Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Whitty

Monday 26th November 2012 Lords Chamber

[Lord Whitty]

My Lords, with most of this Bill being about regulators and the whole structure of regulation, I am returning to a proposition which would in due course return some power and leverage to consumers directly. As we just heard from my noble friend Lord Kennedy of Southwark and others speaking on claims management companies, it is often the case that in widespread abuse by financial services operators a common issue between a number of consumers, often a very large number of them, is that the process of seeking any redress is lengthy and complicated if conducted on an individual basis. It is also open to the intervention of the rougher end of the CMC market, which manages simultaneously to exploit the consumers and the providers.

In Committee, I tried to do the Government’s work for them and offered them an easy way of taking on board a system of collective action and redress by consumers. I proposed a fairly detailed set of amendments, which were almost precisely the same as those that were included in the 2010 Bill, that were dropped without debate in the wash-up prior to the general election. At that time, I proposed that various amendments should immediately be adopted by the Government. They had cleared the Treasury hurdle. They had cleared the hurdle of parliamentary counsel and could have been adopted.

The Government resisted that, and I am suggesting that we push it back to the Government to come up with an alternative version. I am giving them more flexibility to draw up their proposals, so this amendment would require them to come up with secondary legislation which would effectively give collective redress and action provisions for consumers in the financial area three months after the passage of this Act. To give them more time would probably not be sensible, given that had these provisions existed before the great PPI scandal, a lot of it would have been resolved by now.

In the last debate in Committee, the Minister referred in rather Delphic terms to a more general approach to collective redress for consumers, which was being considered by his sister department, BIS, in its approach to consumer affairs. He did so in a way which implied that it was probably going to act on that in the near future. It is true that BIS has included collective action and redress in its consultation paper on the consumer landscape. Now, we have before this House a Bill from BIS dealing with enterprise and regulatory reform, which has not a word about consumer protection and certainly none about the ability of consumers to engage in collective redress. This is in marked contrast to the determination rapidly to reduce protection for employees in that Bill. Consumers hardly get a look in.

I come back to the need for particular provisions in this Bill for the financial sector. There is an additional point in this amendment, which was not in my previous amendment, but was in an amendment proposed at that stage by my noble friend Lady Hayter. It is that this provision for collective action should also apply to small businesses. Like individual consumers, they are often faced with mis-selling or other misbehaviour by financial services, which affect a large number of small businesses, but which would be expensive and time-consuming for any individual business to pursue. If there were a framework, whether on an opt-in or opt-out basis, for small firms to take action against the financial institution or institutions, again their detriment could be met much more rapidly. Hence, I am proposing that the Government cover them within this review, with the requirement to report back and present regulations in three months’ time.

I hope that the Government at the very least accept a need to move in this direction either individually in respect of the financial sector, which has some peculiarities, or more generally. If it is to be done solely on the financial services front at this stage, then perhaps they could accept my amendment as it stands and we will in due course receive the regulations. If they want to move more broadly, I would welcome that, but I have received no indication as yet that the Minister’s colleagues are proposing in any very near-time dimension to bring such broader provisions forward. I hope that either the amendment can be accepted or that we will have a firm commitment to broader action in the near future. I beg to move.

[Baroness Hayter of Kentish Town]

My Lords, I support the amendment moved by my noble friend Lord Whitty. To some extent, the third arm of this amendment has been partially agreed by the Government, in that their proposed criteria for designating super-complaints to the FCA include representatives of SMEs—although they wisely exclude authorised bodies from this category. I have two questions to pose.

First, what is the timescale for the designation of SMEs as super-complainants? In his response in Committee, as my noble friend Lord Whitty has just reminded us, the Minister, Lord Newby, said that the Government hoped,

“to publish their response”—

to the consultation—

“before the end of the year”.—[Official Report, 15/10/12; col. 1351.]

Unless the Minister is to forego his Christmas holiday altogether, this is going to stretch even his capabilities, as responses to the super-complaint issue are due only on Christmas Eve. Amendment 106 adds a timescale to the exercise. Perhaps he could either give a definite date or accept the timescale suggested by my noble friend Lord Whitty. There is some urgency to this. The FSA estimates that more than 40,000 interest-rate swaps were mis-sold to small businesses. It is silly for each of them to have to take individual action over this, so only collective cases will satisfy. We see no reason why each individual or firm must make a separate claim. I cannot see why the onus should not be on the banks, which are the major mis-sellers, to write to those to whom they have mis-sold and repay the monies due to them. We understand that some banks have now agreed to do this, but faster action is required. We hear that ominous noise of foot-dragging. Small businesses simply cannot carry this unwarranted expenditure; they need a more rapid remedy.

My second question relates partly also to Amendments 105E, 105F and 105G, which deal with super-complaints with profits. As the Government have moved some of that oversight to the jurisdiction of the FCA, our original request was superfluous and we shall not press those amendments. However, the question remains how either individuals or SMEs can pursue, through their representatives’ use of a super-complaint, market failures where these relate to the bit of the banks’ activity that is under the PRA’s remit.

