Queen’s Speech

Lord Borrie Excerpts

Monday 13th May 2013 Lords Chamber

[Lord Borrie]

My Lords, the great German Chancellor Otto von Bismarck once said:

“Laws are like sausages, it is better not to see them being made”.

Of course, we in this House see laws being made all the time. It is what we do. We use words such as “scrutiny” and “amendments” and so on, but what we do is watch laws being made. Sometimes it is not a very edifying sight. Since naturally I will choose examples of recent times, it is not really a blame that I can attach to a Government of any particular colour.

We are very familiar with Bills that have been through all stages in the other place and yet we find they have been inadequately discussed or whole chunks of them have not been discussed at all. Sometimes we get Bills in this House where Ministers have to produce all sorts of amendments because they have only recently thought of things or because of points made by Back-Benchers in the other place or this House. Sometimes, as in recent Sessions, we get Bills such as the Public Bodies Bill or the Enterprise and Regulatory Reform Bill, which range over an unrelated mix of topics so it is quite difficult for us to understand what the specific aims of the legislation are. Sometimes the aim of the Bill may be clear but the solution that the Government propose to us is not at all clear. Sometimes new institutions are created that are not really necessary.

For example, in the previous Session, the purpose of the Groceries Code Adjudicator Bill was perfectly clear and the Government had a perfectly good answer to the question: what is the purpose of the Bill? The Competition Commission had recommended that because of the overweening powers of supermarkets, suppliers such as farmers and others deserved some sort of protection and dispute machinery. Why on earth did the Government not simply give this role to the Office of Fair Trading, which was about to be amalgamated—under another Bill of the Government’s—to form a powerful competition body called the Competition and Markets Authority? Instead, a new institution was set up, a charming lady has been appointed; nobody knows how many cases it will receive, but a whole new institution has been set up with a back office and all the rest of it. I do not know how much work it is going to do. It must be very difficult to estimate because “groceries” is very narrowly defined. Nobody knows quite how many different anti-competitive practices may emerge that deserve to be looked at by this adjudicator. It may take some time to know what the result is. It does not even cover all supermarkets; only the biggest ones are specified.

Time and again, the Government tell us that there is a great need to protect small and medium-sized enterprises. I apologise to those who think that there is a real difference between small and medium-sized. Of course there is, but they are classed together for many purposes and that seems quite reasonable. One of the troubles that SMEs—as I will continue to call them—suffer from is late payment of debts. Larger companies deprive SMEs of their cash flow because the cash flow does not proceed in accordance with the dates that the contract has set out. Payments are delayed and small companies have to put up with that. This is a very real problem. I have not seen the full report yet but I am glad to note that the special adviser to the Government on matters of enterprise, the noble Lord, Lord Young of Graffham, has pointed specifically to this problem as something the Government ought to deal with. Of course, I entirely agree.

To my mind, instead of creating some new body, one should look at the Financial Conduct Authority, which was set up recently by the Government; it is a perfectly good, existing body that could be given the task of assisting the creditors among the small enterprises which really need assistance. It is unreasonable to leave it to consumers or small businesses to fight their own case. If they start fighting their own case, they may find that that supplier does not wish to deal with them again.

I note the very worthy sentence in the gracious Speech that:

“A draft Bill will be published establishing a simple set of consumer rights to promote competitive markets and growth”.

It will be very important to see how far the ordinary consumers will be assisted—because they will need assistance—in getting advice or pursuing their case, by citizens advice bureaux, trading standards officers and the like. They will need that help. How far will the resources be provided?

“A simple set of consumer rights” sounds like some kind of holy grail, and people have been using that phrase for quite a long time. I have been involved with the reform of consumer law one way or another for about 50 years. In the 1960s and 1970s Governments of different political colours set about making a number of changes; for example, making illegal any contract terms that sought to exempt a seller from his normal liability to supply goods that are fit for their purpose and of satisfactory quality. Incidentally, it used to be “merchantable quality” but it was reasonable for the Houses of Parliament to accept that “merchantable quality” was not a phrase that would appeal particularly to the ordinary consumer and something else was needed, and so one has “satisfactory quality”, bearing in mind the price and description of the goods. That was an excellent change, but I wonder whether the setting out of consumer rights more simply can be achieved, because it may be very difficult. It may be asking the impossible to set out rights in such a way that they are self-explanatory and the consumer needs no help, but I am delighted, as others are, to see the Bill, and to see how it might be achieved.

Financial Services Bill

Lord Borrie Excerpts

Wednesday 28th November 2012 Lords Chamber

[Lord Tunnicliffe]

My Lords, I rise to move Amendment 116ZA on behalf of my noble friend Lord Stevenson, and I hope for a response from the government Benches which produces as much happiness as we have just enjoyed.

We considered the question of regulating debt management companies in Committee, but I make no apology for returning to this issue. We estimate that there are some 6.2 million families in this country in financial jeopardy and all the signs are that increasing numbers will need help, advice and solutions to their unmanageable debts over the next period.

At present there are a variety of providers. A number of companies operating on a strictly commercial basis compete for business with the free services provided by the charitable sector. While it is right that consumers have choice, it is important that those who need independent debt advice get it in a timely way; that it is transparent, with no hidden fees or payments; and all within a regulatory environment that ensures that all providers are working to the same high standards. The Money Advice Service has a great deal to do in this area, working with the existing major players.

This amendment calls on the FCA to ensure that our regulatory structures in this area are ready as soon as responsibility for this area transfers from the OFT; that they look forward as well as back; and that we do not miss the opportunity to protect consumers from the new problems as well as learning lessons from the past.

The Bill now contains good provisions for the transfer of consumer credit regulation from the OFT to the FCA. Despite the excellent work done to date by the OFT, the current licensing regime has arguably not provided consumers with enough protection, not least because the OFT has not been given the resources properly to police the industry. It has been argued that powers already exist in primary legislation, but that does not mean that the FCA will be ready and willing to move into these areas with the speed that may be required.

