Financial Services Bill

Debate between Lord Holmes of Richmond and Lord Stevenson of Balmacara

Committee stage
Monday 8th March 2021 Grand Committee

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I start by expressing support for Amendment 79, introduced by my noble friend Lord Tunnicliffe. As the Woolard Review pointed out, the buy now, pay later issue is a hotspot at the moment and in need of urgent action. My noble friend’s amendment would require that the non-interest-bearing elements of lending under that regime should be regulated by the FCA, and we support that. I thank the Economic Secretary for the time given to us recently on this issue and I appreciate that this is not easy to regulate for. However, as my noble friend pointed out, there is time to get this right by the next financial year.

At heart, this looks like a consumer-friendly initiative—something we could all support. Credit-financed purchases have been with us for a long time, and there are some examples of activity in this field that could be damaged if the regulations to be brought forward are too aggressive. My noble friend mentioned employees, advances of salary and season tickets, and similar arrangements. However, the real profit motive which drives these schemes lies in the small print. Like so many similar schemes, these buy now, pay later schemes put pressure on customers to make unnecessary purchases, do not make effective credit checks, and there is evidence that they can cause mental health difficulties for those who sign up. I am sure that it would be possible to get this side of things properly regulated. However, what is less easy to regulate—although in fact it is far more damaging to hard-pressed consumers—are the penalties that get applied to missed payments and the excess interest that is loaded when payments are missed. In addition, compulsory insurance is often levied against default, links to loyalty follow-up purchases are imposed, and no real comparator APRs are somewhere available for those who wish to shop around before purchasing.

The focus placed on the FCA’s duty to promote competition rather than on a duty of care is an issue in play here. When the FCA was asked to regulate payday lenders, this House made it clear that its concern was the usurious rates of interest being charged, often many thousands of percentage points measured by APR. The solution favoured by the House was banning the products, which was why many of us were mystified by the FCA’s proposed solution of reducing the number of players in this market to a smaller number of well-capitalised companies—which indeed got the interest rates down, but only to around 1,000% APR, so consumers were left facing usurious rates. I hope the Minister will be able to reassure us that the approach that the Government are thinking of taking to buy now, pay later will not fall into the same trap as the payday lender regulations. The aim is consumer care and stamping out egregious behaviour, and not just promoting competition by allowing companies to rip off vulnerable consumers.

My Amendment 101, which I am grateful to the noble Lord, Lord Holmes of Richmond, for signing, is also about high-cost credit. As I said at Second Reading, it is high time we repealed the Victorian bills of sale legislation, which permits an egregious area of high-cost credit to continue and flourish outwith current consumer protection rules. Harm is being done.

Bills of sale are an early form of mortgage, aimed at goods and chattels and not property, which allow individuals to use goods they already own as security for loans while retaining possession of them. The use of bills of sale grew from fewer than 3,000 cases in 2001 to more than 30,000 in 2016. The number has dropped recently, but it is probably still in the order of 15,000 a year and it is going up. Ironically, bills of sale were legislated for before cars were invented, but they are used today mainly for what are called log-book loans, where a borrower raises cash on the security of his or her vehicle. Borrowers may continue to use their vehicle while they keep up the repayments, but if they default, the vehicle can be repossessed, sometimes from outside their front door, without the protections that apply to hire-purchase transactions or other consumer credit. It is also difficult to discover, when a car is being sold, whether it has a log-book loan attached. The register is kept by the High Court and it is not easily searchable. The new owner has no protection against losing the car if that loan has been defaulted on by the previous owner. This is just not fair.

Bills of sale are currently governed by two Victorian statutes, the Bills of Sale Act 1878 and the amendment Act of 1882—the statute was apparently so obscure in 1878 that it had to be re-regulated for in 1882. The legislation is described by the Law Commission as “archaic” and “wholly unsuited” to the 21st century. The current law creates hardship for borrowers and for private purchasers. The Law Commission argues that it imposes unnecessary burdens on lenders, and the lack of a proper chattels mortgage system restricts access to finance for unincorporated businesses and high-net worth individuals.

The great majority of bills of sale are taken out by borrowers who have difficulty in accessing other forms of credit. The current APR in a recent advert that I saw was 450%. The Law Commission says that the statutory form of a bill of sale as set out in the 1882 Act, which has to be followed absolutely to the letter, confuses borrowers rather than helps them to understand the consequences. It is clearly an area that should be cleaned up. A simple way, which is what I propose in my amendment, would be to repeal the Acts. While I accept that some people currently using log-book loans would be adversely affected by such a radical change, the greater harm lies in continuing the status quo.

