European Union (Withdrawal) Bill

Debate between Baroness Kramer and Baroness Hayter of Kentish Town

Report: 3rd sitting (Hansard): House of Lords
Wednesday 25th April 2018 Lords Chamber

[Baroness Kramer (LD)]

This is another opportunity to thank the Minister because some peace of mind will now be provided about the structure of Clause 7. We understand now that the Government have stepped away from any capability to introduce new or increased fees.

I also thank the Minister for clarifying what a charge is. Many in this House have been trying to understand exactly how it could be framed. I hope the fact that he has now described it in the House will, in effect, put that definition on the record so that no future Government will attempt to use the word “charge” in order to circumvent these various constraints. Again, on this occasion, I thank the Minister.

[Baroness Hayter of Kentish Town]

To make sure that the Minister blushes fully, we, too, will take the opportunity to say again that we think that this is a good improvement. We thank those who have been involved in the drafting of the amendment and we support it.

European Union (Withdrawal) Bill

Debate between Baroness Kramer and Baroness Hayter of Kentish Town

Committee: 10th sitting (Hansard - continued): House of Lords
Monday 26th March 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I shall add a very quick word because so much has already been said. There is an irony in Schedule 4 which may interest the Committee: namely that the power to provide for fees and charges has been handed to Ministers by means of either secondary or tertiary regulation, depending on which part of this measure you are looking at. Paragraph 3 of Schedule 4 states:

“A Minister of the Crown may only make regulations under paragraph 1 with the consent of the Treasury”.


The irony of that is, frankly, extraordinary because it shows where the Government intend the power of the land to lie. We have always suspected that the Treasury is handed some of the greatest powers that are denied to Parliament. If it is considered fit for the Treasury to be able to intervene in fees and charges, then surely it is Parliament’s right to be able to intervene, scrutinise and monitor those fees and charges.

[Baroness Hayter of Kentish Town]

My Lords, I do not think that the noble Lord, Lord Tyler, was threatening to cut the right reverend Prelate’s head off because of this. However, what may have been a threat to the Minister was to me a great delight: the promise of the noble and learned Lord, Lord Judge, that he will do this with knobs on when we come back on Report. I look forward to that.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013

Debate between Baroness Kramer and Baroness Hayter of Kentish Town

Wednesday 17th July 2013 Grand Committee

[Baroness Kramer]

My Lords, I shall comment on three aspects of these orders, of which I am very supportive. First, I welcome the elements of the order that create a regulated environment for peer-to-peer lending platforms. While most industries have spent their energies saying, “Remove red tape”, this industry has been coming to the Government and the regulator saying, “Please can we have proper regulation”, because it knows that without proper regulation, rogue players can come in from the outside, undermine the credibility of the industry and probably provoke a regulator to come in with inappropriately heavy regulation as a consequence.

Can the Minister reassure me that the industry has been involved in negotiating and structuring these regulations? It looks to me as though they meet the test, but can he assure me that they reflect the kind of safeguards that that industry has already outlined in its code of conduct, established under its trade association? I think that that code was to be the basis of most of the discussions. It is a real way forward because, as we know, the banks have been very challenged over providing the credit we need in our economy, and peer-to-peer lending is increasingly coming in to fill that gap to provide both competition and additional resource, which is useful and positive.

Secondly, I pick up my noble friend’s comments on payday lenders. I share many of his concerns about this industry. Indeed, the whole House did so, as the Minister will remember, during the passage of the Financial Services Bill in 2012, when an amendment that we colloquially called the Sassoon-Mitchell amendment put very effective powers into the hands of the FCA. When it takes over supervision of this industry in April 2014, the FCA will have powers to regulate, manage and supervise it.

The powers were written with an eye to some of the regulation that has been put in place in Florida—I believe 13 states use this kind of regulation—which includes the ability to limit the amount of borrowing to $500 outstanding at any one time, to limit the number of outstanding loans, to cap interest rates and fees and to provide for a grace repayment period. It also has various other characteristics. I would like assurance that the order does not compromise the wide range of powers sought by the House in the legislation and in the amendment.

