Bank of England and Financial Services Bill [HL]

Lord Tunnicliffe Excerpts

Wednesday 11th November 2015 Lords Chamber

We know what the problem is. We banned cold calling for mortgages. Cold calling lead generation for debt management companies affects the most financially vulnerable people in our society. The people affected are much more vulnerable than people looking for a mortgage. Why delay? Why not apply right now the same rules to cold calling for debt management as to cold calling for mortgages? That is what the amendment proposes; I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I support the amendment from the noble Lord, Lord Sharkey. One of the main concerns of the Financial Services Consumer Panel has been the uneven playing field between paid-for and not-for-profit debt management services. People are being exposed to poor debt advice, as the noble Lord said, and this needs to be addressed both directly and in the round.

The central concern is this curse of our modern time: cold calling. Something could be done quickly. A Labour amendment was voted through in this House during the passage of the Consumer Rights Act on caller identification, but it has not yet been commenced. In response to my noble friend Lady Hayter, the noble Baroness, Lady Neville-Rolfe, stated that the Government were about to begin a consultation on caller ID. Can the Minister say now, or in writing at a later date, what the timetable is for this consultation? When can we expect to see some action on this issue?

Are the Government considering any other measures that could help tackle unsolicited market practices? They include the automated reporting of nuisance calls; the collation of nuisance calls—for example, more than 100 complaints and the calling number’s owner could be automatically referred to Ofcom, the Information Commissioner’s Office and perhaps the police; and appropriate victim redress for persistent cold calls from the same organisation.

The concern highlighted by the noble Lord, Lord Sharkey, is important in its own right, and so is the whole issue of cold calling. The two come together in this amendment, which we support.

[Lord Ashton of Hyde]

My Lords, the Government share the concern of the noble Lord, Lord Sharkey, about long-standing problems in the debt management market. Indeed, I have had the pleasure of answering questions from the noble Lord on this subject, and had a subsequent meeting with him and officials from the Treasury. We agree that it is imperative that vulnerable consumers in this market are treated fairly by firms and provided with the services that meet their needs.

As the Committee will be aware, responsibility for consumer credit regulation, including debt management firms, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The ensuing, more robust regime is dramatically improving consumer protections. The Government have ensured that the FCA has wide enforcement powers to take action where its rules are breached. There is no limit to the fines that it can levy and, crucially, it can force firms to provide redress to consumers.

Debt management firms are in the first group of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and practices. Every debt management firm will have to demonstrate compliance with the FCA’s rules and principles, including the requirement to treat customers fairly. Firms which do not meet the FCA’s threshold conditions will not be able to continue in the market. Decisions on those authorisations are due to take place—the first ones by the end of this year.

The FCA has also introduced tough new rules to protect consumers in the debt management sector, and the FCA actively monitors that market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. The FCA requires that all advertisements and other promotions must be clear, fair and not misleading, and it is able to impose tough sanctions where wrongdoing is found.

Regarding the noble Lord’s specific points about unsolicited marketing, the financial promotions regime applies to those providing debt management services. The FCA requires that unsolicited marketing by phone, text or email makes clear both the identity of the firm and the purpose of the communication so that the consumer can decide whether to proceed. This was highlighted by the noble Lord, Lord Sharkey.

The FCA also requires regulated debt management firms that accept leads from lead generators to satisfy themselves that business has been procured fairly and in accordance with data protection and privacy in electronic communications law. More broadly, in 2014 the Department for Culture, Media and Sport published its Nuisance Calls Action Plan. This set out the actions being taken by government, regulators, consumer groups and industry to tackle nuisance calls.

Importantly, the FCA has already committed to undertake a review of unsolicited marketing calls, emails and text messages from consumer credit firms, which will begin early next year. The Government believe that requiring the FCA to take a particular course of action before this review has taken place would limit the FCA’s ability to exercise its powers independently and would not necessarily achieve the desired result.

In answer to the question, “Why not act now?”, asked by the noble Lord, Lord Tunnicliffe—and I think that the noble Lord, Lord Sharkey, implied that even if he did not say it directly—it is worth noting that, if additional requirements for debt management firms were introduced at present, those firms would be required to alter their internal processes. That would cause disruption to the FCA’s ongoing authorisation process, which is due to begin producing results within the next couple of months.

I shall take advantage of the offer from the noble Lord, Lord Tunnicliffe, to write to him on the caller ID review timetable, because I do not have that to hand.

In summary, the authorisation process is well under way and will not take a year, and the FCA review of unsolicited marketing calls will begin early next year, so I submit that the noble Lord’s amendment is not appropriate at this time. I therefore ask him to withdraw it, confident in the knowledge that he will continue to hold the Government to account on this subject.

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[Baroness Kramer]

My Lords, I do not think that I can improve on anything that has been said by the noble Baroness, Lady Drake, because she understands these issues with such clarity and works so extensively in this field. In a strange way, the noble Lord, Lord Hunt, made the argument for how a duty of care should be at the heart of everything that banking institutions and financial institutions do. I hope very much that the Government will take on board the importance of embedding these kinds of responsibilities deeply within the requirements for the financial services industry.

[Lord Tunnicliffe]

My Lords, what became evident both during and after the crash was that financial providers had failed to exercise any duty of care towards consumers across the sector that the industry is supposed to serve. The amendment before us was previously moved by my noble friend Lady Hayter, and I draw largely on her experiences as a member of the Financial Services Consumer Panel. The cases she worked on during her time at the FSCP were, among others, high loan-to-value mortgages and high loan-to-income mortgages. This was plainly about selling products to people who could not afford them with no consideration of their interests. This was done in spite of the fact that should circumstances change, those people would have no way of repaying their loans. As time went on and the number of loans increased, each one as reckless as the last, no account was taken of the hurt to individual borrowers or of the far wider group of consumers whose house prices fell in the subsequent crash, while future loans dried up and repayment terms became unsustainable.

The amendment would ensure that financial services had a duty of care to their consumers collectively as well as on a one-to-one basis with their clients. Case law provides for a duty of care across the financial services sector, but it is clear that that is not enough. Despite this, the Government have continued to resist writing it into legislation and have relied only on case law. The first part of the amendment would establish a fiduciary duty that would demand a higher standard of care for direct consumers, and the second part would extend that general duty to all consumers across the sector. This would fill a gap which currently exists in the financial services sector. If it were to be introduced alongside the new extended senior managers and certification regime, it could bring about a cultural change in the financial services sector that the Government, the Treasury Select Committee and the Bank of England have all said is necessary.

The experience of many of us of the financial sector has moved from a position where as a generality we expected that we could trust the industry with our money and for appropriate advice. The crash has completely destroyed that trust, so an amendment like this, if accepted, could help to bring it back. Confidence in the sector remains dangerously low and something has to be done to restore it. Perhaps this duty of care would provide a route back to public trust.