Financial Services Bill

Baroness McIntosh of Pickering Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

In conclusion, the FCA currently has the power to ensure that all lenders advance only loans that are affordable and sustainable. This is clearly not happening, with so many individuals defaulting or becoming overindebted. The Woolard review touches on this, but, again, the argument is made that the reason that loans become unaffordable or unsustainable is that individuals’ circumstances change after the loan has been agreed. I do not believe that this is always—or even most often—the case. In fact, that is why the Financial Ombudsman Service has adjudicated time and time again against providers and in favour of individuals. Unaffordable and unsustainable loans are being forwarded all too often. Amendment 4 will help strengthen the FCA and hopefully rectify this issue.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, I am delighted to follow the noble Lord. I would like to support the case for introducing a duty of care and look forward to hearing from my noble friend as to why in the Government’s view it may not be needed.

I will focus my remarks on Amendment 72, so ably moved by the noble Baroness, Lady Bowles, and in particular on subsection (2) of the proposed new clause. It concerns me greatly that there is still a huge area of unregulated provision of financial services here, in particular in the case of young people who, after they have graduated and are looking to pay off their student loans, will be relying on their banking facilities. It does seem that we need either a duty of care or, as the noble Baroness, Lady Bowles, set out in subsection (2) of the proposed new clause, some means by which we indicate to potential consumers and customers exactly what the situation is. I find that this area is compellingly in need of greater regulation—or, if not that, then the pointing of actual customers or potential future customers towards acting in this regard.

I find it extraordinary what information is provided to any of us, and in particular to young people. The noble Lord, Lord Sharkey, did a great service in setting out not just PPI but a number of other irregularities—at the very least—that have come to light in the last five or 10 years that need some form of redress in order to close this particular loophole.

We are in an extraordinary situation where there are a number of non-regulated financial services. In particular, Amendment 72 would seek to redress this. But also, Amendments 1 and 4 imposing a duty of care have many strengths to commend them. I look forward to my noble friend in summing up giving the reaction of the Government to the proposal for such a duty of care in the circumstances set out therein.

[Lord Blunkett (Lab) [V]]

I am very pleased indeed to join in this important debate. The noble Lord, Lord Sharkey, set out the situation in the macro field extremely well and I am pleased to support the speeches that have already been made by a number of noble Lords.

I will concentrate on two things. The first is the issue of protection from exploitation with the development of cybercrime. I hope we will be able to come back to this in Committee and on Report with respect to the risks that people are put into because of the lack of care within the whole of the financial services sector. Secondly, very small businesses and partnerships are excluded from redress, as the noble Baroness, Lady Bowles, mentioned. This is also is relevant to Amendment 129, moved by the noble Lord, Lord Holmes of Richmond.

On the first issue, in relation to cybersecurity, there is a growing trend that those who are affected keep quiet rather than reveal what has happened. This is a real danger. If, as I hope, we come out of the present dip in relation to financial services globally because of Brexit, we will be able to present to the world a marketplace which is both effective and forward looking—and is also secure. A duty of care to both individual customers and to small and medium-sized enterprises is a critical element in taking this Bill forward and strengthening the measures that exist there. I will not egg the measures that I think are necessary this afternoon, because there will an opportunity to come back to them. But I will just say that this is a growing area of real concern. An improved mandate for those operating in the financial services sector from the FCA would be very welcome indeed.

On the issue of small and medium-sized businesses and small partnerships, and the relationship between them and individual consumer, it is little known that access to the Financial Ombudsman is confined to individuals rather than small businesses and partnerships. What was said by the noble Lord, Lord Holmes, and also the noble Baroness, Lady Bowles, was highly relevant here. It backs up the need for clarity in terms of how we deal not only with prevention but with redress.

I give one small example, which I took up the with the noble Lord, Lord O’Shaughnessy, when he was at the Department of Health. To his credit, he saw the wisdom of trying to bring about change. As the noble Lord, Lord Holmes, has described, it was not received well at the time because of the struggle that was going on post the Brexit referendum and because of the difficulties the Government were facing. We have dealt with banks and financial services, but we need to concern ourselves with insurance as well. Perhaps now is an opportune moment to deal with the situation where an insurance company is taken over and the new provider offers a slightly revised agreement which is sent out without highlighting the key changes that have been made.

For instance, in cover for physical ailments and physical damage because of accident, there is no change, but in terms of absence from work and insurance by a partnership with more than 10 partners insuring together, the mental health clauses are changed to make any payment dependent on having to gain, within 12 weeks, the sign-off of a psychiatrist and a clinical psychologist. Anyone with any knowledge of this area will know that that is an impossible ask. Had it been highlighted to the partnership, it would have been able to look elsewhere for an insurer that was not going to exploit the market as this company did.