Like my noble friend, I am concerned with the impression the industry is giving of marketing energetically and raising its interest rates above and beyond what most of us already regard as high levels. I hope the FCA will be able to hit the ground running. That means going through the consultation process and deciding how it will manage that regulation.

It is also a systems issue. As the Minister knows, the various US states that have regulation have systems that allow them to see on a real-time basis what applications are taking place, what the amount is, what the interest rate is, unauthorised rollovers and so on, and they are able to manage the process. This not only allows the regulator to look at the data and intervene in retrospect, but enables it to set up systems so that if the rules are contravened an automatic decline shows up and an offending loan cannot be made. While it needs time to put such a system into place, I wonder how likely it is that the FCA will be in a position to deliver it as early as April and, if not, what the thinking is around it.

I am afraid my next question comes from my lack of understanding and my difficulty in reading my way through orders. It concerns social impact investment, the financial promotions order and its relationship to the FCA. The Minister will know that if, for example, a social enterprise attempts to create a new community hall, it can turn to members of the local community and ask them to donate. However, it cannot ask them to invest without offending Finprom unless it has become a qualified investment, which is financially impossible for any kind of small project.

We raised this issue during the passage of the Financial Services Bill and the Government expressed their desire to deal with this problem and enable a project to turn to individuals with small amounts of money and allow them to invest. Will the FCA have the necessary power to make those changes under Finprom without having to come back for new primary legislation? I assume that, in the end, we will see a kind of materiality clause that will state that if you want to make an investment of less than £500, or whatever, you will not have to go through all that incredible palaver and you will be able to do so. Will these orders affect that, or will it fall outside their scope?

[Baroness Hayter of Kentish Town]

My Lords, I thank the Minister for his clarity in introducing these orders. Very often we are not wholly behind what the Government are doing but, on this one, we are. We welcome the move to the FCA and these SIs. I have supported the policy behind them for a long time, but I do not know for how long my party has done so. We particularly welcome the powers they give to the FCA. As the Minister implied, they will be its enforcement tool kit for consumer credit and will strengthen its powers to punish misconduct. We also welcome the Government’s decision not to exempt small businesses, as that might have weakened, rather than strengthened, consumer protection.

Financial Services Bill

Debate between Baroness Kramer and Baroness Hayter of Kentish Town

Tuesday 10th July 2012 Lords Chamber

[Baroness Kramer]

My Lords, Amendments 102, 118 and 121 are very dear to my heart. They are perhaps some of the most important amendments to the Bill that have been brought forward. I have been interested in financial services for deprived communities for more than 20 years, partly from living in Chicago and seeing the impact that community development banking had on the revival and regeneration of Chicago’s south side. It was an area once written off because it was both black and impoverished and, in the end, it was only action by the banking regulator, under legislation, that drove forward change which was, and continues to be, dramatic.

The noble Lord, Lord McFall, who is not in his place today, will remember the visits that the Treasury Select Committee made to community banks in the United States in 2006—I take some credit for nagging the committee into making some of those visits—which made clear how much we are missing in this country. Both individuals and small and new businesses in the United States have a degree of access to financial services and credit that we cannot rely on in the UK.

The changes in the United States came through a piece of civil rights legislation, the Community Reinvestment Act. This amendment is not a copy of that Act, but it attempts to repeat its achievements. The data that the Act forced banks to publish exposed vacuums in lending across the United States and, to no one’s surprise, they matched very much with the boundaries of deprived communities and—I hope that we would not see the same thing here—the boundaries of communities of ethnic minorities. The regulator then stepped in and required those banks to meet the target of serving those communities, or to fund someone else who would, before allowing them to engage in mergers and acquisitions. It was an extremely effective strategy and continues to be so to this day.

