Breathing Space Scheme: Consultation Response

Debate between Baroness Altmann and Lord Young of Cookham

Wednesday 19th June 2019 Lords Chamber

[Lord Young of Cookham]

The second part of the noble Lord’s question is easier to answer than the first. Any overpayments to the DWP will stop. People will not have their benefits docked if part of their benefit is an overpayment of a previous benefit; that will stop from day one. Likewise, if they have been overpaid universal credit and it is being docked because that is being paid back, that will stop on day one. On financial capability, I remember the noble Lord’s interventions during consideration of the Bill referred to by the noble Lord, Lord Stevenson. I mentioned in passing the work of the Church in financial education, but the noble Lord’s question deserves a more substantive reply than I can give at the moment. Perhaps I could write to him about progress on developing financial capability.

[Baroness Altmann (Con)]

My Lords, I declare my interest as set out in the register, as an adviser to a social enterprise which helps people in debt to manage and consolidate their debt more cheaply in the workplace. I congratulate my noble friend the Minister on this Statement, and in particular I congratulate our honourable friend the Economic Secretary to the Treasury, who has clearly listened carefully to the debates and points made on this issue. The extent of the measures announced today goes a long way towards proving that he is genuine in saying that this issue, which we have worked on extensively across this House, is close to his heart. I pay tribute also to the noble Lords, Lord Stevenson and Lord Sharkey, who were instrumental in this area, and thank the Government for introducing something so necessary. I have one brief question. Will the Minister find out what plans the department has to make sure that these schemes are publicised, so that those who need them are rapidly directed to the help that will be available?

[Lord Young of Cookham]

May I, in turn, compliment my noble friend, who was a Minister at the DWP and can perhaps claim some maternity regarding some of the policies we are now discussing? She made a very valid point about the role of your Lordships’ House. I recall the debates on the Bill; it was improved as it went through, partly as a result of the intervention of the noble Lord, Lord Stevenson. My noble friend mentioned publicity, and I entirely agree. When the time is right and we are ready to launch the new scheme, it should of course be well publicised so that those in financial difficulty know that it is available and, crucially, how to access it.

House of Lords Reform: Elected Second Chamber

Debate between Baroness Altmann and Lord Young of Cookham

Tuesday 3rd July 2018 Lords Chamber

[Lord Young of Cookham]

I agree that all those professions and interests should be represented in your Lordships’ House and that the Cross Benches have a good representation of those interests. I think there is a quota of Peers allocated each year to HOLAC in order to appoint more Cross-Bench Peers. All this is against a background of the Prime Minister exercising restraint on political appointments. The recent Dissolution Honours List was the smallest since 1979—and here I warmly welcome my noble friend Lord Haselhurst.

[Baroness Altmann (Con)]

My Lords, I think most noble Lords would accept the idea that the size of the Chamber needs to be reduced, and it will be in due course, but does my noble friend agree that in the recent passage of the European Union (Withdrawal) Bill the House of Lords proved its value, working across party, across the House, together to make significant improvements to the Bill?

[Lord Young of Cookham]

The House of Lords played its traditional role as a scrutinising Chamber, looking at legislation that came before it. Some amendments were made, and I am glad that, when it came to the second stage of ping-pong, the House recognised the primacy of the elected Chamber.

Financial Guidance and Claims Bill [HL]

Debate between Baroness Altmann and Lord Young of Cookham

Report: 2nd sitting (Hansard): House of Lords
Tuesday 31st October 2017 Lords Chamber

[Baroness Altmann]

My Lords, I thank the noble Lord, Lord Kirkwood, for moving the amendment on behalf of the noble Baroness, Lady Meacher. I ask the Minister whether we have considered the issue, supported by a number of consumer groups, that I raised in Committee requiring a company that has been found to need to pay out on a claim to pay the claims management fee, rather than taking it out of the compensation. That should perhaps be more acceptable with a cap, but also more effective for those who receive compensation, as well as encouraging companies that have mis-sold something or perpetrated harm to the consumer to voluntarily contact consumers who have been harmed, rather than waiting for a claims management firm to do so on their behalf, thus saving them the extra cost of the claims management fee.

