Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to take part in this debate on the second day of Committee. I have to say that it has been an extraordinarily powerful debate thus far and an absolute indictment of the UK financial sector. I begin by apologising for not taking part in the first day of Committee, despite having signed a number of amendments. I am afraid I was taking part in the debate on the so-called Genetic Technology (Precision Breeding) Bill, and it is impossible to spread oneself across too many places.

The case for these amendments, in particular Amendment 40 in the name of the noble Lord, Lord Sharkey, to which I am pleased to attach my name, has already been powerfully made, by the noble Lord himself and by the noble Baroness, Lady Bowles of Berkhamsted, in the debate on the previous group of amendments. I will make a couple of additional points. In particular, I draw on a survey by the Federation of Small Businesses, published in December, which found that 30% of small and medium-sized enterprises thought that they had signed financial contracts that contained unfair clauses and provisions.

The survey also found that successful applications for loans and other financing for SMEs had fallen precipitously. Less than half were successful in the third quarter of 2022; before Covid, two-thirds had been successful. One of the things we are always hearing from the Government is, “Rely on the market! People can shop around and choose”. We have already heard the reality of the inequality of arms—as the lawyers would put it—between a small business and a giant financial-sector company. But there is also no opportunity: small and medium-sized enterprises have to take money from wherever they can get it, if they are lucky enough to get it at all.

What we have here is a practical reality, as the noble Lord, Lord Holmes of Richmond, just set out. The financial sector is not meeting the needs of the real economy, and that issue underlies all our debates on the Bill. Is the financial sector there as a high-stakes casino in which a few people can make a lot of money and the rest of us have to pick up the pieces when it all goes wrong, or is it there to meet the needs of the real economy and give us a genuinely sustainable—in all senses of the word—society?

Although we have perhaps not needed him, it is a pity that the noble Lord, Lord Sikka, is not currently in his place, as he could also have contributed very powerfully to this debate. What we have is a litany of disaster. The FCA has a terrible track record. Your Lordships’ Committee is trying to do something to fix that, and, boy, does it need fixing.

[Baroness Altmann (Con)]

My Lords, I too support both amendments in this group. I congratulate my noble friend Lord Holmes on his Amendment 219, and the noble Lord, Lord Sharkey, on Amendment 40 and the way in which he explained it. I urge my noble friend the Minister to take seriously the comments that have been made and the reference to the Treasury Select Committee, which recommended just this kind of change.

I would like to understand from my noble friend: if the Government do not agree with the Treasury Select Committee, why? How do they believe that SMEs are protected against the kinds of scandals and bad behaviour that have clearly been rife within the sector over a number of years? Does my noble friend seriously believe that small and medium-sized enterprises are equipped enough to stand up against the information and resources available to the financial services industry to avoid the kind of problems that we have seen in the past?

[Baroness Kramer (LD)]

My Lords, the last group of amendments and this one are not identical and cover different aspects of abuse by financial institutions. Were the Government to accept them, together, or to draft their own versions, that would completely change the playing field. Small businesses would be in a position whereby they could breathe easily and make business decisions, and not worry that, embedded in whatever product they were purchasing—

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[Baroness Penn (Con)]

I note that it is a voluntary body. I do not have the list of those who have signed up to it to hand. If it differs from those outlined by the noble Baroness, I will write to the Committee, but she may well have listed those who have signed up to it. I note, however, that the combination of that service, and the scale of those involved in it, with the ability to go to the Financial Ombudsman Service means that research suggests that more than 99% of UK businesses can access independent dispute resolution. We should look at the size of the customer base as well as the number of organisations signed up to such dispute resolution mechanisms. I will write to the noble Lord, Lord Sharkey, on the number of cases taken by the organisation.

[Baroness Altmann (Con)]

I thank my noble friend for giving way, but perhaps I could press her a little more on the effectiveness of the Financial Ombudsman Service in providing a deterrent against poor practice in the areas where we have seen it in the past. The noble Baronesses, Lady Bowles and Lady Kramer, and the noble Lord, Lord Sharkey, have outlined instances of banks not treating their customers well. Does my noble friend agree that having a statutory duty written into the legislation would be much more of a deterrent against the behaviour we have seen than the potential threat of someone going to the Financial Ombudsman Service?

[Baroness Penn (Con)]

That is one element to be considered. I was pointing in particular to the combined role of the FOS and the Business Banking Resolution Service in providing a route of redress for over 99% of businesses. In part, it comes back to my question in relation to Amendment 40 from the noble Lord, Lord Sharkey, on the Government’s commitment to regulating business lending only where there is a clear case for doing so, given some of the increased costs that bringing SME lending into regulation would bring. I return to the point that we currently have a consultation out on the Consumer Credit Act in which there is a question on business lending; the Government are considering this through that consultation.