The amendment is also a read-over from the banking reform White Paper, because it would allow the regulator to play a significant role that is described in paragraph 4.4 of that White Paper as,

“a more diverse banking sector”.

Surely the areas where banks are failing to play a role should be at the top of the list for new and diverse participants.

On our previous day in Committee, I said that the role of the regulator nowhere seems to touch on a responsibility to make sure that financial services are available all across our complex communities. Competition is focused on making sure that there is multiplicity of products, not that there is coverage of the full range of demand. Surely if we wish all our citizens to be able to participate in the economic growth of the country and want small businesses to become established, to grow and to build our economic future, we have to pay attention to that access and coverage issue as well. The requirements set out in these amendments get us to that point.

[Baroness Hayter of Kentish Town]

My Lords, I rise to support the amendment moved by the noble Lord, Lord Sharkey, and to speak on other amendments in this group. I believe that the Minister received a letter from the Community Development Finance Association which specifically supports the amendment. It is a powerful case and I trust that he will respond positively at the end of this debate.

Although the Bill grants the FCA significant powers, it makes little mention of consumer access to financial services and products. Access to such services is essential in a 21st-century society, but the Bill makes no mention of it. It would be extraordinary for a competition authority, as the FCA will be, to be required to judge the effectiveness of competition in the markets which it regulates without taking into account whether the market is delivering products and services that are good value for money.

There is not much point talking about a fairer, more competitive market if consumers are unable to access the services on offer, yet uncertainty as to whether the FCA can have regard to affordability might make it reluctant to take action on a fundamental aspect of competition for fear of being challenged. Amendment 104AA, in my name and that of my noble friend Lord Eatwell, is about access by consumers to financial service products and the need for good value for money, including for the financially excluded in society.

In many parts of the country, there are individuals who struggle even to open basic banking facilities or to gain access to small levels of credit, yet credit is a necessity of life for many people, bridging the gap, as we know, between when one has to spend and when paydays arrive. I know that in another place Mark Hoban has said he fully agrees that consumers should have access to financial services that meet their needs, but he prayed in aid the FCA’s new competition objective, which he said would give it an explicit mandate to consider the needs of consumers and to act to improve competition. However, that does not necessarily bring people into the market; it is probably only competition for those who are already there.

Amendment 104AA would remove any uncertainty by spelling out accessibility and affordability. Amendment 102 offers a way forward for financial institutions which reflects a decent, responsible approach to the needs and ambitions of communities in a way that would benefit not just them but the economy as a whole. The amendment would promote an appropriate level of services in deprived communities, as we have heard, and ensure that the FCA plays its role in that by its interventions in affordable loans, savings and insurance products. As we have heard, that is crucial for small businesses and social ventures as much as for individual consumers. It is estimated that more than 4.5 million small businesses and social ventures and more than 3 million households are unable to access the fair and responsible finance that they require. It is particularly apposite in the context of the current revulsion—one has to use that word—felt about some parts of the banking community. This is the chance for them to rise to the challenge and show what the good side of banking can be.

All of us have heard of small shops or service providers going to the wall thanks to the inappropriate policies of banks. It is not simply about mis-selling of interest rate swaps, important though those were; it is also about the unavailability of financial products for small entrepreneurs or, sometimes, for larger ventures that want to locate in some more deprived areas. There needs to be a proper investment strategy for social enterprise and small businesses, especially where they work in those difficult areas.

In the past, I thought that encouragement alone would work in making banks be socially responsible in such a way as to help consumers and potential consumers in difficult areas. I no longer think that. When the previous Government were trying to set up basic bank accounts, we tried very hard, along with the FSA, but people were still denied access. People need a bank account and insurance these days; they have become essentials rather than nice- to-haves.