I currently have a Private Member’s Bill on this issue, drafted by the Law Commission, which includes provision also for a goods mortgages scheme. Perhaps a way forward on this would be for the Government to agree to take on all or part of this Bill in the next Session using the special scheme for approving uncontentious Law Commission Bills. I would be happy to meet the Minister on this issue, if he could find the time, to see whether this would turn out to be a way forward.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak to this group of amendments. In doing so, I declare my interests as set out in the register. It is also a pleasure to follow the noble Lord, Lord Stevenson. Before I speak to Amendments 127, 131 and 136C in my name, I shall speak to Amendment 101, so eloquently introduced by the noble Lord, Lord Stevenson of Balmacara; Amendment 135, in the name of my noble friend Lord Leigh of Hurley, who is speaking after me so I shall not eat too much of his afternoon tea; and, briefly, Amendment 136F.

Financial Services Bill

Debate between Lord Holmes of Richmond and Lord Stevenson of Balmacara

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

As I was saying, lead generators are involved in misleading and misrepresentation by holding themselves out as organisations such as the Money Advice Trust or StepChange, or representing themselves as government to pull in for financial gain those who sought help for their debt difficulties. It is a pernicious practice, preying on those who are, without doubt, extremely vulnerable as a result of debt. It is unfortunate that the arena for their taking is the world wide web—one of the greatest gifts to humanity from one of the greatest of great Britons, Tim Berners-Lee. It is such a tragedy that his world is populated by these tawdry takers.

Amendment 111 would amend the FSMA to bring lead generators into the world of regulation to end this pernicious practice and to address the current asymmetry in FCA regulation: if you are introducing creditors that is a regulated activity; if you are introducing a debt advice service or the like, that is currently unregulated. The problem is large: StepChange and the Money Advice Trust estimate that at least 10% of those in need who seek their help and that of other debt advice services are caught up in and misdirected by such lead generating practice. That is an extraordinarily high figure.

We often see the world in a grain of sand when we consider personal testimony. One man said: “I am caught up in this world of these people. I am called, if not once, five times a day. Fortunately, I’ve managed to sort out my debt problems, but this harassment from these organisations is almost as bad as the debt itself. It’s having a detrimental effect on my life; it’s having a detrimental effect on my mental well-being.” That is the outcome of this mendacious practice, of this fakery and falsehood, from these tricksters and takers.

When my noble friend the Minister considers Amendment 111, would he agree that when individuals look for support in their hour of need as a result of a debt situation, they should find help, not harm? I am delighted that the amendment has the number 111; it is a single Nelson of an amendment. It is a single amendment with a single intention: for it to pass to make one single, simple change that will help hundreds of thousands. Will my noble friend the Minister channel his inner Nelson and give Amendment 111 its victory?

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I declare my interest as a former chair of StepChange Debt Charity. I thank the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, for their kind words about the work we have done with StepChange and all the other groups involved in supporting the repayment of debt and the management of unmanageable debt. It has been a pleasure to work with them and I have listened to their words very carefully, but it has also been wonderful, over the years I have been working on this issue in your Lordships’ House, to see the number of people who have become interested in it and who are prepared to join in and support it grow. It is now a very solid group with very firm views about how things should move forward, as we just heard.

I was very struck by what the noble Lord, Lord Holmes, said about the way people prey on those who have problems with debt. When I was working at StepChange we decided to change the name from the rather uncomfortable Foundation for Credit Counselling, which no one ever used. It was not a foundation, we did not deal with credit, and we did not counsel. It was a problem to get across what we did do, but we decided to be bold, as one is when coming to a new organisation and thinking about how you might change it. We decided to go for a name that took us away from any descriptive elements, and came up with StepChange.

One thing that we did not expect, which plays back to what the noble Lord, Lord Holmes, said, was that within 24 hours of our name being announced to the world there were between 15 and 20 groups preying on the same group of people we were trying to help, in exactly the way that the noble Lord described: they had changed their names to variations on StepChange. They also changed their colour coding, the whole look of their websites and the whole way that they approached potential customers. It was a wonderful example of the difficult area in which we operated. Here we were, trying to help people who were desperate to repay the debt that they had got themselves into. They were, by and large, decent, ordinary people for whom something had gone wrong with their lives and as a result they were spiralling into unmanageable debt. Yet here were these other companies trying to make money out of them, as the noble Lord explained. It was just awful, and to do so in a way that showed that they were watching how we operated in the market and were prepared to copy our techniques to get people to pay them money which they could not afford in order to get out of debt, was an extraordinary basis.