We are looking for a firm commitment in the Bill that the FCA will regulate commercial debt management companies along the following lines. The Money Advice Service needs to co-operate with stakeholders, where they share joint aims, forming partnerships to improve the long-term availability, quality, consistency, efficiency and effectiveness of the advice available. The FCA must ensure that the MAS is providing clear and directly enforceable standards for business conduct and the design of products. The FCA needs to set threshold conditions that will keep rogue firms and harmful business models out of the market. There need to be tougher sanctions, including unlimited financial penalties, enabling the FCA to build a credible deterrence strategy against bad practice. There needs to be more effective supervision and enforcement. The FCA needs the power to order firms directly to compensate their customers for losses arising from business conduct that falls below required standards and to ban misleading advertising, which the OFT has found is one of the main areas of concern in this market. We think that good commercial debt management firms would welcome such an approach. I beg to move.

[Lord Borrie]

My Lords, I congratulate my noble friend Lord Stevenson on putting forward this amendment —and, indeed, my noble friend Lord Tunnicliffe, who has taken his place today. As we discussed at some length on the previous amendment, self-regulation has been attempted in the field of debt management, but with only questionable effect. Multiple debtors can, of course, be tremendously assisted by debt management companies arranging how the debts can be paid off over a period in amounts that the debtor can afford. The debtor often cannot manage their cycle of debt sufficiently, so needs assistance. Some commercial operators have sought as best they can to raise their game, but only last week, the Office of Fair Trading decided to revoke the licence of First Step Finance, a member of the Debt Resolution Forum, which runs one of these debt management self-regulation schemes. I expect that responsible operators—they do exist—and consumers would benefit a great deal from a regulatory structure under the aegis of the Financial Conduct Authority in the new legislation.

In Committee, I made an intervention about debt management that I followed up with a letter to the Minister setting out my concerns. I had an extremely helpful response from him. He pointed to the powers that the FCA will have in 2014 to make rules of conduct on matters falling under its remit. In his letter, the Minister said:

“The FCA could, for example, impose restrictions or requirements on debt management plans where it considers that such rules are necessary or expedient to advance the consumer protection or competition objectives … Under the new regulatory regime, the Government will look in the first instance to the FCA as an independent and expert regulator able to put in place the right framework for debt management plans”.

Financial Services Bill

Lord Borrie Excerpts

Monday 26th November 2012 Lords Chamber

[Lord Borrie]

Perhaps I may intervene for a moment to indicate that I feel that the basic principle—the opening words—of this amendment is extremely sensible and well worth while because it is concerned with the co-ordination of functions of two separate bodies which might otherwise conflict. Therefore, the notion that they should devise a memorandum of understanding seems very sensible.

I have to say to my respected and noble friend Lady Hayter that I am not sure that she has explained why, under new Section 140CA(3) to be inserted into FiSMA under Amendment 86A, it should be only in “exceptional circumstances” that the OFT should conduct a market study into financial services. On the face of it, that seems a sensible matter. It must be based on the notion that the Financial Conduct Authority has the greater experience, the greater expertise and the greater knowledge of matters affecting its remit.

However, in some cases where there is a need for an inquiry, known as a market study, into an anti-competitive practice of some sort, the greater experience may rest with the competition authority rather than with the FCA. It may not have come across, let us say, predatory pricing, cartels or some other aspect of anti-competitive activity, whereas the OFT might have a lot of experience on the matter.

In summary, co-ordination of the two authorities seems a sensible way of working and a memorandum of understanding is a sensible way to deal with it. But I am not sure why only in “exceptional circumstances” should the lead be taken by the FCA.

[Lord Barnett]

My Lords, this whole section implies that the regulator is not necessarily the OFT. I thought that the regulator of the Competition Commission was the OFT. I am now totally bemused as to whether the OFT or the FCA is the main regulator.

Financial Services Bill

Lord Borrie Excerpts

Wednesday 24th October 2012 Lords Chamber

[Lord Sassoon]

My Lords, Amendment 196A inserts into the Bill a new clause which gives the OFT a new power to suspend a consumer credit licence with immediate effect if the OFT considers it urgently necessary to do so to protect consumers. Amendment 202 makes a consequential change to commencement provisions to accommodate this power.

This new licence suspension power is the first step on the road to greater consumer protection in the consumer credit market. It will make sure that bad practice is tackled and that consumers are protected even before the move of consumer credit regulation from the OFT to the powerful new FCA in April 2014.

Noble Lords may ask why the Government are bothering with this change now, given the move to the FCA in 2014. We think it is worth ensuring that the OFT can act as a strong and credible regulator in the interim, particularly to protect vulnerable consumers.

The power has been very well received by those working closely with consumers. For example, the consumer organisation Which? stated:

“Our research has found that people taking out payday loans are often caught in a downward spiral of debt so it is important that the Office of Fair Trading will have the power to instantly suspend the credit licences of unscrupulous lenders caught breaking the existing rules.

This is a good step towards ensuring the regulator has the powers it needs to be a more proactive consumer watchdog. The Government must now … make sure the regulator has the resources it needs, and ensure there is no gap in supervision as these powers transfer to the Financial Conduct Authority”.

The current regime does not allow the OFT to do its job properly in this area. At present, where the OFT calls into question a licence holder’s fitness to hold a credit licence it can take various measures, including suspending, varying or revoking the credit licence. However, under the current regime a licence holder’s credit licence remains in effect until all rights of appeal have been exhausted, and the licence holder can continue to trade during this period. The appeal process may take up to two years to be completed; we saw that in the case of Yes Loans. The potential for detriment during that time is immense, particularly as rogue operators who are aware that they may soon lose their licence are incentivised to operate even more unscrupulously to maximise profits.

