the report is to be made, they determine the fee and the timescale over which the report will be produced and, in the past, they have not been averse to leaning on members of my profession if they think that not enough money is being lent or the volume is not enough, because they are looking retrospectively at what are provable data from concluded evidence in the market.

It is my experience that mortgage lenders and banks generally are very adroit at passing the buck back to members of my profession. I do not set out to defend property valuers from whatever mistakes they might make. However, I counsel caution because there are some very big players who are very in tune with passing back to some other sector what would otherwise be their duty of care to the consumer. I will be developing aspects of this when we get to my amendments.

I wonder how one can ring-fence out the question of what we might call the contractor or the service provider and their subcontractor arrangements in those circumstances. I do not have a solution to this issue. Professional bodies, such as the Royal Institution of Chartered Surveyors, are there for the purposes of providing education, continuing professional development and ensuring the ethical conduct of their members. The RICS is not a consumer protection organisation as such, nor does it have the ability to scrutinise and quality control the hundreds of thousands of different reports and valuations that are being produced by its members. This is a matter of concern because of the net result that occurs.

The Royal Institution of Chartered Surveyors introduced a valuer registration scheme—and I am a registered valuer—in response to the very large number of claims that have been made against valuer members of the RICS following 2008. Quite a number of people who were previously in that field have left it. As a result, the cost of getting regulated purpose valuations has fallen to fewer people and costs have gone up. That has reduced competition and increased costs. I am not sure that that is in anybody’s long-term interest—certainly not if, as we now perceive, the market might be subject to a revitalisation. We need this volume: we need those willing persons to come forward and do this valuation work.

So I counsel caution. As I said before, I do not have a solution, but I hope that perhaps the Minister will be able to throw some light on that.

[Baroness Drake]

My Lords, I support Amendment 46B. I have spoken frequently on the issue of fiduciary duty and the strengthening of the duty of care in the financial services sector, and I suspect there are some other pieces of legislation and changes taking place where I may deliver the same emotive plea. I feel that Governments—I stress “Governments”—consistently fail to address the systemic challenge that exists in the financial services market.

I was looking up some old debates, reminding myself how I can iterate at great length about my concerns on standards of duty in the financial services sector. I turned to the speech that the noble Lord, Lord Turner, made when we debated the Pensions Bill that came through the House earlier this year. At that time he had just ceased to be chair of the FSA. I knew from the past that he had had reasonably strong views about the efficiencies or inefficiencies of the financial market. When I reread it yesterday, I remembered the power of his remarks when he referred to,

“the fundamental inefficiency of the market … It is a system absolutely shot through with market failure where the process of trying to provide in a competitive fashion simply does not work well”.—[Official Report, 15/1/14; col. GC160.]

That is why the argument for strengthening the duty of care and fiduciary duty in the financial services sector is so compelling. There have been so many recent reports on different sections of the financial services sector which have identified parts of the market that could not be expected to self-remedy and there is an urgent need to strengthen the position of the consumer and to intrude.

I welcome the strengthenings in the Bill, but there is still an avoidance of strengthening the duty, particularly in the financial services sector, towards the consumer. Parts of the sector are characterised by systemic conflicts of interest. We have complexities that are debated endlessly in both Houses. We have asymmetry of knowledge and understanding and inertia and behavioural bias in the customer. Those all combine to build inefficiencies in the financial services market that are profitable to the provider but detrimental to the consumer. Regulatory reliance on compliance with rules, rather than placing responsibility on the financial service provider to act in the consumer’s interests, consistently fails to deliver not only for the consumer but for the economy as a whole. The financial sector is such a large part of that economy. If that sector has market inefficiencies, that is a pretty large chunk of the economy as a whole.

I frequently say to myself, “How many reports on failure in the financial services market do the Government have to receive before they do not just write another set of rules?” They have a game changer in terms of the rules of the game. How many considered views, such as those from the Kay review or the Law Commission, do they need before the Government accept that a strengthened duty of care is needed in this sector? My noble friend Lady Hayter said, shortly before we came into the Moses Room, “I hope you have lots of examples, Jeannie”. I thought, “If I go down that road, I could entertain the Committee for about four hours”.

Let me headline some of them. There are excessive foreign exchange charges when investing in assets overseas. There are heavy exit charges from financial contracts, which will be a big issue given the new freedom for pensions when people trot along to say, “Can I have my cash please?”, and get slapped down. The Government have identified that as a problem, but it is still there. There are hidden investment charges. Not all investment products are pensions; plenty are not and they will not all be covered by the new quality standards in the pensions Bill. A lot of transfers will take place; transfer charges are unlikely to be covered by the pensions Bill, but we know that that is one of the high-charging areas. Everyone knows that income drawdown charges are high. I have no idea how the Government are going to control income drawdown products to make them fair to the consumer in the new freedom regime. There is the mis-selling of PPI, harsh mortgage contracts and the miserable, mean activity of interest swap arrangements sold to small businesses to protect them against interest rate rises, when those policies became so burdensome that it threatened their survival. The list is endless.

I thought that I would illustrate the point with a pensions example, which is a personal one. My daughter is a lawyer, so you would expect her to be reasonably cerebrally functioning—if I can be generous to the profession. She changed her job from one employer to another. She had a DC pot and I suggested that she should get organised to transfer her DC pot from her previous to her new employer. Her way of dealing with that was to put all the paperwork on my desk and say, “You sort it out, Mum, and I’ll sign”. As all mothers do, I sat down with the paperwork. The pension scheme she was leaving was provided by a leading, reputable financial company, as was the one she was going to. Both were blue-chip companies. I read all the paperwork of the one she was leaving and of the one she was going to. Not a single piece of paper set out the charges for any part of the investment, any part of the administration or any part of the transfer charges. Tucked away was an invite to apply at a certain point if you wanted the detail of those charges. That was just one example where the market is just not working.

I do not suppose that in the Committee today I have the slightest chance of persuading the Government that they at some point need to change the rules of the game to place a greater duty of care on the financial services sector, but otherwise we will go on receiving endless reports of market failures and inefficiencies. We have a big juggernaut coming down the line with pension freedoms. When people take their cash, they will not necessarily be trotting off to the regulated products covered by the FCA; they will also be operating in the unregulated part of the market. I put the case again that there is really a need to strengthen the duty of care in the sector so that the consumer can truly be protected.