Amendment 104AA would make the FCA have regard to consumer access to affordable and appropriate financial services, and Amendment 118A requires an access and choice code to make clear what the FSA expects of those it regulates. I hope that the Minister will be able to accept the amendments and enable the FCA to play a role not just in promoting competition for existing consumers but for those whom we all want to be consumers.

--- Later in debate ---

[Baroness Kramer]

My Lords, I will add only a few words, because of the powerful speeches that have preceded me. After hearing the noble Lords, Lord Phillips and Lord Hodgson, who have spoken with such enthusiasm, the Minister may have the wrong impression that this sector is taking off with great and roaring strength, so why on earth should we worry about the role of the regulator? However, if he looks back at the numbers that have been quoted to him, the amounts of money that are being raised or proposed are extremely small compared to the demand and the need. The regulator needs to act in order to release the energy of this whole sector.

I know that the Government are constantly concerned that no one sector should be favoured above the other, but it is important to recognise that this sector is distinctively different. I draw his attention to one example that may help clarify the matter—and which I have raised with the regulator, which acknowledges that it is clearly a problem. This is based on a communication that I received from someone involved as a financial adviser, who directed me towards a report done by Nesta in collaboration with Worthstone called Financial Planners as Catalysts for Social Investment. The response that they got back in the course of this work made it clear that the regulatory environment is not yet appropriate for this sector. The report contains quotes such as:

“The social investment asset class, due to its early-stage of development lacks the regulatory clarity of other markets”.

That lack of clarity is turning into a real problem. It is not clear, for example, that an independent financial adviser can advise a client on a social investment because the return is a combination of some sort of more traditional manner of financial return, but also of a social benefit—and how is that to be measured? More to the point, how is it to be set within the suitability requirements that financial planners have to observe when they advise clients? The report states:

“Ultimately, there is a need for the FSA”—

which I suppose is the FCA now—

“to establish clear guidelines around suitability to provide financial planners with a frame of reference. Consistency is required, together with a set of understood and agreed practices and procedures”.

That is one small example. Rather than tackle this issue by issue and try to hoe the ground in the most difficult kind of way, we should make sure that the regulator clearly understands that they need to act in a way that would enable this industry to develop to its full potential. That would accelerate the flow of funding, and I believe that as an economy we would only benefit from that.

[Baroness Hayter of Kentish Town]

My Lords, I first apologise to the Committee, because I would like to degroup Amendment 128AA, which is in this group. I know that the Minister has had minutes’ notice of this, but I apologise to others. It is an important issue, and clearly we will return to that.

I support the amendment moved by the noble Lord, Lord Phillips, and I will also speak to Amendment 104ZA. As we have heard, social enterprises are businesses that trade to tackle social problems and improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community. So when they make profits, society profits. They do not make profits for the shareholders. In future, perhaps we should adopt the words of the noble Lord, Lord Hodgson, and call them not-for-profit distribution, NFPDs, which may be the new word for them.

Funding is certainly needed to start up enterprises but, just as critical is the need to scale up and sustain them. That means getting access to modest and responsible sources of finance which will grow profits and jobs in this case, and make the local and national economy work. Appropriately funded social enterprises can lead an economic fight-back in the most deprived communities. The more deprived the community, the more likely you are to find social enterprises working there. They reinvest in the community. Indeed, 39% work in the 20% most deprived communities. They employ more people relative to turnover than mainstream small business and are outstripping other SMEs in terms of growth and sustainability. Just as access to funding can unlock the social enterprise sector’s potential, so it is the single largest barrier to the sustainability of this sector. Last year, 44% of respondents to a survey said that they were hampered by the availability and affordability of finance.

I make no apology that our Amendment 104ZA asks the FCA to discharge its general functions in a way that promotes growth and development of social finance and social investment. We ask that it should promote competition. This is, if you like, an emerging market, which needs a little help at the moment. I think that the word “promote” is not too dangerous but if the Minister would accept “enable”, I would settle for that. There is a distinctive difference to this sector. I hope that our regulatory system is big enough to engage with it.