Bank of England and Financial Services Bill [HL]

Debate between Lord Sharkey and Lord Higgins

Tuesday 3rd May 2016 Lords Chamber

[Lord Sharkey (LD)]

My Lords, we support this amendment, but more precisely, we support this amendment with the commitments made in the Chancellor’s letter to the chair of the Treasury Select Committee. We are glad to see moves to buttress the independence of the FCA, and we think the amendment and the commitments will help do that. It is true that the FCA does need some help. In particular, it needs help in ending what is, or appears to be, interference by the Executive.

Recent times have not been happy. There was the early announcement of the non-renewal of Martin Wheatley’s contract; the Chancellor’s public announcement that Tracey McDermott was withdrawing her CEO application, before she had had a chance to tell her own people; and, then, the appointment of Andrew Bailey as CEO without benefit of a proper interview panel. I will not even mention that the search for the hard-to-find Mr Bailey cost £280,000.

To restore belief in its independence and its self-confidence and morale, the FCA needs to have a robustly and operationally independent CEO. We hope that this amendment and the Chancellor’s commitments will make that happen. This amendment and those commitments are of course the result—as the Minister has explained—of negotiations with Mr Tyrie, the chair of the Commons Treasury Select Committee. We would have preferred Mr Tyrie’s original amendment, which simply gave the Treasury Select Committee the power to approve, or not to approve, the appointment of the CEO of the FCA.

The government amendment, of course, does not go nearly that far. It simply says that the already appointed—although, I hope, not contractually bound—CEO must appear before the TSC before taking up his office. By itself, this is pretty feeble stuff. In fact, the important changes are not in this Bill at all; they are contained in the letter from the Chancellor to the chair of the TSC. The letter makes two commitments, as the Minister has explained. The first is that the Chancellor will,

“ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC”,

as the Minister has said,

“recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House”.

Secondly, the Chancellor,

“will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term”.

This is all very cumbersome, and one must hope that the prospect of having your merits gently and tactfully debated in the Commons will not put applicants off. However, it is an improvement on the current situation.

There are some questions, though, and I would be grateful if the Minister could respond. Why are these two commitments not on the face of the Bill? Can the Minister confirm that the Chancellor’s commitment to ensure government time for a Treasury Select Committee Motion in the Commons is not binding on him or, more importantly, on his successors? Can the Minister say why the Chancellor will put the fixed term for the CEO into a future Bill but not the Commons vote on a Treasury Select Committee Motion? Will the Minister agree to consider incorporating both these elements into a future Bill? Finally, can the Minister assure us that any future selection process for the CEO of the FCA will involve the proper panel interviews, or at least something more closely resembling due process?

We believe that we need the protections and safeguards in this amendment and in the Chancellor’s letter. We believe that Andrew Bailey is a good choice as CEO and we wish him every success. We believe that both Mr Bailey and the FCA will benefit from less interference from the Executive and we support the amendment.

[Lord Higgins]

My Lords, as a former chair of the Liaison Committee in the House of Commons, which co-ordinates the work of the Select Committee system, as well as having been chairman of the Treasury and Civil Service Select Committee, I very much welcome the proposals put forward by the Government. Of course, there are various qualifications, which have just been mentioned, but I believe that this is a significant step forward and that it will improve the way in which the appointments system works within overall government. Therefore, I think that this is an excellent amendment and I heartily support it.

Financial Services (Banking Reform) Bill

Debate between Lord Sharkey and Lord Higgins

Monday 9th December 2013 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I rise to move Amendment 21 and to speak to Amendment 20. I congratulate the Government on bringing forward their amendment to cap the total cost of payday loans. I am grateful to the Minister and to his officials for meeting me to discuss the issue and for providing us with copies of the letters between the Financial Secretary and the FCA.

Amendment 20 clearly has the right intent but it raises several important questions as do the letters between the Treasury and the FCA. Nowhere in the Government’s amendment or in their correspondence with the FCA is there any mention of the problem now discussed by the Minister of multiply sourced simultaneous loans. The Financial Secretary says in his letter to the FCA that the main aim of the cap is to ensure that PDL customers do not pay excessive charges for borrowing and to minimise the risk to those borrowers who struggle to repay and to protect them from spiralling costs, which make their debt problem worse. In short, far fewer payday loan customers should get into debt problems.

Simply imposing a cap, as I think the Minister was acknowledging, will not produce this result if borrowers can take out multiply sourced simultaneous loans. If borrowers can do this, any cap will be ineffective in controlling indebtedness. My amendment, as the Minister has said, proposes a ban on these multiply sourced loans, as is the case in Florida. I think I heard the Minister say that the FCA will consider the problem caused by multiply sourced simultaneous loans when he considers the mechanism of the cap. I see the Minister is nodding in agreement that that is the case.