Amendment 196A amends the Consumer Credit Act 1974 to provide for an enhanced licence suspension power which will enable the OFT to suspend a licence with immediate effect or at a specified date, and the test is that the OFT considers it urgently necessary to protect consumers. It would be used in cases where there was an urgent need to take action in order to stop actual, or prevent further, consumer detriment.

The sorts of factors that the OFT might take into account when deciding whether or not to use the power would include evidence that the business has engaged in violence or threats of violence, fraud or dishonesty, or is targeting particularly vulnerable consumers with harmful practices. In fact the OFT issued a consultation document yesterday that sets out a number of examples of when and how they might apply the new tool.

It is important to note that the new power will have no adverse impact on businesses that comply with existing law and do not cause serious actual or potential consumer detriment. However, the Government expect it to have an important deterrent effect.

In addition, the power includes a number of safeguards. First and foremost, any suspension can only be in effect for 12 months from the date it is issued, unless during that time the OFT issues a notice that it is “minded to revoke” a licence. If no “minded to revoke” notice is issued, the suspension expires, and it cannot simply be made again.

There are also a number of procedural safeguards included in the power, setting out what notices must be given and what representations the licence holder must be permitted to make. Finally, the licence holder has the usual appeal routes open to them, although crucially a licence remains suspended while appeals are being heard.

In conclusion, this is a crucial step towards affording consumers in the credit market greater protection, a matter that we have discussed in a number of contexts during Committee. It strengthens the OFT in the interim period before the FCA takes over. During that period, it will allow the OFT to take firm action against those who may be mistreating their customers. I beg to move.

[Lord Borrie]

My Lords, I find the Minister’s explanation exceedingly clear and well justified. The case that he has put for being able to suspend a licence instantly is something that will only be rarely exercised. However, most importantly, as the Minister said, this power if exercised even once or twice will have a deterrent effect on others. Its value in the exceptional case is undoubted. I am so glad that the Minister has not been persuaded by those who say, “Oh, well, it’s all disappearing into the FCA shortly so why bother at this stage?”. I am glad that this has been done. It will send a message and it is very helpful for this to be put into law now.

[Lord Stevenson of Balmacara]

My Lords, as we have heard, this amendment would ensure that a decision by the OFT to suspend a consumer credit licence could take effect before an appeal process ends. This follows widespread concerns that appeals from consumer credit licence holders can take up to two years, as the noble Lord said, and the current law allows the trader to continue with any bad practice while the appeal is pending. We warmly welcome these amendments and are very grateful for them. The consultation paper that came out only yesterday is a very useful contribution to the debate.

However, perhaps the Minister could answer two questions—one small point and a larger one. The amendment sets up the legislation so that the OFT would suspend the whole licence; in other words, all activity covered by the licence. That generally makes sense. However, there may be circumstances where the OFT has concerns with a particular feature of a credit licence holder’s business activities—say, a lender whose lending practices are all right but who perhaps has problems with debt collection practices—and the right decision might be to close down one part of the business. The noble Lord may be able to point me to where these powers already exist or, if necessary, perhaps he would reflect on this point. There may be a slight issue here, but it is not a major one. If in doubt, the right thing is to withdraw the licence.

The second point is slightly broader. To date, the OFT has done a very good job in this area, and perhaps does not receive as much thanks as it should for that. It seems to us that the main problem is that it has never had the resources that it needs to do the job it wants to do. There is little point in providing powers to a body, as in this amendment, if the resources to do the job are not also provided. So my second question is about the transition: the OFT will probably have jurisdiction on credit in this relationship for only another 18 months or so. What will happen over the transition? I would be grateful if the Minister can give us a reassurance that the transfer arrangements will be such that this amendment will survive the transfer, and that the FCA will be willing and able to provide the necessary resources so that there is a seamless handover.

--- Later in debate ---

[Lord Stevenson of Balmacara]

My Lords, I declare my interest as chair of CCCS—soon to be re-named StepChange—the debt charity. We are the UK’s leading free, independent debt advice charity and the only charitable provider of debt management plans, administering around a third of the total number in place today.

This is a probing amendment. We have considered the question of regulating debt management companies already in this Committee, but I make no apology for returning to this issue. We estimate that some 6.2 million families in this country are in financial jeopardy, and all the signs are that increasing numbers will need help, advice and solutions to their unmanageable debts over the next period. At present, there are a variety of providers, and a number of companies operating on a strictly commercial basis compete for business with the free services provided by the charitable sector.

To complicate matters, the Department for Business, Innovation and Skills is attempting to establish a voluntary protocol in this area, but we do not believe that it will be comprehensive. Nor will it be sufficient to eliminate the poor practice that has been found to exist or ease the detriment often caused to vulnerable, indebted people who sign up with fee-charging commercial debt management companies and, as a result, end up paying more, for longer, before they are debt free.

Debt management companies, along with payday loans—about which we have just heard—and claims management companies, are a new type of financial company which have come to the public notice in recent years. We must ensure that our regulatory structures look forward as well as back and that we do not miss the opportunity to protect consumers from the new problems that are coming down the track as well as learning lessons from the past.

Of course, it would be folly to believe that simply regulating debt management companies better, and including CMCs and payday lenders in the scope of the FCA more explicitly than at present, is the answer. However, it seems perverse that, while we are restructuring the conduct and prudential aspects of our present regulatory system, we are missing the opportunity to include other areas such as payday loans and claims management and debt management companies, which are currently regulated to different standards and for different purposes, and with very different resources, by other government departments. This results in a piecemeal approach and is surely a suboptimal way to proceed.

It has been argued that these areas are not “pure” financial services and therefore should not be regulated by the FCA, but I put it to the Minister that most people would regard the operations of CMCs, payday lenders and debt management companies as having a common thread of operating to earn money from helping people with their debts or future credits and, as such, they are in common parlance “financial companies”. When you tell people that there is no financial regulation in these areas, and that such as there is is to be found in the Ministry of Justice or BIS, they are very confused. Surely we need to think again about this.