That leads into the amendments in this group, which are largely about trying to work with the Government in their good and well-thought-through plans, which are slowly coming to fruition. Perhaps they could go a little faster, but that is part of this discussion. My principal point is that I want us to support what the Government are doing because they are on the right track. We would like to do anything that we can to help them.

I have two amendments in this group and would have signed others, but I did not need to because they have a lot of support in other areas. Amendment 54 probes the nature and content of the regulations that will establish the statutory debt management scheme, which is complementary to and foreshadowed by the debt respite scheme mentioned by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes of Richmond. Amendment 70 calls for a formal review of the debt respite and statutory debt management schemes within a two-year period after Royal Assent. It looks very straightforward on the surface but when the Minister responds I am sure that he will realise where the amendment is trying to take him. It has the same impact as the points made by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, which is that we are a bit worried about the time that it has taken to get this scheme going. The idea was—

Financial Services Bill

Debate between Lord Holmes of Richmond and Lord Stevenson of Balmacara

Committee stage
Monday 1st March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this debate on the second group of amendments and I declare my interests as in the register. I will speak to Amendment 126 in my name and, before I do so, say it is a pleasure to follow the noble Baroness, Lady Bowles of Berkhamsted. I congratulate her on the way that she introduced the group.

My Amendment 126 offers a structure of regional mutual banks, which are successful in other nations but not so present in the UK. With the current situation apropos Covid and the current economic outlook, it seems timely to reconsider the whole concept of mutuality via the structure, as set out in this amendment, of regional mutual banks. If we get this right, it would seem to play very much to the levelling-up agenda, to the regional agenda and to a more collaborative, connected and closer relationship between lender and lendee—with both sharing a part of the journey in whatever endeavour, be that individual or SME.

Elsewhere in Committee I have raised, and will raise later, issues around financial inclusion which are a stain on so many of our institutions and lives. But this is not a question just for individuals shut out of our financial services system; it is a question for the underbanked as well as the unbanked. It is also a question for SMEs, unable to get the lines of credit they require to do what SMEs do best: grow the economy for the benefit of their employees and communities—for the benefit of them all. In Amendment 126, the consideration of regional mutual banks goes to all these points.

Similarly, it could be the basis for a rebirth in this country of true patient capital, which is much in existence in other nations but not, perhaps, so much in recent years in the UK. We may also wish to consider changes to the rules around pension fund investments, which could come through such vehicles as regional mutual banks. We are all aware of the names of some famous and successful international pension funds—Ontario Teachers, to give one example. Why do we know about it, when most people perhaps do not necessarily know about our large pension schemes? It is because of the current rules and approach when it comes to where all that potential investment can be deployed.

Again, the amendment suggests that the whole question of capital adequacy should be considered. If we have a structure with a different funding model, leaning more towards patient capital, should we consider whether the current capital adequacy rules are indeed adequate for such institutions? Are they in fact acting as a barrier, a blocker, to the development of regional mutual banks? With such structures, the amendment seeks to probe a reconsideration of risk and risk profiling when it comes to these kinds of banking operations. The amendment also seeks to look at other social, economic or political limiting factors which may be out there.

Finally, I hope my noble friend the Minister will agree that Amendment 126 offers a helpful suggestion in terms of the seeding of such regional mutual banks. Public finances have rarely been as tight as they are right now; everybody understands that. Perhaps dormant assets could be used to act as some seeding to see where we could take the whole concept of regional mutual banks.

As we come out of Covid, it seems an opportune moment to reconsider, reimagine and potentially reignite the whole concept of mutuality throughout our society, which was so successful and so beloved in previous generations. I hope my noble friend the Minister will agree that Amendment 126 offers a positive, creative structure worth considering for the future. Regional mutual banks could play a key part in the Covid rebuild and in future, as yet unwritten, success stories.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I declare my interest as a former chair of StepChange, the debt charity. I put my name down to speak in this group of amendments because they give me an opportunity to raise a wider concern about the access we need to low-cost credit. In fact, this fits in very closely with points already made by the noble Baroness, Lady Bowles, on Amendment 29 and the noble Lord, Lord Holmes of Richmond, on Amendment 126, and his important point about financial inclusion and the need to make sure that we do not forget that. I am looking forward to the comments to be made by the noble Baroness, Lady Kramer; she will also touch on these issues when she comes to speak.

