Financial Guidance and Claims Bill [Lords]

Debbie Abrahams Excerpts

2nd reading: House of Commons
Monday 22nd January 2018 Commons Chamber

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

How lovely it is to see you in your place, Mr Deputy Speaker; I extend my good wishes to you.

It was remiss of me not to welcome the Secretary of State to her place during the earlier urgent question. I congratulate her and look forward to working with her, possibly not always in the same tone as today. I think this will be a constructive debate, but there is a lot for us to discuss in the Work and Pensions portfolio.

I thank the Secretary of State for outlining the content of the Bill. I take this opportunity to thank Members of the other place who have spent many months scrutinising it. Although concessions have been made, we believe that several more are still needed. However, we recognise the importance of the Bill’s stated aims: principally, to increase the levels of financial capacity, reduce the levels of problem debt and to improve public understanding of occupational and personal pensions. As such, we will not oppose it.

As has been explained—I will rush through this bit—the Bill is in two parts. The first establishes a new arm’s length entity to provide money and pensions guidance and debt advice. This body will replace three existing publicly funded consumer bodies: the Money Advice Service, the Pensions Advisory Service and the Department for Work and Pensions’ Pension Wise service. The new single financial guidance body will also have responsibility for the strategic function of supporting and co-ordinating the development of a national strategy. To ensure that the Bill’s stated aims are met, we want the new body to be a highly visible and properly resourced organisation able to identify and support the many people who need help.

The second part of the Bill introduces a tougher and welcome regulation regime to tackle conduct issues in the claims management market. We can also support that provision.

[Gareth Thomas]

Is not one problem that risks inhibiting the success of the new single financial guidance body the fact that we do not know where the highest levels of problem debt are in this country? Might it not be sensible to take the opportunity in Committee or on Report to consider the example of an American piece of legislation, the Community Reinvestment Act, which requires all lenders to publish anonymised details of the debts taken out with them so that community organisations and debt advice bodies can know where to target their expertise and help?

[Debbie Abrahams]

My hon. Friend makes a valuable point. I am not familiar with that particular piece of American legislation, but I will look at it and see what we can do in terms of tabling amendments in Committee.

As we have heard, the FCA will regulate claims management company activity as a regulated activity, taking over responsibility from the Ministry of Justice. The Bill is a high-level framework Bill that, thanks to our colleagues in the other place, is now in much better shape. We particularly welcome the Government’s assurances that the SFGB will work closely with the FCA and the Treasury on issues of financial inclusion. Given, however, that the Work and Pensions Committee, of which I was a member at the time, raised concerns nearly three years ago about the inadequacy of Government measures to protect pension savers, and given also the difficulties that have arisen since, I am bound to ask why it has taken so long to recognise these failings.

I am also concerned that there are no specifics on delivery channels, especially given the very large number of people currently failing to access services. It is vital that the SFGB has the autonomy and resources to make itself truly visible to the public. Given the failings in other parts of the Secretary of State’s Department, and given the complex needs and limited resources of the people who will most need its services, “digital by default” is not a mantra we want to hear from the SFGB or its sponsoring Department.

[Stephen Kinnock (Aberavon) (Lab)]

The transfer of the British Steel pension scheme into a new scheme was announced in early 2017 and was very public. When it all blew up and became fertile territory for unscrupulous pensions advisers, the FCA seemed surprised it was happening. Why did it not see that coming? What steps should the Bill take to improve the early-warning system so that regulators can see these things coming down the track and be far more proactive in getting out there? After all, prevention is better than cure.

[Debbie Abrahams]

My hon. Friend makes a very valuable point that I will come to later. This is what we are seeing: we saw it with the BSPS and are now seeing it with Carillion and the pension savers there.