The proposed transfer of consumer credit regulation from the OFT to the FCA is to be welcomed. Despite the excellent work done by the OFT, the current licensing regime has arguably not provided consumers with enough protection, not least because the OFT has not been given the resources properly to police the industry. However, as I said earlier, there is a persuasive case for debt management companies, claims management companies and payday lenders to be subject to the same regulatory regime governing other financial service providers. The worst of all worlds is to be subject to different regulatory authorities, which is what we are condoning if we do nothing here.

While it has been argued that powers already exist in primary legislation, at least in so far as debt management is concerned and perhaps for payday lenders, that does not mean that the FCA will be ready and willing to move into these areas with the speed that we think may be required.

The amendment seeks a firm commitment in the Bill that the FCA will regulate commercial debt management companies. The FCA should provide clear and directly enforceable standards for both business conduct and the design of products. This could, for example, enable the FCA to stop commercial debt management firms charging excessive and exploitative fees. Firms make around £250 million every year from already over-indebted borrowers, and three quarters of them frontload their charges, with customers paying hundreds of pounds before getting a reduction in their debts. On top of this, a further slice of repayments is swallowed up by “administration fees”, further extending the time taken to pay back debts.

We want threshold conditions that will keep rogue firms and harmful business models out of the market. We want tougher sanctions, including unlimited financial penalties, that enable the FCA to build a credible deterrent strategy against bad practice. We need more effective supervision and enforcement, and the power to order firms to directly compensate customers for losses arising from business conduct that falls below required standards. We also think there should be the power to ban misleading advertising. The Office of Fair Trading currently regards misleading advertising by fee-chargers as the most significant area of non-compliance with its guidance.

We think that the good commercial debt management firms would welcome such an approach, and StepChange is committed to working with them until such time as the FCA is ready to act. I beg to move.

[Lord Borrie]

My Lords, my noble friend Lord Stevenson has made some very powerful points with his criticism of the behaviour, over a period of time, of debt management companies—any company that eases, or purports to ease, the problems of debtors by making a plan for them to pay off their debts. What a debt management plan offers is, or may be, perfectly good and in the interests of the debtor. I would not like it to be the case that the only people in that business are not-for-profit organisations, even those such as the excellent one, StepChange, which my noble friend is involved with. He is quite right in criticising the commercial debt management companies that have been operating so far; but they have not operated without restraint, because, as he indicated, the Office of Fair Trading has been concerned with a number of their practices, including misleading advertising and exorbitant charges. A number of debt management companies have had their consumer credit licences removed after evidence was presented.

My concern about my noble friend’s amendment is not over the prohibition of specified fees for debt management or the other details of this clause that he would like to insert into the Bill. I am all in favour of those. However, I am not very keen—and my noble friend has not mentioned them—on the opening words of the proposed clause, which are:

“Phasing out commercial debt management”.

I do not want to see commercial debt management phased out so that it does not exist, as I do not believe that charitable organisations can provide for all the needs that debtors legitimately have and the services that they could legitimately seek and benefit from, assuming there were adequate controls over debt management companies, as there are for other firms who have to have a consumer credit licence.

The suspension of consumer credit licences, which we dealt with half an hour ago, and the increasing powers of the FCA compared with the Office of Fair Trading should do a great deal to help. It may be that an amendment of the kind that my noble friend is putting forward would be a helpful advance, but I hope he does not stick to the opening words about the “phasing out” of commercial debt management.

[Lord Newby]

My Lords, the Government obviously sympathise with the concerns about some of the practices in the fee-charging debt management sector, which this amendment seeks to restrict and ultimately close. Debt management firms by their very nature deal with some of the most financially vulnerable consumers in the country. It is therefore absolutely vital that there is an appropriate regulatory framework in place to make sure that these firms treat their customers fairly.

We also need to do more to make sure that there is effective signposting to free-to-customer debt advice options, such as the services provided by organisations like Citizens Advice and StepChange, of which the noble Lord is such a distinguished chair. The Government are therefore working with the debt management sector towards a protocol of best practice for the industry. The OFT has also recently updated its guidance for debt management firms, expanding on the practices that the regulator considers “unfair or improper” and could cause a business to lose its licence.

It is right that, from April 2014, the FCA’s more proactive and intrusive regulatory approach, and the stronger and more sophisticated regulatory powers available under FiSMA, will extend to the debt management sector. I can give the noble Lord that assurance. The rules that the FCA will be able to make could indeed cover many of the points in his amendments, but at this point, in advance of the powers being moved across and in advance of any consultation on the details of the rules, we think it would be inappropriate to set those out in the Bill.

Financial Services Bill

Lord Borrie Excerpts

Wednesday 18th July 2012 Lords Chamber

[Lord Flight]

My Lords, it strikes me that the Bill slightly buries “buyer beware”, which was in FiSMA, and that we are creeping towards a culture where a lot of people think that if they lose money on any investment they are entitled to compensation. I do not wish to be overly harsh but it is fundamental, as the noble Lord said, that people understand risk and graduations of risk. That is backed by financial education.

[Lord Borrie]

My Lords, in agreeing with my noble friends Lord Barnett and Lord Peston in their amendment, I agree also with what the noble Lord, Lord Flight, has just said. He did not used the famous Latin phrase “caveat emptor”, perhaps because we are not supposed to use Latin any more—that is the case in the courts; it may be not so here. If it is convenient to the Committee, I shall speak to Amendment 106, which is grouped with my noble friends’ amendment.

The Bill states that the Financial Conduct Authority, in assessing the degree of consumer protection that is desirable,

“must have regard to … the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”.