When responding to a group in an earlier debate, my noble friend Lord Tunnicliffe mentioned that he grew up in a household where poverty was a constant worry. He mentioned the “jam jar economy”, which often characterised low-income households. It was cash-based: putting small amounts of coin away for future expenditure. Indeed, research a few years ago showed the surprising conclusion that the lowest paid in our society were often the heaviest savers on many measures, mainly because they had to be. It was done outwith traditional credit sources and topped up where necessary by house-to-house lenders, which were often a vital lifeline.

A key problem I want to highlight is the need to solve the problem of how to expand low-cost credit. My noble friend Lord McNicol, when he was speaking in an earlier group, mentioned the problems revealed by a very interesting report by the University of Edinburgh Business School on the financial health of NHS workers—people who were in employment but receiving low wages. It was based on real-time open banking figures. It showed across the 20,000 or so NHS workers who were surveyed that far too many were heavily reliant on a regular basis on persistent overdrafts and high-cost credit, often borrowing to meet the emergency needs they had from time to time, at APRs of well over 1,000%. The report makes for very interesting reading, and I hope that the Government will have access to it when they come to consider these issues further.

I know that the Government are concerned about this and that their financial inclusion work recognises, as previous Governments have, that the availability of low-cost credit is a major blockage to financial well-being. As the noble Lord, Lord Holmes of Richmond, said, it also affects the ability of SMEs and sole traders to operate successfully in a difficult economy.

I hope that the Minister can say a bit more about the plans the Government have when she comes to respond. I know that the Government will pray in aid the idea that credit unions will often be the solution; they have been mooted so often in the past but do not seem to grow. Other countries have other models—Germany has its particular banks focused on the local economy and America has the Community Reinvestment Act—which have solved the problems. Is there not time to consider things that might operate more successfully here in the UK?

None of the individual measures outlined in the amendments in this group, welcome though they are, will solve low-cost credit and the drought that we are suffering from. But they make the point well that the regulatory measures in the Bill should not restrict much-needed support from institutions, banks and other organisations such as credit unions to help those who need to borrow but who cannot do so at the rates or in the period of time which are often required by our major institutions. I look forward to the Minister’s response.

Financial Services Bill

Debate between Lord Holmes of Richmond and Lord Stevenson of Balmacara

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

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, with this amendment, we come to the end of the group of amendments that precede the Bill. This is another slightly detached issue that I hope will get a response from the Government. Amendment 8 is supported by the noble Lord, Lord Holmes of Richmond; I am very grateful to him for his support. His amendments on financial inclusion, which are also in this group, raise many similar issues. I look forward to hearing his comments and to the subsequent debate.

I declare my interest as a former chair of StepChange, the debt charity. Amendment 8 would place on the FCA

“a duty to promote financial wellbeing”—

a new term—

“which would strengthen the FCA’s consumer protection objective and empower the FCA to introduce rules for financial services firms informed by that duty.”

As I have already said, this is a probing amendment, seeking at this stage what I would describe as a high-level response from the Government. I am not looking for detail at this stage; it is really a question of whether there is merit in further work being done on this concept. If there is, I am looking for some pointers about how the Government would like it to go forward.

The background to this amendment is a suggestion from the Money and Pensions Service that there is a case for giving the FCA the power to nudge—its term, not mine—financial services firms to underpin their activities with regard to the financial well-being of their customers and to go beyond current considerations of consumer protection or vulnerability, which I think they have already adopted to some extent. The intention is to remove any asymmetry of knowledge, expertise and capacity between the service providers and their clients. It is a very ambitious goal and would take a lot of work across many sectors not normally involved in the consideration of financial competence.

During my time as the chair of StepChange, we used the term “financial inclusion” to cover the need to have a society where everyone felt that they were knowledgeable enough to be secure and in control of their financial affairs; indeed, we have used the term since then. However, if we change that to “financial well-being”, we go much further. We could say that the aim would be to have the knowledge, confidence and resilience for all in society to pay bills as they fall due, cope with unexpected shocks and plan across our assets and income over time for a healthy financial future right through to well after retirement.

It is a very ambitious and much wider term than “financial inclusion” or any amount of financial education. The importance of the term is that it better captures a life cycle approach to the modern needs for economic health, generating confidence and empowerment within the population at scale coupled with a financial services industry that goes well beyond just designing and delivering good products and excellent services—which we accept they do, of course. It all should be backed by a regulatory system with a holistic overview and the powers to match.