[Lord Young of Cookham]

My Lords, I join the noble Lord, Lord McKenzie, in thanking the noble Lord, Lord Kirkwood, for moving the amendment in the absence of the noble Baroness, Lady Meacher. We are sorry that she had to leave for family reasons. I again pay tribute to the work she has put into this amendment. She has pursued it with diligence.

The amendment seeks to put in place a fee cap from two months after Royal Assent until the FCA implements its own cap. We debated this in Committee. I am grateful to noble Lords who contributed to this debate for highlighting it again.

Clause 17 already makes great strides to secure fair and proportionate prices for consumers by giving the FCA a duty to cap fees charged for financial services claims. However, as a number of noble Lords pointed out in Committee, the implementation of a new regulatory regime and an effective, robust cap will necessarily take some time, during which consumers could continue to be charged disproportionate fees. In that debate, noble Lords expressed concerns that the FCA’s PPI claims deadline may have passed by the time its fee cap is in place. That point was made by the noble Lord, Lord McKenzie. We already know that 90% of financial services claims relate to PPI and therefore we want to ensure that consumers are protected against excessive fees for PPI claims as soon as possible. That is why, as the noble Lord, Lord Kirkwood, anticipated with commendable foresight, the Government intend to table an amendment at Third Reading to introduce an interim fee cap in respect of PPI claims management services.

The amendment will set a fee cap at 20%, excluding VAT, of the claim value and will be enforced by relevant regulators on commencement two months after the Bill receives Royal Assent. The Claims Management Regulation Unit consulted on a 15% cap. The data that it collected on the costs to CMCs of processing claims and market analysis of profit margins resulted in proposals to introduce a 20% excluding VAT cap on claims management services. The amendment supports the Government’s aim of ensuring that the claims management sector works in the interests of consumers by protecting them from excessive fees.

The amendment tabled by the noble Baroness, Lady Meacher, and moved by the noble Lord, Lord Kirkwood, would go some way towards ensuring that consumers are protected during this interim period. However, the government amendment will go further in two key areas. First, it will have a wider application than the amendment tabled by the noble Baroness. The interim fee cap will apply to both CMCs and legal services providers that carry out claims management services in relation to PPI claims, to be enforced by the relevant regulators.

Secondly, it will include in primary legislation a prohibition against charging more than 20% of the claim value for PPI claims, which will enable the regulators to implement the cap quickly. As I said a moment ago, this level was reached using the helpful and comprehensive responses to the Ministry of Justice’s consultation on proposals to introduce a fee-capping regime for CMCs handling financial services claims.

On the procedure for claiming any excesses imposed over the cap, anyone in breach of the interim fee cap will be subject to regulatory enforcement, which could include fines. Furthermore, a contract to receive or pay a sum in excess of the fee cap would be unenforceable, thereby ensuring that firms cannot profit from their malpractice and that consumers are entitled to recover excessive fees.

My noble friend Lady Altmann raised a question about compensation. As we will revert to this issue at Third Reading, perhaps we could deal with it then.

I make it clear that the interim cap is intended to be a temporary measure and, as such, will apply only until the FCA has implemented its new rules under Clause 17. It will also apply only to PPI claims, whereas the FCA’s cap will apply to all claims relating to financial products and services. We remain of the view that the FCA, as the incoming regulator, will be well placed to develop its own cap, or caps, based on an assessment of the market. Given the Government’s undertaking to table an amendment on this matter at Third Reading, I hope that the noble Lord will feel able to withdraw the amendment.

--- Later in debate ---

[Baroness Altmann]

My Lords, I congratulate my noble friend Lord Holmes on persisting with the amendment. I support the need to make sure that regulated firms have this duty of care, especially in circumstances such as the diagnosis of cancer and other illnesses, from which people can recover but for which they need particular care during that period. While the Bill is going through the House, it would be excellent for the market if we were able to introduce measures of this nature, but I also look forward to hearing from my noble friend and seeing the Government’s response before Third Reading.