Last year’s statistics from the FCA make shocking reading. Of those over 55 planning to retire in the next two years, only 10% had used the Pensions Advisory Service, and only 7% had used Pension Wise. The new SFGB will have to do much better than that. Eight million people in the UK are over-indebted, according to a Money Advice Service report from last March, and less than one in five of these individuals currently seeks advice. Many are among the most vulnerable: over half the clients seen by MAS-funded debt advice projects have had a diagnosed mental health condition. It is vital that those people continue to be supported during the transition period, and that the SFGB develops strategies to identify and reach people who do not currently use any services. The impact assessment talks about “long-term…savings” once the SFGB has been established. It is difficult to see how such savings will be made if the new body is to fulfil all its objectives, particularly its objective of ensuring that information, guidance and advice are available to those who most need them. Have the Government considered what resources the SFGB will need to identify and support those who do not currently access advice or guidance? Has the Minister considered what arrangements will be put in place to ensure that people can continue to access existing services during the transition period?

The five areas on which the SFGB is expected to concentrate include provision of debt advice, and provision of information and guidance relating to occupational and personal pensions, accessing defined contribution pots and retirement planning. We welcome the Government’s decision, at the urging of our colleagues in the other place, to make it explicit in the Bill that the information, guidance and advice will be impartial, and that it will continue to be provided free to members of the public.

The SFGB will also help consumers to avoid financial fraud and scams; give information on wider money matters, and co-ordinate and influence efforts to improve financial capability; and co-ordinate non-governmental financial education programmes for children and young people. It also has a strategic function: to support and co-ordinate a national strategy. Given the appointment of a Minister with responsibility for financial inclusion, that needs to be strengthened to a “develop and deliver” function.

We welcome the focus on the provision of financial education for children and young people, but we think that the Government should be bolder, as recommended by the House of Lords Financial Exclusion Committee report “Tackling financial inclusion”. The new body will have to cope against a backdrop of rising prices and stagnant wage growth, a fall in real incomes and saving levels that have crashed. Evidence provided to the Lords Select Committee referred to fears expressed by debt agencies about the rise in queries concerning rent arrears, energy and water bills, telephone bills and council tax.

Then there is the impact of universal credit. As I have mentioned on numerous occasions inside and outside the House, we support UC’s aims of simplifying the benefit system, making transitions into work easier and, fundamentally, reducing child poverty. However, the Citizens Advice report “Universal Credit and Debt” showed that some aspects of UC risk causing or exacerbating personal debt problems. UC clients are more likely to have debt problems than those on legacy benefits. A quarter of the people that Citizens Advice helped with UC needed help with debt. UC clients are also struggling to pay off their debts. More than two in five debt clients on UC have no spare income to pay creditors.

Citizens Advice makes a number of recommendations, which are particularly pertinent in the context of the Bill. They include the need for more funding for free, impartial debt advice to meet existing increases in demand resulting from UC. In addition, Citizens Advice wants the Financial Conduct Authority actively to monitor the roll-out of UC. Has the Minister considered the impact of UC on personal debt, and its implications for the resourcing of the new SFGB? Taking up the Citizens Advice recommendations would alleviate some of the problems caused by UC. Fundamentally, as I have said, the Government must stop the roll-out of the programme and reverse the cuts to UC, which mean that it is failing to make work pay and failing the very people it is meant to help.

The SFGB will have to cope with an increasingly complex pensions sector. The growth of auto-enrolment brings more and more people within the scope of occupational pensions. The other major change has been the introduction of pension freedoms. In that context, we welcome the Government’s commitment in the other place to the delivery of the pensions dashboards. However, given the increasing issues that pension scheme members face—including those of British Steel, and now Carillion —in addition to a much tougher pension regulation framework, I want the Government to tackle the appalling abuse perpetrated by opportunistic financial scammers, who have targeted BSPS and Carillion pension members. I will say more on that later.

[Mr Leslie]

Does my hon. Friend agree that it would be useful to have a connection between the new financial guidance body and the Financial Conduct Authority? I slightly regret the fact that we are moving away from Treasury involvement in this whole issue. My hon. Friend may know that some of the products that people are investing in with asset managers and insurers, having got their pensions freedoms, are known as PRIIPs—packaged retail and insurance-based investment products. New regulations came out this month, but there is a risk of these products opening a whole new mis-selling scandal, because they are creating all sorts of wild projections about the amounts that could be earned. Does my hon. Friend agree that the guidance body needs to keep on top of this with the FCA?