The noble Baroness, Lady Oppenheim-Barnes, has kindly joined me in Amendment 106, because, while we agree about information and advice having to be accurate, we are not happy about the phrase “fit for purpose” and would prefer it to be replaced by “intelligible”.

“Fit for purpose” is a vague and uncertain phrase. As the consumer organisation Which? has said in briefing to me and no doubt to others, it is a woolly phrase and invites the question: whose purpose? It has become fashionable to use the phrase “fit for purpose” for all sorts of reasons, and despite its perfectly respectable origins in Section 14 of the Sale of Goods Act and indeed previous common law, it is now used to such a wide extent in all sorts of circumstances that it would be better replaced in the Bill with “intelligible”.

[Baroness Oppenheim-Barnes]

My Lords, I was delighted to add my name to that of the noble Lord, Lord Borrie, on this amendment. We go back a very long way to when I first entered the Department of Trade and Industry. The position of director-general of fair trading was coming up for renewal and my officials said to me, “Well, you will obviously want to appoint somebody from your own side, Minister”, to which I replied, “There is only one person with whom I would be entirely satisfied”. That was the noble Lord, Lord Borrie, and this has proved to be the case ever since.

This amendment is important. Perhaps I am not so happy with the term “fit for purpose” because I spent a great deal of my consumer life trying to find a better one, which I never did satisfactorily, in order that people could pursue their Sale of Goods Act rights. However, I will have more to say on this later—on Amendment 108, I think—when we reach that.

Financial Services Bill

Lord Borrie Excerpts

Wednesday 18th July 2012 Lords Chamber

Moved by

[Lord Borrie]

108: Clause 5, page 17, line 7, at end insert—
“(h) where credit is granted to a consumer, a clear statement, in cash terms, of the total cost of such credit”

[Lord Borrie]

My Lords, this amendment stands in my name and that of the noble Baroness, Lady Oppenheim-Barnes, whom I am delighted to have supporting it. She was Minister for Consumer Affairs in the early years of the Thatcher Government and is a lady of tremendous knowledge and ability in this field. I will also speak on Amendment 197ZA which, rather surprisingly, is grouped with these other amendments. I will come to that in a moment.

The Financial Conduct Authority is taking over the responsibilities that are currently with the OFT in dealing with consumer credit. It is important that the Bill maintains and ensures long-term protection for consumers in future consumer credit transactions. One problem is that it is often very difficult for consumers to compare one loan, for example a pay-day loan, with another on a like-for-like basis. Indeed, it is quite difficult for people to know what the costs are of a particular loan that is granted to them. The amendment proposes that the total cost of credit “in cash terms”—I emphasise that—is quoted to the consumer whenever credit terms are granted.

As I understand it, in pay-day loans there are two elements to charges. One is the core charge or interest charges. The other comprises any other mandatory charges, such as transfer or set-up fees, that may be exacted by the creditor. It is vital to my mind that the cost of credit described includes all unavoidable charges. Those which are not discretionary but mandatory should all be disclosed, and the disclosure should be in cash terms because even the most disadvantaged debtor—even someone with less financial knowledge than others—understands cash terms. The pound sign means something, whereas the percentage sign does not. I know that the noble Baroness, Lady Oppenheim-Barnes, wishes to refer to this matter in a moment.

As I indicated, I shall speak also to Amendment 197ZA in this group. To my mind, this is almost a separate topic because it deals with plans involving arrangements managed by a debt management company that is negotiating with creditors to reschedule a debtor’s repayment of debts. As we know, there are some charitable schemes; for example, that run by the Consumer Credit Counselling Service, whose chairman, my noble friend Lord Stevenson, sits on the Opposition Front Bench. It does a tremendous amount of work and does not exact fees from the debtor, as it is a charitable organisation. Other schemes are financed sometimes by contributions from creditors but, as we have already heard in earlier debates, there are unfortunately huge numbers of debtors owing huge amounts of debt. There is a great need for them to have properly approved and fair debt management schemes and plans to enable them to start afresh, having had their debts rescheduled and paid off.

There is a practical need for commercially operated schemes to work as well as the Consumer Credit Counselling Service and other schemes to which I have referred do. The need for commercially operated schemes to exist requires that the debtor pays fees. Unfortunately, as has also come out in today’s discussions, the OFT has found, in a fairly recent review of 2010, that there have been a great many abuses in the system, including misleading advertising and excessive fees exacted by debt management companies. The OFT has used formal powers to revoke the consumer credit licences of various debt management companies but, to my mind, debt management companies that are run properly and fairly on a commercial basis are needed for debtors and in the consumers’ interests.

The nub of my amendment is that in 2007, under the previous Government, the Tribunals, Courts and Enforcement Act provided for debt management plans to be put in place, as approved by the Lord Chancellor, while in 2009—again, before the change of government—Ministry of Justice lawyers said that any implementation of such powers to approve schemes would require the provision of some form of profit element for this to be effective. These Ministry of Justice lawyers, whose opinion I have seen, thought that the present wording of Section 124 of the 2007 Act was defective because it allowed debt management scheme operators to recover only costs actually incurred; for example, staff and accommodation costs—out-of-pocket expenses, as it were. The 2007 Act does not allow for any specific profit element to be charged, yet surely, as long as the profit element is reasonable and there is nothing unfair in it to the debtor, it ought to be allowed. My amendment allows such a profit element, provided it satisfies the Lord Chancellor before he approves any debt management plan.

This is a practical and useful amendment to bring the relevant provision into line with what had been intended, as I understand it. Fair debt management plans are needed for the large numbers that, sadly, exist of multiple debtors. Given the level of need for such plans, it is not only not-for-profit organisations that should be allowed to offer debt management solutions. As Ministry of Justice lawyers have said, the problem of the defective drafting of the current law in Section 124 of the 2007 Act can be addressed only by way of an amendment to Section 124 to provide for a profit element. That is what my amendment seeks to do and I trust it will find acceptance with the present Government.