The partnership could not go to the ombudsman. It would have been entitled to if each individual partner had insured themselves, but because there were more than 10 of them signed up to the insurance contract, that was not possible. We need to put right nonsense of this kind and ensure that those making enormous amounts of money, which they will continue to do, do not do so at the expense of individuals or small and medium-sized enterprises.

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[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, Amendment 5 builds upon Amendment 4, tabled by the noble Lord, Lord Tunnicliffe, which was discussed within the first group and in turn built upon Amendment 1, moved by my noble friend Lord Sharkey. I will not revisit the “duty of care” part of the amendment, as it has already been well discussed, but the point about Amendment 5 and the similar Amendment 73 is to bring small businesses within the non-exploitation principle—defined by the noble Lord, Lord Tunnicliffe, in his amendment—and to highlight some things that regularly happen in contractual terms and which can be exploitative. Amendment 73 is more explicit and would allow the FCA to intervene where there is “Unconscionable conduct”, even if a consumer or small business has entered into a contract.

The issues that are highlighted as wrong behaviour, although within an exemplary list, are: patterns of conduct that rely “upon unequal power”; terms of notice

“or other compliance … which make it impractical … to comply”;

the use

“of notice terms to coerce … unfavourable contracts”;

compliance terms that are “not reasonably necessary”; and risks that the larger supplier should have realised would not have been

“apparent to the customer or small business”.

This is not a random list of points—there are rather more in my Private Member’s Bill on the same subject—but a key list of matters that were used by GRG in the exploitation of small businesses, and which the FCA said it could do nothing about because they were outside the regulatory perimeter.

Once more I must look to other countries to see how we compare, and once more I find that Australia has tried harder. It has a general law of unconscionable conduct in commerce that deals with all these issues and more, and which extends to not only consumers but business to business. I do not know how many noble Lords read the various detailed contracts that one is forced to sign as an individual or small business to access almost anything nowadays. In the earlier group, these were similarly referred to by the noble Lord, Lord Eatwell. I have seen barely one that is reasonable. It is only getting worse as everything becomes a leased service rather than a product.

With these amendments I make the point for small businesses as well as individuals, and in the context of financial services, which are among the most fundamental of services, that bullying contracts must stop. They must be within the regulatory perimeter and the FCA must be prepared to intervene. Excuses about GRG and what the FCA did not do there hold no power. We saw what happened; we need strong measures that mean it must not happen again and that imitations of it must not be tolerated in day-to-day operations. I beg to move.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, I find myself in some sympathy with the noble Baroness, Lady Bowles, on Amendment 5 because this is a grey area where small businesses are perhaps not well served. My noble friend Lord Howe claimed, in his full and comprehensive response to the last debate, that this was not the right time or place to look at the regulatory objectives, as this would better take place under the Government’s future regulatory framework review. I would argue, in support of the noble Baroness, Lady Bowles, that small businesses are not well served by the current provisions. If you look at some of the work of the Financial Ombudsman Service, which the Committee has referred to, I would not hold out much hope for a small business claiming redress and a decision under that agreement. I would be delighted if my noble friend were to prove me wrong in summing up this debate.

Amendment 5, in particular, has strengths to commend it and I would very much like to lend it my support. I look forward very much indeed to hearing what my noble friend will say and whether the Government might look favourably on it, a lacuna having been identified in the regulatory framework.

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

I call the next speaker, the noble Baroness, Lady Bennett of Manor Castle. Baroness Bennett? We appear to have lost the noble Baroness, so if—

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[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, I will be brief, as I set out many of my concerns and issues when speaking earlier on the first group.

I support Amendment 8, proposed by my noble friend Lord Stevenson of Balmacara. Before I start, I would like to make the Grand Committee aware of my financial interests, as set out in the Lords register.

As touched on in Amendment 4 earlier, low financial resilience and overindebtedness are a huge problem for both individuals and the country at large. We should all do all that we can, especially under the current circumstances, to push back against those issues.

Either we are saying that there is a problem and we need to do something about it, or we are saying that there is not a problem and we just carry on as before. With the figures and the personal stories of overindebtedness and unaffordable, unsustainable financial predicaments, I believe that there is a problem that does need resolving.

The FCA recently found that the number of people suffering from low financial resilience had increased by one-third to 14.2 million people. That is one-quarter of the UK adult population. |In earlier amendments, we heard a number of noble Lords, and a little from the noble Baroness, Lady Neville-Rolfe, saying that any increase in regulations, bringing in a duty of care or a duty to promote financial well-being, was either not the responsibility of the FCA or, in some earlier comments, would put more costs on individuals in increased fees and on businesses with increased administration. I do not believe that that is the case with the amendment as laid out by the noble Lord, Lord Stevenson. If you look at the text of it—and I understand it is a probing amendment—you see that the power of the FCA to make general rules includes a power to require authorised persons to promote the financial well-being of consumers in carrying out regulated activities under this Act.