[Debbie Abrahams]

My hon. Friend has made an absolutely key point. To go back to my urgent question, things are slipping through the net, and those links need to be tightened up. Again, this is something we need to explore in Committee.

As it stands, the SFGB will provide advice to the self-employed on their personal finances and debts only, and not on their business finances or debts. The Money Advice Trust, which helped more than 38,000 people last year, says that, for many self-employed people, there is simply no distinction between their personal and business finances. To exclude business finances and debts from the SFGB’s remit is a missed opportunity, particularly given the significant growth we have seen in self-employment in recent years. The self-employed as a group have also seen falling incomes since the recession. Will the Minister consider extending the SFGB’s remit to cover business finances and debts?

On the changes regarding claims management companies, we agree that the current arrangements regulating the industry are unsatisfactory. The current situation has been characterised by poor value for money, information imbalances, nuisance calls and texts, and the progression of speculative and fraudulent claims. We accept the proposition that there is a public interest in having an effective claims management market operating in the interest of consumers, as that can provide access to justice for those who are unwilling or unable to bring a claim for compensation.

Further, as the Carol Brady review asserts, a well-functioning CMC market can act as a check and balance on the conduct and the complaints-handling processes of individual businesses. We note that the Brady review considered that a move to the FCA would represent a step change. That seems the right decision, especially as 99% of turnover relates to financial services—PPI, packaged bank accounts or insurance.

Let me turn now to the content of the Bill. While we generally support the Bill, there are several aspects that we will look to strengthen, particularly in relation to clauses 4, 5, 25 and 28.

[Gareth Thomas]

I thank my hon. Friend for giving way again. I am fortunate enough to chair the Co-operative party, and one thing we are keen to encourage is the take-up of the services offered by financial co-operatives, such as credit unions. Would she be sympathetic to an amendment on Report from Co-op MPs urging the single financial guidance body actively to promote credit union services across the country?

[Debbie Abrahams]

Again, my hon. Friend makes a very interesting point, and I would look to work with him on the details of that to understand exactly what he wants to achieve.

I also want to talk about the need for a duty of care on financial service providers and a breathing space for those trying to manage their debt problems.

On clause 4, we welcome the Government’s commitment to ban cold calling, which is the leading driver of pension scams. The scope of the clause is still too narrow, and the clause is not nearly urgent enough. Every day that passes without a ban, people are being avoidably conned out of their life savings.

However, there are also scams that work against businesses. In the last four years, the Association of British Travel Agents has recorded a 520% increase in gastric illness complaints. As a result, hoteliers in the markets affected are now threatening significant price increases, and some are even considering withdrawing the all-inclusive product from UK holidaymakers entirely. ABTA has recently released shocking statistics showing that one in five people have been contacted about making a compensation claim for holiday sickness, with cold calling being the most common method of approach.

On clause 5(2), within 24 hours of the collapse of Carillion last week, adverts started to appear online encouraging people to cash in their pension pots. That reflects the experience of BSPS members. The Minister will have noted the evidence to the Work and Pensions Committee, before which the extent of pensions scamming was revealed. That involved some advisers travelling hundreds of miles in the hope of capturing high fees for each pension pot they succeeded in transferring. The Select Committee described retirement savings sharks reportedly circling around the British Steel pension scheme members, providing a “honeypot for scammers”. One steelworker is reported to have missed out on £200,000 of his pension transfer value after being advised, and as I have said, we are already seeing a similar targeting of Carillion pension members.