[Baroness Oppenheim-Barnes]

My Lords, I was very grateful to the noble Lord, Lord Borrie, for tabling this amendment. It is something that I have been passionately concerned about for many years. I am possibly the most innumerate person in your Lordships’ House. I say so on an occasion when we had speaking in our earlier debate the noble Lord, Lord May, who is one of the premier mathematicians in the world. I am very glad that he is not here at this moment.

I have been desperately concerned about the presentation of the costs of credit for any consumer at any level. When the first regulations came out, following the two Consumer Credit Acts, they were a long time coming and were very detailed. They were drafted by someone in a little office at the top of the Department of Trade and Industry and they came down very slowly. Just as I was leaving, down came the regulations for AER and APR. I took one look and said, “No—not possible. I cannot make head nor tail of this.” They were too polite to say to me, “Well, most people could, and you can’t”, so I put it to the test. This afternoon, before coming into the Chamber, I asked 20 different Members of your Lordships’ House if they knew what AER or APR stood for. None of them knew—and one of them, who is not here at present, actually moved an amendment.

When this amendment was coming up I started to look a little more deeply at what had happened since those regulations were passed, after my time there. I came across the information that we have in fact had two draft directives from the EU, which are very precise. The 2008 directive, in order to inform consumers, gives us a basic equation in numerical form. It has a big E, a big C, a little k, a bracket, 1 plus a cross, minus a little 4, equals another big E, with an M over it, and a little l equals 1, then a D1, a bracket, another 1 plus a cross, squared. That is the formula in the EU directive of 2008. There is an explanation. It says it is,

“where … X is the APR … m is the number of the last drawdown, k is the number of a drawdown”—

thus LSXM—

“Ck is the amount of drawdown k”—

I will not go on. There are at least four more lines like that.

We have been observing that particular formula in this country since that directive but there was a new directive in 2011, which is presumed to help with what has been decided, since 2008, was too difficult a problem for most consumers. It says:

“The experience gathered by Member States with the implementation of”,

that directive,

“has shown that the assumptions set out in … that Directive do not suffice”,

et cetera. They have watered it down somewhat but it is not going to come into force until January 2013, so at the moment we still have the formula that I quoted to your Lordships.

I really think that my noble friend Lord Sassoon will welcome the opportunity to accept this amendment. It is so simple and prescriptive. It is not general, like any of the other amendments. When you think of all the difficulties that people have with credit these days, even if they are more numerate than I am, then to give them the information in simple figures about how much it will cost them if they pay on time—that must always be made clear—and how much if they do not must be very attractive to any Government, or to anybody concerned with the problems facing consumers in this area today. It is simple and it is cheap. I beg my noble friend to give me some encouragement.

--- Later in debate ---

I very much agree with the sentiment of Amendment 108 but, as I have explained, in making this new agreement with the industry, we are going as far as we can to add the cash cost as far as it is permitted by the European directive.

[Lord Borrie]

The people who will subscribe to the new code are those who are more likely to conform to the requirements of the Government, the ministry or whatever. It is the other companies, which may not subscribe to these requirements, that one is bound to be more worried about. Those are the ones that will not provide the cost of credit in cash terms.

[Lord Sassoon]

My Lords, I believe that a step that takes us from no agreement in this area to a situation where over 90% of the industry has agreed through the code of practice to reflect the cash cost, and for that agreement to be in effect from 25 July, is a huge step forward. Of course, because it is done via a code of practice and a voluntary agreement, BIS has been able to do it relatively quickly. I would suggest that having it 90% done, and done quickly—which one hopes will drive fringe players out of the market if they do not buy into the codes of practice—is the right way, and an energetic and effective way, for my colleagues to address the situation. We should wait and see how that operates, but I believe that it will be effective. It is a major advance and is compatible with the difficult constraints of the European directive.

[Lord Sassoon]

I am not going to question the motives of the directive, except to note that in this area, as in others, we are not free agents.

I turn to Amendment 118E, which seeks to insert into the list of “regulated financial services”, referred to in the FCA’s objectives,

“debt management companies or debt adjustment services companies”.

There is no explicit reference to debt management or debt adjusting on the face of the Bill. However, I would like to reassure—I am grasping for whose name is attached to this amendment—the noble Lord, Lord Eatwell, but also the noble Lord, Lord Stevenson of Balmacara, that Clause 6 enables all consumer credit activities currently regulated by the Office of Fair Trading to be transferred to the FCA, including debt management. So I hope the noble Lord will accept my assurance that no further provision in this area is necessary, because it is indeed picked up by the definition of Clause 6.

I should turn next to Amendment 197ZA, before I address some government amendments in the group. It concerns the question of the statutory debt management scheme and is also in the name of the noble Lord, Lord Borrie. It would amend enabling powers in the Tribunals, Courts and Enforcement Act 2007 for a statutory debt management scheme, if implemented, to apply to commercial as well as not-for-profit organisations.

As I said, the Government are currently working to deliver non-legislative alternatives with the debt management industry, as we have with the fee-charging pay-day loan industry. We want to give sufficient time and focus to that work to develop a voluntary code and to take account of the wider changes to the regulation of the debt management sector enabled by the Bill, which will lead to more proactive and intrusive regulation for the sector, before we look to a statutory scheme. If the Government were to resort to a statutory scheme, that would be the appropriate point to revisit the provisions in the Tribunals, Courts and Enforcement Act 2007 to ensure that they meet the policy needs, rather than addressing it at this stage through the Bill before we have bottomed out the ability of a non-legislative solution to have effect.

