Financial Conduct Authority Redress Scheme

Debate between Daniel Kawczynski and Marcus Jones

Thursday 4th December 2014 Commons Chamber

[Mr Marcus Jones (Nuneaton) (Con)]

I thank my hon. Friend the Member for Aberconwy (Guto Bebb) for the work and effort he has put into this issue not just on behalf of his constituents but on behalf of people who have been wronged by the banks up and down the country. He has done a fabulous job and we should all congratulate him on that.

I recall the initial debate in this Chamber on this important subject. I spoke about a business in my constituency that had been badly disadvantaged as a result of an interest-rate hedging product. The product in question was not just mis-sold by their bank; it was almost forced on my constituents by their bank. I was therefore extremely pleased when following that initial debate the FCA announced the redress scheme. The aims of the redress scheme suggested it would tick the boxes for my constituents—do the job and put my constituents back in the position they were in before the swap product was mis-sold to them.

It is important that we look at what the FCA scheme says in this regard. It states that the scheme provides for “fair and reasonable” redress, which

“means putting the customer back into the position they would have been in had the regulatory failings not occurred, including any consequential loss.”

So the FCA had in fact set a very high test, which in principle was the right and proper thing to do. It was a test that, if properly applied, would surely lead to a fair outcome for my constituents and many people similarly affected. In practice the FCA scheme has worked up to a point, but it has not gone anywhere near satisfying its original aims.

I shall deal with the issue of simple damages, which, on the whole, I believe has worked well. Most of the banks have agreed to pay simple damages and deal with the issue of consequential loss separately. There are two exceptions, however. One of those two banks is my constituent’s bank, Barclays, which has refused to do that. It has refused to deal with consequential loss separately. I will go into more detail in a moment about why that decision to link simple damages and consequential loss is so unfair, but first I would just like to touch on the mechanism that has been put in place for businesses to challenge the decisions of their banks regarding consequential loss. Again, I quote the relevant passage from the FCA scheme:

“All customers who receive a basic redress offer have the opportunity to make a claim for consequential loss…To facilitate this, banks are offering support for customers, for example, by providing guidance to help customers put their claims together.

Banks are also being pragmatic and customer-centric when customers ask for more time to put together their claims and will consider reasonable requests for extensions on a case by case basis…All claims are being assessed by independent reviewers. If claims are rejected, banks are providing constructive feedback so that…customers may be able to provide additional information to support their claims.”

My constituents, taking the FCA at its word, contacted their bank, Barclays, for information to help them ascertain their consequential loss. This information took the form of requesting a schedule to show what additional loan repayments and charges they had paid by taking the swap rather than staying on their original product. Initially there were positive noises from the bank, but the information never materialised, despite repeated requests for it. My constituents then decided that the best way to deal with this would be to have their case independently reviewed, as per the scheme. They were not told by Barclays that their case had already been reviewed, and to their dismay their review had been closed by Barclays. In essence, they were told by Barclays, “Take the simple redress, take the 8% or go to law.” I am not sure whether the review was independent—several right hon. and hon. Members have mentioned that issue. There was no report, no detail of who the review was carried out by and no detail of why my constituents were incorrect in their assertions. There was no transparency in this process whatsoever. I questioned this with the FCA, which did no more than back up the actions of Barclays—the whole arrangement between Barclays and the FCA seemed very cosy. At best I would say the FCA scheme was inadequate, but at worst I would say it was completely toothless.

This situation has, unfortunately, left my constituents having to pay the up-front cost to employ an expert to calculate consequential loss. They have also had no choice but to incur the up-front costs involved in considering whether litigation was economical or not. Now, 12 months from the initial offer made by Barclays, they are left with a choice: take on a David and Goliath fight with Barclays, without even the simple damages to help them facilitate it, or capitulate, taking the simple damages and the 8% for consequential loss and suffering the ongoing losses because they have not been put back into the position they were in originally. To a small business, such as the one I am talking about, that is Hobson’s choice: they have no choice whatsoever. Given what I have heard from right hon. and hon. colleagues, I am sure that this case is not unique; this is happening up and down the country, not just with Barclays, but with other banks.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

I have two companies in my constituency that I am particularly concerned about, Regal Fayre and Bennett Holdings. I very much hope that my hon. Friend will agree that Members of Parliament have come to take part in this debate, so the Minister and her team should take a specific interest in each of the cases.

[Mr Jones]

I thank my hon. Friend for his invention, and I will address that issue in a moment. I know that my hon. Friend the Economic Secretary takes a considerable interest in this and I am sure she will take that interest further as a result of what she has heard today. People such as his constituents and mine need action. One way in which they could get the redress would be if these people were properly protected under the umbrella of the ombudsman. My constituents qualify for the criteria of the ombudsman scheme, but the maximum award of damages the ombudsman can offer is completely inadequate. I have spoken to the Minister on a number of occasions and at some length about that. Many people are going to the ombudsman and finding that it is recommending damages above and beyond what it can impose. I am aware that some banks are willing to honour that, but I am also aware that in many situations banks are not willing to honour what the ombudsman is saying. That brings us back to the point about inconsistency raised right at the start of this debate by my hon. Friend the Member for Aberconwy.

At the moment, I would probably give the FCA five out of 10—some people may think I am being generous—in achieving its aims under the scheme. If the FCA and the Government want to get 10 out of 10 in the eyes of my constituents, the FCA needs to have more teeth—if it does not have the power to deal with these issues. They need to make sure that a number of things happen. First, they need to make sure that all banks decouple the payment of simple damages from the matter of consequential loss. They also need to compel banks properly to assist their customers to assess their loss.