The law does not currently prohibit firms from acting as introducers, provided that they do not stray into providing services for which they require FCA authorisation. That applies to any non-regulated firm. Last year, the FCA received 8,612 reports of potential unauthorised activity in the United Kingdom. If the firms and/or individuals reported are within the remit of the FCA, it can investigate and take action, which ranges from publishing unauthorised firms’ and individuals’ warnings and taking down websites, to taking civil court action to stop activity and freeze assets, insolvency proceedings, and, in the most serious cases, criminal prosecution. Last year, the number of enforcement cases taken was 69. Given the current climate, it is clear that enforcement action needs to increase, but most of the funds that the FCA collects from penalties on financial services firms go directly to the Treasury. What consideration has the Minister given to removing the exemption of introducers from the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and allowing the FCA to keep the financial penalties that it receives so that it can expand its enforcement work?

Free and impartial Pension Wise guidance is essential at times like this, and it is greatly valued by those who use it, but take-up is nowhere near high enough. Far too many people are currently making vital decisions in the dark, which puts them at greater risk of suffering irrevocable financial detriment through scams or choices that are contrary to their interests, such as transferring pensions to savings accounts. Those problems will only grow as people become more reliant on income from direct contribution pensions in retirement. The existing Pension Wise promotion regime of signposting by pension providers—who have no business interest in promoting the service—and advertising has proved insufficient.

We welcome the Government’s acceptance that people should be given more encouragement to take guidance, but we believe that there should be a stronger nudge. Although clause 5(2) is welcome, we think that it can be improved through exemptions to avoid unnecessary burdens and stronger core requirements to make taking guidance a true default option. While individuals could choose not to take free and impartial guidance before accessing their pension pots, that would no longer be the consequence of passivity: as with the highly successful automatic enrolment policy, people would have to actively opt out. Default guidance would promote shopping around, better-informed decision making and protection against scams. Combined with a ban on cold calling, it would represent a step forward in consumer protection in an era of pension freedoms. Will the Minister agree to introduce new provisions in Committee to impose an immediate ban on cold calling and to introduce default guidance to assist people accessing or seeking to transfer their pension assets, with strong penalties for advisers who wilfully and detrimentally scam pension members?

Clause 25 gives the FCA the power to impose a cap on the fees that claims management companies can charge for their services, and a duty to exercise that power in respect of financial services firms. The Government have also introduced an interim cap on the fees that CMCs can charge consumers in relation to payment protection insurance claims. However, that does not go far enough to protect consumers from paying disproportionately high fees for what is often very little work. The Ministry of Justice estimates that the average amount of commission charged to consumers by CMCs is 28%, plus VAT. The FCA estimates that the average payout for PPI mis-selling is around £1,700, which means that a CMC would, on average, charge a successful claimant £476 plus VAT. Although the proposed fee cap would reduce the amount that consumers must pay CMCs, it would still mean an average charge of £340 with VAT on top. If the Government want to take meaningful action to protect consumers from high fees, they should propose a solution that would allow them to keep 100% of PPI compensation.

The Government should require firms to pay CMC costs for PPI claims, capped at 20% plus VAT, when they are at fault and when the consumer has used a CMC rather than claimed directly. This measure would apply only for the interim period until the new FCA regulations came into force or until August 2019, the deadline for making PPI claims, whichever was the sooner. This would incentivise firms still paying compensation to proactively reach out and encourage consumers to make claims directly to them, and to allow that to be done easily. It would also protect consumers from paying high charges to CMCs.

We support the strengthening of the regulation of CMCs, but we look forward to a regulatory regime that better protects consumers from high charges, poor value for money and unacceptable behaviour on the part of far too many CMCs. We also welcome the improvements made during consideration of part 2 in the other place, notably clause 28, which introduces an interim cap on the fees that CMCs and law firms can charge for claims in respect of PPI. This is an important protection for consumers in the run-up to the FCA’s claims deadline of August 2019. Customers can claim directly from their PPI provider for free, but those who choose to enlist support should not have to face the fees currently being charged by some CMCs.

However, the clauses introduced by the Government at the urging of Baroness Meacher apply only to PPI claims, even though the Ministry of Justice’s original consultation considered other bulk claims by CMCs, notably in respect of packaged bank accounts. In the vast majority of cases, the pursuit of such claims does not require a significant amount of work, but in its response to the consultation, the MOJ merely asserted that

“analysis of the evidence received”

suggested that

“PBA claims should be grouped with other financial-services claims due to additional work needed on these types of claims.”