I shall speak briefly to the government amendments in the group, Amendments 142 and 194 to 196. Noble Lords may be aware that the Government brought forward a number of amendments at Report in another place to support the transfer of consumer credit regulation from the OFT to the FCA. Among those amendments was provision enabling local weights and measures authorities—trading standards—to continue to provide services to the national consumer credit regulator and to take action against those who provide credit on an unregulated basis following the transfer to the FCA. The amendments complete the group by creating parallel provisions for the Department of Enterprise, Trade and Investment in Northern Ireland, which plays the same role in Northern Ireland as does trading standards in England and Wales.

With those various assurances abut this rather disparate group of amendments, I ask the noble Lord, Lord Borrie, to consider withdrawing his amendment.

[Lord Borrie]

Yes, of course I will withdraw my amendment, but I must express disappointment with the disinclination of the Minister to take the one further step that would enable a change to be 100%, rather than whatever percentage of good boys will conform to a code of practice.

[Lord Bilimoria]

My Lords, I accept that there is an element of contradiction in advocating, on the one hand, that we go carefully on transferring consumer credit but, on the other, that we transfer CMCs. I just make two points on consumer credit. I argued strongly for its transfer at the time of the FSMA; I am pleased to see it happening; I think that that is correct. CMCs are basically a financial service. They are lodging claims for people, whatever the cause. I hope that, in due course, it may be transferred to the FCA.

Financial Services Bill

Lord Borrie Excerpts

Monday 11th June 2012 Lords Chamber

[Lord Borrie]

My Lords, a short while ago the noble Baroness, Lady Valentine, quoted the excellent chairman of the House of Commons Treasury Committee, Mr Andrew Tyrie, who described the Bill as,

“the most important overhaul of financial regulation ever undertaken in this country”.

She will know that, at the conclusion of the Bill’s discussion in the other place, the committee considered that it left there still defective in a number of significant respects.

I will concentrate my remarks this evening on the consumer protection aspects of the Bill, and on the role it gives to the Financial Conduct Authority. I appreciate the valuable role of the other regulatory body created by the Bill, the Prudential Regulatory Authority. It will be just as important to consumers as to big and small businesses, and to the economy generally. We all benefit from financial stability; we all need a firmer base for avoiding financial crises in future.

The Bill makes it clear that a key objective of the Financial Conduct Authority is to promote effective—I emphasise “effective”—competition. At present it is evident from a number of matters, including the existence and persistence of many expensive short-term, quick-fix payday loans, that competition is not working. If it were working properly, the detriments that these loans often have of imposing not only high charges but high default charges would disappear from the marketplace.

Among the essential requirements for effective competition is clear information that is understood by the people who see it. It has been commonly thought by the intelligentsia, consumer groups, the Civil Service and successive Governments that the annual percentage rate is the best way of enabling consumers to compare different offers of credit. If we were all sophisticated, the APR would have a lot to recommend it. However, a percentage sign with whatever number is in front of it is not as readily understood by the great mass of people as a pound sign: how much they will have to pay in interest. What is often needed—not as a substitute for APR, which is perfectly good for all sorts of obvious reasons, but in addition—is a clear statement in cash terms of the total cost of credit. If that were explained to people, many loans that were objectively undesirable would not be taken out.

I am happy to note that among the supporters of this proposition is the Trading Standards Institute, of which I have the honour to be a vice-president. However, it also wants a legal cap on charges. I have never been sure about the case for a legal cap, on the grounds that other noble Lords expressed today: namely, that many borrowers would be worse off if they were pushed into the arms of unregulated and unlicensed moneylenders whose debt collection methods would be likely to involve threatened or actual violence. I am sorry that the right reverend Prelate the Bishop of Durham is not in his place. He said many important things about the value of mutuals and credit unions, and about the serious disadvantage of unlicensed moneylenders purveying credit to members of the public.

The relevant trade associations have agreed to improve their codes of practice. I agree with the noble Lord, Lord Hunt of Wirral, that improving codes of practice may be a substantial help. However, it would be a pity not to take up the opportunity of putting into the Bill certain legal requirements to make it clear that we are not just urging people—codes of practice usually “urge” people—to think carefully before taking out a short-term loan, but are making it much clearer that these loans are expensive.

I referred to the need for the consumer to get clear information in order for effective competition to take place. There is also room for discussion of improvements to the Bill proposed by Which? to require the Financial Conduct Authority to ensure that information provided to consumers is “accurate and intelligible”. This wording would be more helpful than that in Clause 5, which uses the currently popular phrase “fit for purpose”, which is far vaguer. I am fond of the phrase “fit for purpose”—as is anyone who has studied the Sale of Goods Act in its original form. However, people have borrowed it to refer to all sorts of unrelated matters and it is not terribly clear.

One of the most useful and imaginative consumer protection provisions of consumer credit legislation was the creation of joint liability in law of finance companies and traders who provide goods or services. Section 75 of the old Consumer Credit Act 1974 indicates that when goods are bought with credit provided by a finance company or card company, the finance company is deemed to be engaged in a joint enterprise, and usually it is the finance company which has the greater resources to meet any claim for breach of contract the consumer may want to bring.

In the course of the Bill’s progress in another place, the Government stated their wish to replicate that provision in the Financial Conduct Authority consumer rule book. However, they seem to have found that that would not be strong enough and that it may be necessary instead to keep the provision in the Consumer Credit Act, to which I have already referred. The noble Baroness, Lady Noakes, referred to this problem and the Finance and Leasing Association, in its briefing to noble Lords, also referred to the matter.

It is not very clear from government statements in the other place what is to happen. We know that the licensing powers of the Office of Fair Trading are to be transferred to the new body by secondary legislation but, as the FLA fairly asked the question, what about the transitional arrangements? What will happen in between time? We know that other legislation is being brought forward by the Government to merge the Office of Fair Trading and the Competition Commission, so what will happen to the current licensing powers that the Office of Fair Trading has under the Consumer Credit Act? It is important to have clarity on these matters, otherwise things will not go clearly and smoothly. At the moment, the Government seem to have left us all—not only people such as myself but also the FLA—uncertain as to what the outcome will be.