[Lord Young of Cookham]

My Lords, I am grateful to my noble friend Lord Holmes for moving the amendment. He mentioned that he was a member of my flock. He displays exactly the right independence of thought tempered by loyalty to the party that any Whip could wish for. I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord McKenzie, and my noble friend Lady Altmann for speaking to the amendment, which seeks to ensure that the FCA adheres to a set of regulatory principles in relation to acting in the best interest of consumers and managing conflicts of interest fairly. Noble Lords also raised the broader issue of duty of care, which is not mentioned specifically in the amendment but is obviously relevant. As noble Lords may remember, my noble friend tabled a similar amendment in Committee.

Aside from the provisions in general consumer law, the FCA already applies rules on firms conducting regulated activities in relation to their dealings with consumers. First, the FCA’s rules set out in Principles for Businesses require firms to conduct their business,

“with due skill, care and diligence”,

and to,

“pay due regard to the interests of … customers and treat them fairly”.

Principle 8 sets out:

“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.


That accurately mirrors proposed new subsection 1(b) in the amendment, so there is a congruity of objective there.

Secondly, the rules on clients’ best interests require a firm to act in its client’s best interests across most regulated activities. The client’s best interests rule states:

“A firm must act honestly, fairly and professionally in accordance with the best interests of its client”.


Again, those are exactly the words used in my noble friend’s amendment, so there is no disagreement over objective.

Thirdly and finally, a number of FCA rules contain an obligation on firms to take “reasonable care” for certain activities. For example, one of the Insurance: Conduct of Business rules states:

“A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment”.


Those rules in the FCA Handbook are supplemented by more specific rules in various FCA sourcebooks. The FCA will be able to apply its existing Principles for Businesses, which I have just quoted, to claims management companies and to make any other sector-specific rules that may be necessary, under its existing objectives. The FCA supervises against these rules and other provisions and, where necessary, can take enforcement action against firms to secure appropriate consumer protection.

The FCA is of the view that its current regulatory toolkit is sufficient to enable it to fulfil its consumer protection objective. The FCA will consider the precise rules that apply to claims management services and how they fit together as an overall regime. In doing this, the FCA will take into account its statutory operational objectives, including its objective of securing an appropriate degree of protection for consumers. It will also consult publicly on its proposed rules.

Turning to the broader issue of duty of care, the noble Lord, Lord McKenzie, asked whether there were any pearls. I think the oyster is still at work so the pearls are not available for display this evening. The words “duty of care” mean different things to different people and the precise scope and content of any proposed duty of care are uncertain. The impact of a duty of care obligation needs to be fully considered, as do the cost, complexity and time that might be involved in customers seeking to bring firms to court as a result of a duty of care obligation.

I was asked to say something about the timescale of the work on this. A duty of care could have an effect on many of the FCA’s provisions in its handbook, including the need to replace or remove some. The FCA intends to undertake a comprehensive review of the handbook post Brexit. The FCA believes that it would be best to include duty of care in that review, particularly as the FCA’s ability to change its rules in some areas will depend on the relationship between the EU and UK post withdrawal. Many of the FCA’s current rules are based on EU legislation. Once the relationship between the EU and the UK following withdrawal is clear, there will be more clarity around the degree of discretion that the FCA has to amend its rules.

In addition, the FCA is currently identifying the necessary changes to its rules to ensure that they continue to operate as a coherent set of rules following EU withdrawal. This work is being done in parallel with the work across government to review directly applicable EU legislation. It is a significant, complex and time-critical exercise that must be progressed immediately. If noble Lords have any concerns about the timing of the discussion paper, that is primarily a matter for the FCA.

Returning to the amendment, it is not necessary to include regulatory principles in the Bill because of the provisions the FCA already has. For that reason, I would request—or suggest—to my noble friend Lord Holmes that he withdraw his amendment.