I am very new to this sector and I may be a little naive, but I believe that one of the most significant drivers of costs to the industry is from non-repayment or defaulting on loans. We need financial well-being and literacy to be increased. The noble Baroness, Lady Neville-Rolfe, is right that it needs to start in schools and carry on through employment and employers, but that should not preclude the Financial Conduct Authority being able to step in and help. There is a benefit to businesses as well. If financial well-being can be increased, the number of defaults from people falling into indebtedness or failing to pay reduces, thus increasing profitability of a product, then in turn reducing the cost of that product to individuals and businesses. There is a lot in where the amendment proposed by my noble friend Lord Stevenson is trying to take us.

We touched a little on the Woolard review and its 26 proposals, and I hope that we will see a bit more of those. The noble Lord, Lord Holmes, touched on fintech. With the increase in open banking and the ability to look at individuals’ accounts, better and more detailed decisions can be made on how a product or a business moves on. My noble friend Lord Stevenson referred to the University of Edinburgh Business School report, which it carried out for Salad Projects, looking at the health and well-being of NHS workers who had applied for a loan. The report provides a unique insight into their financial lives, based on millions of individual transactions. What came out of that was information about their low financial resilience—the ability of those working in the NHS to deal with a financial shock to their lives. Often it was just a small shock, but they were unable to tap into the bank loans that many of us can take; they were forced into the high-cost credit loans market.

If we have the development and promotion of financial well-being, I hope we will see a reduction in those who are driven into that sector. This amendment will help to deliver that, but it does not preclude delivering that in schools or the workplace. The FCA is a powerful body that can help push it even further.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, I am delighted to support this group of amendments. I take this opportunity to pay tribute to the noble Lord, Lord Stevenson, and my noble friend Lord Holmes for their huge contribution to this field of financial inclusion. I single out the noble Lord, Lord Stevenson, not just for his role on the Front Bench but previously in chairing StepChange. He will be greatly missed from his Front-Bench responsibilities, and I am sure it will not be long before we see him return.

I also congratulate my noble friend Lord Holmes on being indefatigable in his campaigning for financial inclusion and bringing our attention to fintech. I join the authors of these amendments in identifying a need to address this issue, and I hope that my noble friend, in summing up, will answer this point. The noble Lord, Lord Stevenson, has asked for a high-level response, and I shall use that expression later—I like it. Perhaps we might get something more from my noble friend.

No less of an authority than “You and Yours”, of which I am an avid listener—I think there are two compulsory programmes we should listen to, one is that and the other, I have momentarily forgotten what it is, is the one that gives us all the figures and responses—spent the best part of a programme looking at credit ratings. What struck me is that often it is through no fault of an individual that they find that their credit rating has been so badly affected that they can no longer qualify for any credit. It can take months, if not years, to redress this.

I am concerned that if my understanding is correct Expedia is no longer acting for the Government in this regard. Can my noble friend confirm that we are down to two credit rating agencies? Do the Government share my concern that we should address this area of financial inclusion, financial awareness and each of us being aware of what our credit worthiness and credit ratings are? Amendments 8, 9 and 134 have identified issues that are worthy of attention in this Bill and I look forward to the response from the Minister.

[Lord Blackwell (Con) [V]]

My Lords, I have a lot of sympathy for the importance of inclusion. Financial services are clearly important to everyone, and I endorse the comments from my noble friend Lady Neville-Rolfe about the critical importance of financial education in achieving that. However, I have some difficulties with Amendment 8 on the definition of and requirement to consider financial well-being. Those reservations are similar to the ones that I expressed on Amendment 1 on the general duty of care.

Of course, the objective of well-run financial services companies is, and should be, to promote financial well-being. That is what their business is. That is the purpose of financial products. Financial services firms lend in order to allow people to buy houses and cars and to spread the purchases out over time. They help people to save in order to cover emergencies and to provide pensions in old age. They support businesses to help them create wealth. Financial well-being is the business of financial services companies. However, to impose a regulatory requirement to promote financial well-being runs the risk of extending the boundaries of what a regulated individual might be expected to do beyond what is reasonable to expect.

Despite the comments from the noble Lord, Lord McNicol, I am afraid that the amendment would create huge compliance costs and complexity. Of course, we need rules and regulations that protect consumers from unscrupulous firms that seek to exploit customers, but we should do that—as we do—through penalties for improper behaviour rather than by extending a general obligation on financial well-being. Having said that, I understand the motive behind it and I certainly support the objective of improving financial well-being through the financial services industry.