As noble Lords will recall, the Government have resisted our attempts to have any channel of communication between the Financial Services Consumer Panel and the PRA. Nor will they have access to super-complaints to the PRA and the collective action suggested by my noble friend Lord Whitty. It rather smacks of the banks’ regulator being deaf to alleged failures in any of the banks serving the needs of their customers.

Hitherto, the Government have suggested that all such representations can be made through the FCA, even though it will have no responsibility for PRA areas and even though it will have a wider remit than just the interests of one group of clients. It will anyway be very much at arm’s length from actual consumers. The issue remains of how collective action can be taken, particularly with respect to banks. Can the Minister therefore offer some reassurance that the PRA, in its regulation of banks and with the new Governor in place, will keep the interests of consumers central to its thinking and policy, so that further consumer detriment does not arise?

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Whitty

Monday 15th October 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I should like to know which Minister is going to respond to this—it may help.

We are pleased that the FCA now has a new competition objective and wider competition powers. However, these powers do not go far enough to enable the FCA to deliver its objectives. As the Bill stands, the FCA will still have to refer cases to the OFT, or its successor body, which will then conduct a market analysis before being able to take further action. This looks like a slow and rather unfair regulatory process, even after the merger of organisations that will take place under another Bill.

We therefore support the view of the Joint Committee that the FCA should have concurrent competition powers in respect of a market investigation reference, together with the OFT. That would empower the FCA to conduct its own economic analysis and deal with distortions in the market without the need for any delay.

We have heard a lot about the lessons learned from PPI, which highlight the need for the FCA to have the market investigation reference powers. In 2005, the FSA signalled its concerns about the PPI market and began an investigation. After the investigation, the FSA took its concerns to the OFT, which had to look at the issues before passing the case on to the Competition Commission. Eventually the Competition Commission passed the issue back to the FSA. The process took far longer than necessary and allowed the banks and other credit providers to continue selling PPI to their unsuspecting customers.

Giving the FCA concurrent MIR powers would allow the FCA to escalate concerns about competition failures quickly and efficiently, with any failures addressed before consumer detriment crystallised. By giving the FCA powers equivalent to the OFT under Section 131 of the Enterprise Act 2002, a single organisation would be able to tackle significant market issues such as PPI without the substantial delay through referral to another body. We therefore seek to amend the Bill accordingly and I beg to move.

[Lord Whitty]

My Lords, since my noble friend is a bit lonely on the Front Bench just now, I intervene very briefly to support her on this. Quite often in regulatory structures the sector regulator is very nervous of referring anything to the competition authorities because it regards that as part of its failure. Under the terms of this amendment, it would be part of the process that was available—I will not say normally, but if necessary—to the FCA to refer things to the competition authority, having itself examined the structure of the market with its concurrent powers.

I am very mindful of an equivalent sector—namely, energy—where one of the problems has been that Ofgem has always refused in effect to refer the structure of the energy market to the competition authorities, even though, I happen to know, at the time the competition authorities or the members of the Competition Commission were very anxious to look at it. We might have to change the form of words slightly but I think this is the better formulation—that the FCA has concurrent powers but that it is not seen as a complete departure for a case to be referred to the competition authorities themselves and that the process is not prolonged.

[Lord Sassoon]

My Lords, I can see that the noble Baroness is delighted that I am on my feet. I listened to the very clear and detailed arguments that the noble Baroness, Lady Drake, gave in an earlier session, to which we have come back today. I may not always respond there and then but I listen very carefully to everything that is said. However, I do not want to raise the expectations of the noble Baroness on this one.

This amendment seeks, as we have heard, to give the FCA a power to make a market investigation reference to the Competition Commission. I am sure that the Committee is aware that the Joint Committee that scrutinised the draft Bill recommended that the FCA should be given concurrent market investigation reference powers. However, noble Lords will also be aware that the Treasury Select Committee, in its report on the FCA, concluded that the case for the FCA to have market investigation reference powers has not yet been made, and that the issue should be reviewed when the FCA has bedded into its new role.

Having considered the matter very carefully, the Government have adopted the proposal of the Treasury Select Committee. The FCA’s competition objective will require it to keep the markets it regulates under review and it may of course perform its own competition analyses as part of that. The evidence-gathering and analysis carried out by the FCA will support any subsequent intervention by the OFT. For example, on a referral from the FCA, the OFT may have sufficient evidence to launch a market investigation reference almost immediately. There is precedent for this in the OFT’s response to the report of the House of Lords Economic Affairs Committee on the audit market. In the light of the evidence collected by the committee, the OFT felt able to consult on a reference to the Competition Commission without conducting its own market study.

As the Government have made clear in their response to the Treasury Select Committee, we will review the question of the FCA competition powers when it has bedded in to its new role, five years after it comes into being. I hope that with that reassurance, and confirmation that we are following the Treasury Select Committee’s recommendation, the noble Baroness will feel able to withdraw her amendment.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Whitty

Wednesday 25th July 2012 Lords Chamber

[Lord Whitty]

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

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

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

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

[Baroness Hayter of Kentish Town]

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

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

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

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

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

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

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