Financial Guidance and Claims Bill [HL]

Debate between Baroness Altmann and Lord Young of Cookham

Tuesday 24th October 2017 Lords Chamber

[Baroness Altmann (Con)]

My Lords, I echo the wise words of the noble Viscount. It is absolutely clear that the level of financial education across the country is woefully low, and that stems from the absence of any financial education at the schooling stage. When I was looking at introducing some pension issues into the national curriculum, the main message that I received as to why it could not happen was that teachers themselves did not know enough about those issues to be able to teach even primary or secondary schoolchildren.

There is clearly a role for the single financial guidance body, which is set up to provide information and education for the public, to devise modules that schools could use—but not only schools. I would hope that, given that most people in the workplace did not get financial education in school, such modules would also be useful within the workplace. This is a big gap in our education system. Education needs to provide our students and young people with the tools that they need to manage their lives. If they cannot manage their finances, they will often get into difficulties that they do not need to be in.

I certainly echo the sentiments of the amendment, which would require the single financial guidance body, as the obvious body to do this, to provide education materials that could be used within schools, but even importing that into the workplace alongside auto-enrolment, because all workers will automatically be put into pensions and need to have some understanding of how finance works in order to make the best of that. I support the sentiments expressed.

[Lord Young of Cookham (Con)]

My Lords, I was hoping for a moment that the noble Lord, Lord McKenzie, was going to wind up the debate and give some cogent reasons why his amendment should be resisted, but that falls to me.

Amendment 13, tabled by the noble Lord, Lord McKenzie, would alter the strategic function on matters relating to financial education. I am grateful to the noble Viscount, Lord Brookeborough, the noble Baroness, Lady Kramer, and my noble friend Lady Altmann for their contributions because, once again, we have highlighted the important issue of financial education, which has been one of the themes running through our debate today. We had a good debate on it in Committee, and there is no disagreement that financial education is extremely important at all stages of life.

In fact, a key role of the new body as a whole will be to improve people’s financial capability and help them to make better financial decisions. Clause 2(7) states:

“The strategic function is to support and co-ordinate the development of a national strategy to improve … the financial capability of members of public”.


Then there is the paragraph quoted by the noble Viscount, Lord Brookeborough:

“the provision of financial education to children and young people”.

The noble Viscount outlined areas where the public need to be better informed, and I agree with all that he said.

The financial education element of the strategic function is targeting a specific area of need, which is to ensure that children and young people are supported at an early age on how to manage their finances—for example, by learning the benefits of budgeting and saving. As I think I said in response to an earlier debate, the new body will have a co-ordinating role to match funders with providers of financial education projects and initiatives aimed at children—those could well be in schools—and will ensure that they are targeted where evidence has shown them to be more effective. This falls four-square within the wider strategic financial capability work of the body, and should form part of the national strategy that we expect the body to deliver.

As has been mentioned, the Money Advice Service has been undertaking that role, and it is one aspect that respondents to the government consultation overwhelmingly agreed is important for the new body to continue to work on, build on, and continue the initiatives already under way.

The amendment makes provision for the new body to advise the Secretary of State on the role of Ofsted and the primary school curriculum. As the noble Viscount, Lord Brookeborough, said, the Select Committee on Financial Exclusion made similar recommendations on the role of Ofsted and the primary school curriculum in its recent report. We will publish a direct response to the House of Lords ad hoc Select Committee report before Third Reading. The Department for Education, which has prime responsibility for this, will be a major contributor to that section of the response.

Again, as I said in Committee, the Government believe that the remit of the new body may cause confusion with regards to the school curriculum. Of course, it can work with schools to help children understand financial education and it can help fund lessons and explore further the barriers to school involvement. The Government are clear, however, that the school curriculum and monitoring of school performance are matters for the departments for education in England and in the devolved nations. Nevertheless, Clause 2(3) states:

“The single financial guidance body may do anything that is incidental or conducive to the exercise of its functions”.


It seems to me that there is nothing to stop the SFGB informally making suggestions to Ministers without the need for the amendment, as long as they relate to its functions. So I do not think that we need the amendment for there to be a dialogue between the SFGB and education providers. In practice, the body will be able to undertake activities to help schools provide financial education but we do not believe the amendment is an appropriate addition to the strategic function. For that reason, I urge the noble Lord to withdraw the amendment.