My amendment also proposes a ban on rollovers, as the Minister has said. That is also the case in Florida. I remind noble Lords that in Florida no loan may be taken out until all previous loans have been settled in full and then only after a 24-hour cooling off period. Rollovers are banned in Florida because they are the chief way of luring borrowers into a spiral of increasing debt. Here in the United Kingdom, 28% of all payday loans are rolled over and 50% of payday loan revenue, according to the OFT, comes from these loans. The FCA does not appear to understand the problem with rollovers. In its October proposals it suggested that rollovers be limited to two. It provided no evidence to suggest that this would have the desired effect and it is pretty obvious, I think, that it would not. Five days ago, the financial services consumer panel recommended in evidence to the FCA that rollovers be limited to one. I think the case for rollovers being banned is very strong. Will the FCA explicitly consider banning rollovers and will it publish its cost benefit analysis—the one the Minister talked about—of the relative merits of banning rollovers and limiting them to one or two only?

The Treasury letter to the FCA raises other questions. The Financial Secretary states:

“The Government is also committed to ensuring that you can access the information you need to design the cap. The Government will bring forward secondary legislation to allow you to collect information to support your new duty as soon as possible”.

The Minister has tried to explain what some of this information might be, but I should be grateful for more clarification on exactly what the FCA is going to be looking for and also confirmation that the Government will publish a draft of the proposed secondary legislation well before bringing it to Parliament.

In his reply to the Financial Secretary’s letter, Martin Wheatley of the FCA says that it is possible for firms in other EEA member states to provide a payday loan service through the internet to UK consumers within the electronic commerce directive. He went on to say that this is not something that the FCA can mitigate. What does that mean? Does it mean that the FCA cannot cap such transactions and, if it does, what is the point of the Government’s Amendment 20? The Financial Secretary’s letter to the FCA makes reference, as the Minister has done, to data-sharing practices. It says:

“There are a number of regulatory interventions in the market which may help to create the right conditions to ensure the cap is effective. For example, the Government shares your concerns that data sharing practices may not be supporting good consumer outcomes”.

This all seems rather opaque and quite a long way from plain English. Does this mean that the Government want credit agencies and lenders to pool data? Does it explicitly include the consideration of establishing a real-time lending database? I should be grateful if the Minister could confirm to the House that the answer is yes in both cases.

The whole matter of a cap turns on effective implementation and the evidence suggests overwhelmingly that we need a real-time database of loans to do exactly that, but the level of the cap is also critical. Amendment 20 requires the FCA to secure,

“an appropriate degree of protection for borrowers against excessive charges”.

There is no attempt in the amendment or in the correspondence to define “excessive” or to give guidance about how a judgment of what is excessive is to be arrived at. This seems an important and, perhaps, critical defect in the amendment. Surely the FCA must be given some guidelines in defining excessive for the purpose of fulfilling its duty. For example, we already know that payday loan borrowers in Florida pay, at most, one-third of the costs that such borrowers pay here in the United Kingdom. Will the FCA consider this kind of disparity in its definition of “excessive”? Will the Government set out in writing and publish the guidelines that the FCA must follow, and the factors it must consider, in reaching a definition of what may count as “excessive”?

I turn briefly to subsection (1B) of the Government’s amendment. It states:

“Before the FCA publishes a draft of any rules … it must consult the Treasury”.

I accept that the FCA will consult widely and not just with the Treasury before it publishes these draft rules but I am concerned about what happens after the publication of such draft rules. The FCA’s performance to date is not an obvious guarantee that any such draft rules will be what is required under the Government’s amendment. For its October publication of the draft rules, which the Minister has referred to, the FCA considered all the available evidence and proposed to allow two rollovers but no cost cap of any kind. A month later, the Treasury considered the same evidence and decided that it was sufficient to require the imposition of a cap. In other words, the Treasury appears to believe that the FCA got it wrong, which does not inspire confidence in the judgment of the FCA.

For that reason, and for reasons of openness and transparency, I believe it is important that there is the opportunity and time allowed for detailed public comment on whatever draft proposals the FCA comes up with and, in particular, that Parliament is given the opportunity formally to scrutinise the FCA draft proposals. I should like to know whether the Government will commit to allowing that opportunity and that time for detailed public comment and for allowing Parliament that opportunity to scrutinise FCA draft proposals.

Finally, I should point out that nowhere in Amendment 20 or in the two letters that we have seen is there any mention of a limit on the amount of the loan or of a minimum or maximum term. Will the Government confirm that the FCA will explicitly consider both a limit on the amount and on the term of any payday loan? I repeat that I welcome the Government’s intention in bringing forward Amendment 20 and I look forward to hearing the Minister respond to the questions I have asked. I beg to move.

[Lord Higgins]

My Lords, I want to make two very brief points. The amendment refers to “charges” and to “high-cost credit”. However, the words “interest” or “the rate of interest” appear nowhere in the amendment. I would have thought that there was some case for explicitly including that in the Bill, because the use of the other, rather wider, expressions leaves too much scope for the situation to be fudged. I would be grateful if my noble friend would say something about that.

We have been talking very much about payday loans and their provision; but it has become apparent that a number of charges made overall by clearing banks sometimes can approach, if not exceed, the limits charged by payday loan providers. I would like my noble friend’s assurance that the organisation will take account of that also and, if necessary, deal with the problem of very high overall charges—particularly with regard to unauthorised overdraft charges, for example—made by clearing banks as well as by payday lenders.