Financial Services and Markets Bill

Baroness Noakes Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

Moved by

[Baroness Noakes]

43: After Clause 23, insert the following new Clause—
“Regulation of consumer credit
(1) The Treasury may by regulations make such provision as they consider appropriate for the purpose of, or in connection with, the regulation of consumer credit.(2) The power under subsection (1) is exercisable only by making such provision as the Treasury consider necessary or desirable for or in connection with one or more of the following purposes—(a) promoting effectiveness in the functioning of financial markets; (b) promoting effective competition in the interests of consumers in financial services and markets;(c) facilitating the international competitiveness of the economy of the United Kingdom and its growth in the medium to long term;(d) protecting consumers;(e) providing for efficient and effective regulatory, enforcement, investigatory and supervisory arrangements in relation to the provision of financial services or the operation of financial markets.(3) The provision that may be made by regulations under this section includes provision—(a) conferring powers on the Treasury (including a power to legislate);(b) conferring powers, or imposing duties, on the FCA (including a power to make rules or other instruments).(4) In exercising their powers under this section, the Treasury must have regard to—(a) the general principle that consumers should take responsibility for their decisions,(b) the importance of securing an appropriate degree of protection for consumers, and(c) the principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction.(5) The power to make regulations under this section includes the power to modify legislation.(6) Regulations under this section are subject to the affirmative procedure.(7) Before making regulations under this section, the Treasury must consult the FCA.(8) In this section, “legislation” means primary legislation, subordinate legislation and retained direct EU legislation.”Member’s explanatory statement
This amendment would give HM Treasury the powers necessary to implement the findings of its ongoing review of the Consumer Credit Act 1974, saving the need for further primary legislation.

[Baroness Noakes (Con)]

My Lords, Amendment 43 would confer on the Treasury a wide-ranging power to legislate for consumer finance.

As I am sure noble Lords are aware, reform of consumer credit has been a long time in the making. The core legislation is nearly 50 years old and remains the Consumer Credit Act of 1974. That legislation was forged in a very different era: there were much lower levels of consumer credit; the internet was only a gleam in the eye of a few researchers; and regulation of financial services firms barely existed, certainly compared with what exists today.

The 1974 Act is based on a very different legislative approach from FSMA; it is based heavily on processes and paperwork rather than outcomes. When FSMA was passed, the Consumer Credit Act was left basically as it was despite the fact that the FSA became a powerful financial services regulator with a clear consumer focus. Some of the 1974 Act was later imported into the FCA model, in 2014, but that was only a partial exercise; the FCA was then tasked by statute to look at what could be done with the rest of the Act’s territory. That review eventually reported in 2019; last December, more than three years later, the Government finally produced their own consultation document.

--- Later in debate ---

[Baroness Penn (Con)]

I would like to share the noble Lord’s optimism. We need to have the consultation on the secondary legislation, which we are expecting very shortly, and then progress as quickly as we can to lay the regulations after we have completed that consultation. I completely accept the point from the noble Lord and the Committee more widely that there is a desire for swift action in this area. We understand that there are concerns about the pace of the delivery of this secondary legislation. This is a new and developing market, and it is important to get the regulation right. We need to ensure that it is proportionate and that lenders can continue to offer a useful form of interest-free credit to consumers responsibly.

While work continues to bring this fully into regulation, I should stress that buy now, pay later borrowers already benefit from wider consumer protection regulation. This includes standards on advertising, rights concerning the fairness of contracts and regulations to protect consumers from unfair commercial practices. However, to reiterate, I reassure the noble Lord, Lord Tunnicliffe, and other noble Lords in the Committee that they can expect to see draft legislation very soon and that we are committed to progressing this as quickly as we can.

I therefore hope my noble friend Lady Noakes will withdraw her amendment and that the noble Lord, Lord Tunnicliffe, will not move his when it is reached.

[Baroness Noakes (Con)]

Will my noble friend say how she sees the timetable going forward? I think she said that the Treasury is at the first stage of consultation, but it would be interesting to see the outline timetable that my noble friend thinks the Government will work to on this. It has taken a long time even to get to this stage, and it would be very useful to have an idea of when something tangible might be expected.

[Baroness Penn (Con)]

I will do my best, but I am afraid it will disappoint my noble friend. We expect to publish a second-stage consultation in due course, and it is likely that the FCA will also consult. Implementation of the final approach will require primary legislation, which will be brought forward when parliamentary time allows. I hope she draws some comfort from the fact that this process has started and that this reform is under way. We heard from everyone that this legislation is long overdue for reform, but we also heard a desire from the Committee that appropriate parliamentary scrutiny be applied when the Government bring forward proposals for reform.

[Baroness Noakes (Con)]

I thank all noble Lords who spoke in this debate, especially those who supported my amendment. I freely concede that, as I said in my introductory remarks, more parliamentary involvement would be required before any proposals were finalised.

Consumer groups have already been heavily involved. There are problems because the Consumer Credit Act focuses on paperwork and processes and not on whether it produces good outcomes. For example, it has no concept of vulnerable customers. There are real, good reasons for progressing this into law.

I was not surprised but somewhat disappointed by my noble friend’s response; it is a big step to take a big Henry VIII power when dealing with anything other than EU law. Normally, of course, the Committee would be criticising such a power, but I was particularly disappointed not to get a sense of the real urgency from my noble friend. Having a secondary consultation in due course is the kind of timetable beloved by Governments who do not really want to do anything. I hope that my noble friend will go back to her department, the Treasury, and say that this issue must be progressed. With that, I beg leave to withdraw the amendment.

Amendment 43 withdrawn.