It is far from clear that CMCs undertake significant work or add significant value in submitting PBA claims on behalf of consumers. If the CMCs’ approach to PBA claims truly differs little, if at all, from their approach to PPI claims, the Bill should cap their charges in exactly the same way. If the Government cannot provide justification or act to protect customers from millions of pounds of excess charges for PBA claims before the FCA introduces its own rules a year or more from now, we will table amendments in Committee to achieve that. We ask the Government for a better justification of their decision not to apply the interim fee cap to PBA claims.

I shall move on to the breathing space scheme. An estimated 2.4 million children live in families in problem debt in England and Wales, and the FCA estimates that half the UK population is financially vulnerable. It is shocking that an estimated 600,000 families in England and Wales are spending more on overdue bills than they spend on food. A measure that would protect such families is a breathing space scheme. Such a proposal would introduce a legal freeze on interest and charges, collections and enforcement action to give people time and space to stabilise their finances and put in place an affordable and repayment-sustainable plan. Such a scheme, which has been championed by the Children’s Society, StepChange Debt Charity and many others, was included in our manifesto and that of the Conservatives, and I am delighted to see that, following pressure in the other place, a commitment is now on the face of the Bill. Yet again, however, the timescales for implementation are too slow.

I appreciate that the consultation on the breathing space scheme has now closed, but I want it to have certain fundamental tenets. First, it should include a legal freeze on interest and charges, collections and enforcement action. Secondly, as many debts as possible need to be included, especially debts to public bodies. Thirdly, there should be no gaps in protection between the initial breathing space period and the transition to a statutory debt management plan. Finally, the breathing space scheme needs to be implemented as quickly as possible. Again, I would be grateful for the Minister’s response to those points, either at the end of the debate or in writing to me.

I would now like to focus on an idea that received a great deal of support in the other place and that has been raised by Members here today—namely, a duty of care on financial service providers. That is not currently in the Bill, but we now have an important opportunity to discuss the support that banks provide to their vulnerable customers. Research from Macmillan Cancer Support, which was mentioned earlier, shows that four out of five people with cancer are affected financially by increased costs and loss of income following their diagnosis. As the Bill recognises, ensuring that people have access to the right help and advice is essential to stopping financial problems.

[Justin Tomlinson (North Swindon) (Con)]

On that point, will the hon. Lady join me in congratulating Nationwide Building Society, which has led the way by working with Macmillan to ensure that appropriate support is made available as soon as there is a diagnosis?

[Debbie Abrahams]

I congratulate Nationwide and all organisations that recognise that they have a duty of care to their customers. We need to put that duty of care on the face of the Bill, particularly for those who find themselves in vulnerable circumstances.

As providers of mortgages and other key financial commitments, banks and building societies have a huge influence—good or bad—on the financial wellbeing of many households. When the right support is put in place, that can lead to improved outcomes for customers, as we have just heard. However, that Macmillan research shows that problems still exist and that there is a lack of consistency in the support offered to people when they seek help.

With that in mind, will the Government support a revision of legislation to incorporate the recommendation made by the Lords Financial Exclusion Committee regarding a duty of care? The Committee concluded that the Government should amend the Financial Services and Markets Act 2000 to introduce a requirement for the FCA to make rules setting out a reasonable duty of care for financial services providers. I appreciate that any change as significant as that must be subject to proper consideration, and it is therefore welcome that the FCA has committed to publishing a discussion paper. However, the Government and the FCA have said this must wait until

“after the UK’s withdrawal from the EU”

becomes clear, but I do not think that we can wait, because people cannot wait. I therefore urge the Minister to look carefully at the issue and to bring forward suitable proposals in Committee.

In conclusion, we by and large support the Bill, but a number of areas can be strengthened significantly—for instance, the duty of care needs to be addressed on the face of the Bill—so I urge the Minister to act on those areas, and I look forward to his response.

[Several hon. Members rose—]