Queen’s Speech

Lord Borrie Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Borrie]

My Lords, when I first put my name down to speak in this debate on the gracious Speech, I thought that I would talk about two items: the groceries code adjudicator and the changes in the competition policy regime, which feature in the Speech. I then learnt that the Groceries Code Adjudicator Bill will be before us for Second Reading on Tuesday, and I have little doubt that the competition regime changes will be in a Bill that will come before us soon. With more time available in Second Reading debates than in the sort of debate that we are having today, I decided to latch on to the remarks made by my noble friend the Leader of the Opposition on youth unemployment, which to some extent has also been commented on by my noble friend Lord Young of Norwood Green.

I am delighted to congratulate a Member of the Conservative Benches who is in her place right now, the noble Baroness, Lady Stedman-Scott, who spoke on this subject yesterday and described the terrible expense to the public finances and the lost-opportunity costs of youth unemployment. She made the point that some 16%, probably more than that, are NEETs and causing a great deal of personal, social and financial problems. That is a very serious matter, a terrible waste in economic terms and a very severe social and personal loss and detriment to the young people themselves. In addition to those fairly obvious points, I think that we ought to accept that many young people are alienated, disaffected and are often engaged in criminal or anti-social activity.

Many people have solutions and have their favourite ideas. I dare say that there is no one idea that is worthy of promotion; there are many that are worthy of promotion. One idea that deserves further consideration and is timely to consider now is some sort of non-military national service or citizens’ service of one year or more and applicable to young men and young women. When I did military national service way back in the 1950s, it applied only to men, so I naturally think of any modern development as covering both.

This idea was recently advocated—I mention this specifically for my noble friends in the Labour Party—in an article by Robert Williams that appeared in the March 2012 edition of the Labour magazine Progress. Twenty years ago, it was one of the proposals of the commission on social justice that was set up by the late John Smith, then the leader of the Labour Party, with me as chairman and several other present Members of this House on the commission. One of our proposals was for a citizens’ service, a community service scheme designed to enable young people to develop personal, social and learning skills and a work ethic through a variety of activities which, no doubt, would have to be looked at and modified and so on as the years go by. They would engage in work that improves the environment by cleaning and improving public spaces and engaging in caring activities in hospitals, care homes and people’s own homes, and, importantly, they would have the opportunity to make up for the gaps in their education that so many young people have.

It would probably have to be a voluntary scheme, which is what my commission proposed 20 years ago, because in peacetime—and I exclude the immediate post-war years in Britain—it would politically be very difficult to make it compulsory. Yet I have to admit that a weakness of a voluntary scheme is that some of the very people who would benefit most from a citizens’ service would be excluded.

There would be many gains from a citizens’ service in educational terms, in breaking down social barriers and in enabling people to improve their personal standing and so on. I believe that it is timely now to revive interest in this proposal. I have not attempted the important matter of cost. A parliamentary committee or inquiry would be needed to establish costs and feasibility and to estimate what I suggest would be, but I have no figures to back this up, a very considerable payback in economic and social gains to the community.

Taxation: Inheritance Tax

Lord Borrie Excerpts

Wednesday 21st December 2011 Lords Chamber

[Lord Sassoon]

My Lords, I do not believe it is relevant to this review, but my noble friend Lord McNally is sitting alongside me and is no doubt listening very hard to the point that my noble friend makes.

[Lord Borrie]

My Lords, the Minister said that it will take up to six months for the Government to reply to the Law Commission’s report. Why should it be necessary to take so much time? As the noble Lord knows only too well from recent events, there is a new procedure for getting Law Commission reports through this House if legislation is required. Will not the Government’s delay make that so much more difficult?

[Lord Sassoon]

My Lords, I understand that there is a protocol between the Government and the Law Commission that says that the Government have up to 12 months to give a provisional response to a Law Commission report.

Consumer Insurance (Disclosure and Representations) Bill [HL]

Lord Borrie Excerpts

Tuesday 20th December 2011 Lords Chamber

[Lord Goodhart]

My Lords, I would like to mention one matter as the noble Lord, Lord Eatwell, has referred to the amendments that I put forward in Committee. As I said then, there was basically a pedantic reason for what I did. I thought what I did was slightly better but, quite frankly, it was not a serious problem at all. As they were not automatically accepted in Committee, there is no point in raising the matter again now. I am quite happy that it no longer appears.

[Lord Borrie]

My Lords, I share the view of the noble Lord, Lord Goodhart, and, therefore, share the view of my noble friend Lord Eatwell today in raising again the duplication that there seems to be in Clause 5. I do not think that anyone wants to press the point. In addition to the thank you to the Law Commission and the usefulness of this Bill, to which the noble and learned Lord, Lord Lloyd, has just referred, I express thanks for the excellence of the chairmanship of the noble and learned Lord.

[Lord Sassoon]

My Lords, thank you for that short and focused discussion. On the specific point about the interlinkage of Clause 5(1) and Clause 5(3), I think that my noble friend Lord Goodhart has answered the question. Frankly, if the amendment had come forward again, in the Christmas spirit I and the Government might have accepted it. For goodness’ sake, I hope that it is now too late to table a handwritten amendment, but it was a fine bit of drafting either way.

I would rather stay with the noble and learned Lord, Lord Lloyd of Berwick, in welcoming the importance of this small but targeted measure. I echo my thanks to him as chairman of our committee under this special procedure, to the Law Commission, and in particular to the commissioner, David Hertzell. I will not say that I wish I did not have to deal with more Law Commission matters because your Lordships may have seen the fourth, topical Question tomorrow morning, which touches on recent Law Commission work on intestacy. As the Question refers to inheritance tax, it is down to me, so I cannot escape Law Commission matters even this week.