Financial Services and Markets Bill (Ninth sitting)

Debate between Emma Hardy and Angela Eagle

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

I beg to move, That the clause be read a Second time.

I wish to say from the beginning that I will push the new clause to a vote. I move the new clause in the name of my hon. Friend the Member for Walthamstow (Stella Creasy). As we heard in evidence, buy now, pay later companies offer consumers the opportunity to spread payments, but they remain unregulated. They represent a large, growing and unregulated form of debt, the growth of which was fast-tracked during the pandemic. Because the loans are initially interest free, consumers lack the key consumer credit protections they receive with other products, which potentially puts them at risk.

We know that buy now, pay later products drive people to spend more money because the providers tell us so. That risks pushing people to spend money that they do not have, without adequate protection against mis-selling. In the cost of living crisis, millions more consumers have turned to this form of credit to make ends meet. As with all forms of high-cost credit, regulation is critical to ensuring that buy now, pay later can be a constructive way for consumers to manage their financial situations.

Labour put forward a proposal to that effect in 2020, which the Government voted down. In 2021, the Financial Conduct Authority called for regulation, and the Government did a U-turn. Now, over two years later, consumers are still waiting for those vital protections, but there is little sign that the Government recognise the urgency to act. In the meantime, the industry has rapidly expanded, so the risks to consumers have grown, which has further increased the need to intervene.

In 2021, Citizens Advice reported that 41% of buy now, pay later users had struggled to make a repayment. One in 10 have been chased by debt collectors, rising to one in eight among young people. Some 25% have fallen behind on another household bill in order to pay a buy now, pay later bill. Those effects of this form of credit were echoed in research by StepChange. Its data shows that 40% of buy now, pay later customers took negative coping actions to cover the debt that they had accrued through this service, including using credit to repay credit, falling behind on housing payments or utility bills, asking family or friends for help, and cutting back to the point of hardship. The figure is 40% for buy now, pay later and 21% for users of other forms of credit.

With Christmas approaching, it is likely that more consumers will be driven to use buy now, pay later and risk unaffordable debt. Equifax data from Christmas 2021 showed that 9% of Christmas shoppers in 2020 used buy now, pay later to spread the cost of presents, and that a quarter of all 18 to 34-year-olds plan to use buy now, pay later to buy presents this Christmas. Last year, one in five people using buy now, pay later said that they felt pressure to buy presents for family and friends, and roughly a quarter—27%—said that they would struggle to afford Christmas without its help. These trends are only likely to increase. The Equifax data shows that two in five users report missing at least one payment in the past, and half of them say that they have been hit with extra fees as a result.

New clause 1 therefore requires that urgent action be taken now to ensure that consumers are protected against being sold unaffordable debt by these companies. It would ensure that some key protections form part of the regulation. That includes ensuring that buy now, pay later users have access to the Financial Ombudsman Service, that there are credit checks before use, and that users are protected by section 75 of the Consumer Credit Act 1974. Those changes would bring buy now, pay later products into line with other forms of credit and ensure that our consumer credit landscape could not be pulled apart by other forms of credit demanding bespoke arrangements.

[Dame Angela Eagle (Wallasey) (Lab)]

I add my voice to those supporting new clause 1. I commend my hon. Friend the Member for Kingston upon Hull West and Hessle for her speech on this very important issue and my hon. Friend the Member for Walthamstow, who has long campaigned to bring buy now, pay later credit companies into some form of regulation. Obviously, their emergence has been assisted by the shift to online shopping, which we all have experienced and which was turbocharged during the lockdowns.

The consumer credit legislation that protects customers from taking on unaffordable levels of debt and paying over the odds for credit, in a way that is often quite opaque, did not anticipate the existence of online shopping or the explosion in the kind of credit that is now easily available to those who roam the internet or look at TikTok and see lovely things that are just within reach. I speak as someone who has been around for quite a while and whose parents used to put money away in shops so that they could afford Christmas presents, before consumer credit exploded in the way that it did. The Consumer Credit Act tried to make that fair and to regulate it. This is another switch in velocity, capacity and the availability of things, and it is very difficult to discern what the price is when you take something out.

We are now in an instant gratification culture, rather than the place where we said, “Put money away months before and hope you can afford to get the Christmas presents you want for your kids.” It is now a case of instantaneous availability—literally a click on a website. Klarna and various other of the buy now, pay later organisations are everywhere that it is possible to spend money. It is very difficult to imagine how that might be adding up—what the price of it actually is—when a person is in the middle of a purchase, particularly a younger person who is used to that kind of instant availability. It is very difficult for anyone to argue sensibly that the people who are clicking and making those purchases have a good idea of the price of the credit and the burden of the repayments they are taking on.

New clause 1 seeks to bring the new fintech ways of getting access to consumer credit—if I can put it that way—within the existing consumer protections in the Consumer Credit Act 1974, which admittedly is now pretty long in the tooth. Clearly, it is important for those to whom we give the job of protecting consumers to think in detail about how that can best be done, but it is pretty difficult to argue that we should allow the current circumstances to persist. I am interested to hear what the Minister has to say about that.

It is important that people have time to think about what they are doing and that the pricing of credit is obvious at the time of the click, so that people can make genuine decisions and not feel that they have been conned, that the price is wrong or that they have got themselves into a vortex of increasing costs that were not in front of them at the time. The consequences of allowing an entire generation to have access to that kind of consumer credit without protections are too dire to contemplate.

I hope the fact that this Parliament has always put consumer protection at the heart of what it does and legislated for that purpose will prevail, and that the Minister will think about how we can sensibly and quickly bring this part of the growth industry of credit, including consumer credit, into the protected space.