Is this just smoke and mirrors, or is it a realistic vision of the way that things might be? Whatever the case, it is a good time to ask the question. As we discussed earlier today, the FCA’s 2020 Financial Lives survey found that just over half of UK adults—24.1 million people, in its figures—display one or more of the characteristics of vulnerability to their financial situation: a health condition, negative life events, low financial capability or low resilience. Other surveys have already been mentioned. The Salad Projects’ report was mentioned by my noble friend Lord McNicol, and hopefully will be again when he comes to speak on this group. It shows the reality of coping with low incomes and why a shortage of low-cost credit is such a major issue for so many citizens who, even when in regular employment and often with blameless credit references, cannot find appropriate ways to cope with even the basic costs of living, let alone saving for a rainy day and retirement.

The Government are currently consulting on a phase 2 review that includes financial inclusion on the levelling-up agenda, but we also have some other material. As has been mentioned already, The Woolard Review: A Review of Change and Innovation in the Unsecured Credit Market is a major contribution to the understanding of this area; it will come up again in later amendments. There is a lot going on. With this probing amendment, I seek a sense from the Government of whether they accept the case for a broader approach to financial well-being being championed by the Money and Pensions Service and by some firms such as NatWest and Nationwide. In particular, do they accept that, whether or not a formal duty of care is placed on financial service firms—I would support this—the forms of regulation in this area need to be expanded to deliver what the FCA calls

“fairer outcomes for consumers, including support for customers with poor financial well-being that might extend well beyond simple commercial transactions”?

Thirdly, would they consider taking this one step further and seeing what would be required from other partners and agencies?

If we really want a system capable of helping consumers to develop the skills and confidence to interact with financial service providers, people must be secure in the expectation that, if they need help in managing their decisions on their finances, they will not be ripped off and that there will be quality support for them. We must also ensure that education, advice, debt counselling services and other things focus on helping all citizens to develop the skills and confidence to interact effectively with financial service providers—not only providing the products that they need over the life cycle but developing their skills and confidence about their financial well-being and empowering them to take control and plan what they want to maximise their resources.

This is a big agenda that probably also needs action on many other issues such as low-cost credit sources. However, at this stage, we need a clear signal from the Government about how far this issue can go and on what terms they would like to see further work done.

I beg to move.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak on this group of amendments. I congratulate the noble Lord, Lord Stevenson of Balmacara, on the excellent way in which he introduced the group. The concept of financial well-being is a growing area and there is a lot for us all to reflect on. I thank him for all that he has done in this whole area of financial well-being, not least during his excellent time at the helm of StepChange.

We should thank all the organisations involved in financial inclusion, not least Macmillan Cancer Support and the Money Advice Trust. They go to people who are at the sharpest end of financial exclusion, and their commitment and the briefings that they provide to parliamentarians are a credit to everybody involved in that space.

I turn to my Amendment 9 in this group, which would place a duty on the Financial Conduct Authority to work toward the objective of financial inclusion. In doing this, I seek to raise the whole level of financial inclusion across our regulators. The context has moved on significantly during the Covid crisis. People who, fortunately, have never had to think about financial inclusion or have never been at a loss as to where the next bill payment will come from find themselves very much at the sharp end of financial difficulty. Fortunately, in many of those instances, the Government have stepped in through the furlough scheme and the self-employed and business loan schemes.

The reality is that, in a broad sense, these are enablers of continued financial inclusion. I would argue that, in this new world, it is difficult to consider the concept of financial stability while we still have such issues around financial inclusion. Financial exclusion has dogged our society for decades. It ruins lives, paralyses potential and corrodes communities. This amendment would give the FCA the objective of considering the barriers, blockers and bias that continue to mean that people are shamefully excluded from mainstream financial products.

Similarly, in the second point in my amendment, I want to place a requirement on organisations

“to report on their use of financial technology to increase financial inclusion.”

Not for one minute do I believe that fintech is the silver bullet—I am well aware of the issues around financial and digital exclusion—but fintech must be part of the solution and must be turbocharged at all levels of financial services. It must be understood much better by HMT, as well as the role it can play in varying degrees across financial services. This was proven at the beginning of the Covid crisis when, in a matter of hours, various fintechs came up with innovative solutions to address some of the issues that then rolled out as the crisis developed.

Having a financially inclusive nation makes sense. Having a financial inclusion objective within the scope of the FCA makes complete sense. I hope that this amendment will add to all the extraordinarily good work that everybody involved in financial inclusion is currently undertaking.