With that, I hope that the noble Lord, Lord Sharkey, will withdraw Amendment 40 at this stage—

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[Baroness Penn (Con)]

As I hope I was setting out for the noble Lord, Lord Sharkey, there are different definitions of businesses that can have different protections and routes of redress within a system of small business lending. The system that we have is aimed to be proportionate, focusing on the smallest SMEs which are at the most risk. On the difference between the voluntary measures that are in place and bringing it within the regulatory perimeter, we are not saying that those are entirely equivalent protections but that they are proportionate protections to the risks faced by those firms. I set out different thresholds in my answer in relation to both those businesses that are protected under the Consumer Credit Act, which are sole traders, loans under £25,000 and a few others there, and businesses that are able to access either the FOS or the Business Banking Resolution Service. There are other thresholds too. Therefore I appreciate the point that that is different from the definition of a SME that the noble Lord asked about. The system is designed to be proportionate to the size of the SME and the protections it affords to them as regards business lending.

[Baroness Altmann (Con)]

I thank my noble friend for giving way once again. This is an important area for the whole financial services framework that we have in this country. I think that the noble Baroness, Lady Bowles, the noble Lord, Lord Sharkey, and my noble friend Lord Holmes are all trying to press the Minister on the issue of protection before scandals happen so that our system can be trusted more. The point here is about deterring financial institutions from even trying to undertake these actions by having stronger regulatory protection upfront, rather than this or that right of redress after the event has happened.

[Baroness Penn (Con)]

I understand my noble friend’s point, and of course the Government also consider that when we look at what to bring into the regulatory perimeter or the right of redress, both as a route of redress and as a point of deterrence. The Government take all those factors into account when considering this question.

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[Lord Tunnicliffe (Lab)]

My Lords, I shall speak to both the amendments in this group. I was not going to speak on the amendment of the noble Baroness, Lady Noakes, because, frankly, I did not understand it as well as it was just explained. The key point she is making is that there is a whole series of things about credit. It is complex, and that allows the Government to go behind the screen of saying, “We need this review; we need more time to think about it”, and so on. The gripping words she used were that society needs this stuff up to date as quickly as is reasonably practicable. There is no area where that could be more true than buy now, pay later. We are in a period of enormous stress for poor people. They desperately need reasonably priced credit because they just do not have any reserves.

In this area, there is this wonderful illusion that the credit is free. People do not lend money for free, except, perhaps, foolish parents. Buy now, pay later depends, as far as I can see, on the borrower failing to obey the rules, and companies make their money out of the default situation. They also make some money out of what they charge to retailers, but it is a very uncomfortable area.

I recognise that buy now, pay later can be a lower-interest borrowing option for some consumers, and that it is an area where a lot of innovation takes place, but neither of these points means that it should not be properly regulated. The Government have again and again committed to bring in regulation. Indeed, we are talking about 18 months since we got the first assurances from the Government that this would be subject to proper regulation. The Government have not acted, and harm is happening all the time. For example, Citizens Advice research has found that nearly two in five buy now, pay later customers do not fully comprehend the nature of the loan they are signing up to and often vulnerable shoppers are signing up to financial products that they do not fully get. What are the Government doing and which buy now, pay later companies are they meeting to ensure greater transparency?

We need to act in this area. I cannot understand how the Government can expect the assurances they give on these sorts of legislation to be taken seriously in future with the delays that have appeared in this area.

[Baroness Altmann (Con)]

My Lords, I support both amendments in this group. I think my noble friend Lady Noakes’ Amendment 43, which she so eloquently explained, is very much needed within our financial services system. I agree that it is possible that we should consider introducing into the wording greater parliamentary scrutiny rather than the discretion that may otherwise be given wholly to the Treasury, but I think the explanation by the noble Lord, Lord Tunnicliffe, of the situation with buy now, pay later is a good example of the kind of amendment that my noble friend wants to put in which would have facilitated some faster action had it been put in. I am not sure, but with the Bill we are going back time and again to the asymmetry of information and power between those transacting with financial services in general and the financial services industry that is putting products out to those customers. I think these amendments would be very useful additions, and I look forward to hearing from my noble friend.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to express support for Amendment 212 and to make a couple of points about it. I noticed that a couple of days ago the New York Times reported that buy now, pay later is an industry facing “an existential crisis”. I also note that various market analysists are reporting that this is a huge area of growth for the UK economy and the UK financial sector. Putting those two things together is a cause for concern not just for individual consumers, as the noble Lord, Lord Tunnicliffe, set out so clearly, but for the structural impact on the UK economy.

A survey was done for a household debt report by a company called NerdWallet. I cannot attest to the value of the survey, but it confirms what I have observed: 20% of women and 11% of men have used buy now, pay later in what amount to loans. So there is a gender aspect to the use of buy now, pay later. We look at many other areas of our system where women are financially disadvantaged but there is real cause of concern here.

My final point concerns something that really puzzles me—I understand that we may not be able to get an answer on it now. It was reported recently that a company called Zilch, which has 3 million buy now, pay later customers, is planning to report to all the major credit agencies the amount of debt that is being held by its customers. I think customers’ understanding is that it does not show up on their credit records—this is usually a soft search—so they are able to keep borrowing money through this mechanism and it does not show up. I do not quite understand how, if something was taken out on that basis, it can suddenly become declarable to credit rating agencies. This is an area where it is clear that regulation is necessary.