Financial Services Bill

Baroness Hayter of Kentish Town Excerpts

Tuesday 10th July 2012 Lords Chamber

Moved by

[Baroness Hayter of Kentish Town]

46: Clause 3, page 6, line 7, at end insert “provided that such a direction does not conflict with the FCA’s consumer protection objective”

[Baroness Hayter of Kentish Town]

My Lords, Amendment 46 stands in my name and in the name of my noble friend Lord Eatwell. I shall speak also to Amendments 49, 52 and 67, which similarly stand in our names.

These amendments seek to ensure that when the Financial Policy Committee gives directions to the Financial Conduct Authority in the interests of financial stability, it does so in ways that do not conflict with the FCA’s duty to uphold consumer protection, that the Financial Policy Committee must take note of any representations from the consumer panel, and that where such directions, or indeed recommendations, are given, the FCA reports back to the Financial Services Consumer Panel as well as to the FPC.

If we did not know before last week about the detriment that can affect consumers where their interests are ignored, we must surely know now. Consumer trust in this industry has taken a body blow, and it is really important that regulators never for a moment forget the end-user—the saver, the borrower, the lender. The Financial Policy Committee is clearly not a consumer-focused body. It will take decisions that have a huge impact on consumers but it will not have the expertise to do it well. The FCA’s consumer panel is meant to represent the consumer interest. Without these amendments, we are allowing the panel to be ignored. We know what happens when the interests of clients are not placed centre stage.

I argued at Second Reading that our regulation must be consumer focused or it will never do the job. These amendments would help to achieve that. The FPC will take decisions that impact on consumers. The Minister knows this. In Committee last week, he said that a direction or recommendation from the FPC,

“could have a serious negative implication for the safety and soundness of individual firms or for consumers”.

He went on to say:

“The FPC will not necessarily be aware of those negative implications on … consumers”.—[Official Report, 3/7/12; col. 675.]

Quite so. There will be no consumer input into or consumer voice in the FPC.

The Minister seemed to think that the FCA would be aware of possible impacts on consumers, but the chief executive officer of the Financial Conduct Authority is from the industry. He knows the industry and understands its interests and perspective, but that is not the same as voicing consumer protection issues. Let us consider a possible FPC direction, such as a cap on loan-to-value at 90%. That would trap an existing 95% loan-to-value mortgage customer with a particular bank. That is hardly consumer choice or competition. Just this time last week, at the annual public meeting of the Financial Services Authority, Adam Phillips, chair of the Financial Services Consumer Panel, said:

“We remain concerned about the predicament facing so called ‘mortgage prisoners’—those with interest only mortgages and those trapped on the standard variable rate because they are unable to meet the affordability criteria—and have urged the FSA to act quickly to mitigate this situation. We also hope that the lessons learned in this process will be considered by the Financial Policy Committee when developing its strategy for dealing with asset bubbles”.

But who will be there to bring such lessons to the FPC if the consumer panel has no access? Similarly, any increased capital requirements decided by the FPC could be passed on to consumers in an opaque way by increasing rates and/or fees. Sometimes, I can almost hear some people in the City saying to us consumers, “Now don’t you worry your pretty little heads about this. It’s really just for us big boys”. Those big boys are exactly the people who have created so many problems for savers and investors.

When the FPC is considering big issues, how will the voice of the consumer be heard against the grain of the industry’s interests? Perhaps “grain” is not the correct term. We have learnt this morning that, at the cost of £90 million, there are some 800 lobbyists—one for each Member of your Lordships’ House—working to ensure that the financial industry’s case is heard at the highest echelons, be they the Bank, the Treasury, this House or another place. Is it any surprise that the still, small voice of the user—whose savings fund this industry, we should remember—are rarely accorded much precedence?

By contrast, these modest amendments are to ensure that not for one moment should the overall regulatory architecture ignore consumer protection. They hard-wire the consumer panel into consideration of the FPC’s biggest weapon—direction. Do we really need reminding that unless consumer confidence and trust return, unless the interests of consumers are centre-stage, no amount of shifting deckchairs on the regulatory deck will make a blind bit of difference? These modest amendments will simply help to keep consumers in every decision-maker’s eye. I beg to move.

--- Later in debate ---

[Lord De Mauley]

My Lords, I am saying that the concerns to which the noble Baroness’s amendments relate are addressed as the Bill stands.

[Baroness Hayter of Kentish Town]

My Lords, I thank my noble friends Lord Peston and Lord Barnett, who between them have been teaching me economics for 40 years. It is very nice to have their support now. I also thank the Minister for his response. Unfortunately, he does not answer the major question. He says that they will mitigate problems from any decisions. Under this amendment, we were trying to say that consumers should influence those decisions. We keep putting things right when they have gone wrong and we want a voice in those decisions. I do not think that those questions have been answered by the noble Lord; nor has he taken up the point that the chief executive of the FCA, who does not come from the consumer movement, does not have the feel of it. That is fine; it is a different job. I think that we will want to return to this matter, because clearly it is key to the Bill. For the moment, I beg leave to withdraw the amendment.

Amendment 46 withdrawn.