Financial Guidance and Claims Bill [HL]

Debate between Baroness Altmann and Lord Young of Cookham

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

[Baroness Altmann]

My Lords, Amendment 70ZZA seeks to give the FCA the power to direct providers who are found liable for compensation to pay the claims management company’s fees direct, rather than the CMC taking money out of the customer’s compensation award. The aim of this change is to drive different behaviour in the market and bring about better outcomes for customers by making it more expensive for providers to pay redress to customers who use a CMC than it is in respect of those who claim direct.

It is clear that claims management companies are extremely profitable, with the National Audit Office reporting in February 2016 that CMCs are estimated to have earned between £3.8 billion and £5 billion just from PPI mis-selling compensation between April 2011 and April 2015. That means that consumers could have had billions of pounds more to spend but, instead, some of their compensation has gone to firms that have done very little work for the payments. Indeed, most people could have claimed compensation on their own, particularly if it was made much easier for them to do so. If providers were required to pay the CMCs directly rather than customers funding them, there would be an incentive for providers either to proactively contact customers to offer compensation or to make the process of applying for compensation much simpler, thereby encouraging more people to claim directly and saving the extra costs to the provider.

Claims management companies exist because the process of claiming compensation is not straightforward. Again, PPI is a good example of this and it highlights that the current redress practices are not working well enough for consumers. Therefore, as well as helping consumers keep every penny of their compensation, the amendment could also help to improve the redress system overall. I venture to suggest that it could be an alternative and possibly achieve better overall outcomes for consumers than banning claims management companies from charging fees at all.

Clearly, if the CMCs cannot charge for their services they will not remain in operation. However, simply doing this would address only one part of the problem: it would still not give firms any incentive to make it easier for people to claim compensation themselves, nor would it encourage the firms proactively to offer compensation in cases where there is a clear entitlement. Therefore, the risk would be that customers entitled to compensation would not receive their redress.

This measure would still benefit from being combined with a reasonable cap on claims management companies’ charges. I beg to move.

[Lord Young of Cookham]

My Lords, the amendment tabled by my noble friend Lady Altmann would, in effect, give the FCA a power to make rules requiring firms at fault rather than consumers to pay the costs associated with claims management services and she explained why this would a popular step. The FCA would be able to use such a power only in respect of firms it regulates.

I understand why this idea might seem appealing. The approach could, for example, incentivise those firms that the FCA regulates to be more proactive in offering compensation and dealing with consumer complaints, although this would be a rather indirect way of trying to do this. There are risks that such measures would lead to an increase in speculative and unmeritorious claims by CMCs, which could in turn have an adverse impact on consumers by burdening consumer redress schemes such as the Financial Ombudsman Service. Hopefully consumers will be helped by the ability to cap the fees in certain circumstances, therefore reducing the risk of the consumer not getting as much as they would otherwise be entitled to.

We are not ruling out the possibility that in some circumstances, the FCA might consider it appropriate to make a rule which has the effect that my noble friend seeks. This is within the FCA’s existing rule-making powers—subject of course to the normal principles and procedures which govern the FCA’s rule making, including public consultation and the preparation of a cost-benefit analysis.

However, as I mentioned earlier, such a rule could apply only in respect of defendants which are firms that the FCA already regulates. Claims management services include personal injury cases, and certain housing disrepair and employment cases. The FCA does not regulate defendants in that wide range of cases, so its rules could not apply to them.

Given the possibility of the FCA, within its existing rules, moving in the direction my noble friend has suggested, I hope she might withdraw her amendment.

[Baroness Altmann]

I thank my noble friend for his courteous and helpful reply.

I have been working with the consumer group Which? and it has been very forthright in explaining that it believes this would help the market and consumers overall. However, in light of my noble friend’s saying that the FCA already has the powers and may even be considering such a measure in certain circumstances—I am delighted that we have aired this issue in Committee— I beg leave to withdraw the amendment.