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[Emma Hardy]

Outlaw that!

[Dame Angela Eagle]

We will have to come in a Digital, Culture, Media and Sport Bill to outlawing the appalling music that one has to listen to when trying to access any kind of service, private or public, by phone. We have to remember that many people cannot hang on the phone forever. They cannot afford to, and they are the people who tend to need the most help. They may have pay-as-you-go phones that run out quite rapidly. They may be unable to afford to hang on at the whim of an artificial intelligence bot, or the fewer and fewer actual human beings at the other end. They cannot access even ordinary banking in the way that the majority of people do. As I have said, that can be for a number of reasons. All Members present may get to a stage in our lives when we cannot either, and when we cannot remember our PIN numbers.

[Dame Angela Eagle]

We already have trouble with our PIN numbers, but many people’s memories fail as they get older, or they may be in the early stages of Alzheimer’s or other dementias. They cannot remember things, they cannot deal with the security issues that are required to make banking in this way safe, and they cannot go and ask somebody to help them.

[Emma Hardy]

On that point, will my hon. Friend flag to the Minister that, if a bank machine does not have buttons and is just a touch screen, it is very difficult for blind and partially sighted people to know where the numbers are, so as to put their PIN in correctly? That is another reason why face-to-face banking is so important.

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[Dame Angela Eagle]

It is a pleasure to talk about this extremely important issue. The Treasury Committee produced a long and detailed report on this issue, with a series of recommendations. I hope that the Government will work cross-departmentally to put those into effect. Data sharing certainly featured in our views in that inquiry.

It is hard to contemplate the size of the explosion in fraud, how little of it is captured, and how few of the perpetrators are brought to justice. That is partly because of the massive number of chances for fraudulent activity to be perpetrated, which have come with changes in access to banking and digital capacity. They range from push frauds, fraudulent emptying of bank accounts and credit card cloning, all the way through to the text messages that we all get regularly on our phones.

The text messages tell us, for example, that we have recently been near someone who has covid—the message is purportedly from the NHS—and we need to give them our banking details so we can pay £1.75 for access to a PCR test. We have all seen them. I am getting a load now on energy support—probably everyone is getting them—which say that the Government’s support for energy bills has to be applied for and that we have to give these people our banking details. These are very plausible texts, which many people fall for. There are phone calls as well, purportedly from the bank, and emails too. This is a sophisticated level of fraud that is psychologically very well organised.

[Emma Hardy]

One message worth highlighting that I received was, “Hi mum, I’ve lost my phone. Please send some money to this number.” I rang both my daughters to ask, “Is this from one of you?”. They both said it was not. This “Hi mum” one that is going round at the moment has caught many people out. These messages play on emotions and can make people deeply concerned when they receive them.

[Dame Angela Eagle]

It makes people deeply concerned and it makes them do things that they obviously live to regret in the fullness of time.

Increasingly, there are also phone calls from fraudsters pretending that they are the fraud police and that the person’s bank account has been accessed for fraudulent purposes. It is very difficult to keep up with the level of activity on our phones—we are being bombarded every day—and that is without considering the scamming that the FCA is fighting, day in, day out, on products offered online, such as pensions, insurance and investment products, all of which regularly lie beyond the regulatory border, but can lead to massive amounts of financial loss if they are believed. It is also without considering the areas where younger people tend to get their financial advice, such as TikTok and other places, where we probably—it has to be said, Mr Sharma—do not spend that much of our time.

The windows for getting to people with these kinds of fraudulent intents and sophisticated frauds widen constantly. The capacity to deal with them does not widen as regularly and, by definition, legislation is much slower than the innovation of these people.

We have asked the authorities that are tasked with fighting fraud what they are doing about it. The Treasury Committee has taken evidence on the topic, and we were struck by how fragmented those fighting fraud are across Departments and by how process-related, rather than output-related, the evidence from the authorities was. They said things like, “We have 150 different things that we are meant to do by 2023, and we have done 91% of them,” but fraud is still massively increasing all the time.

We need a system—a national fraud strategy—that looks at the output of fraud, rather than the processes or tick boxes by which the different anti-fraud authorities, which are fragmented all the way through, justify what they are doing. In reality, even if there is lots of work going on, the outcome is not nearly what we would want to see. Levels of fraud are rising significantly, affecting more and more people, and there are fewer and fewer successes in dealing with it.

It ranges from very sophisticated money laundering kinds of fraud—we are not talking about money laundering here, but we could talk about it for a very long time, and about the way banking structures seem to facilitate it—to lower levels of fraud. There is fraud that is perpetrated from outside our country’s boundaries and there is sophisticated money laundering activity. We are talking about frauds that are ruining the lives of the many constituents who fall victim to them. Many people do not get compensation when they have been conned into sharing their bank details and have had their bank accounts emptied or their credit cards cloned, because they have had a hand in it in some way. I know that the authorities work closely with the banks to create circumstances in which compensation can be given when there is no fault, but there are big blurred lines.

Financial Services and Markets Bill (Fifth sitting)

Debate between Emma Hardy and Angela Eagle

Committee stage
Thursday 27th October 2022 Public Bill Committees

[Dame Angela Eagle (Wallasey) (Lab)]

Will the Minister give us a little more flavour on how he sees the evolution of this area? Does the clause give him enough powers to go with that evolution, or will we need to legislate again as the landscape changes? It is clear that we have to avoid the potential harm of allowing consumers to think that all digital coins are somehow the same. We know what Bitcoin is, and do not need to spend much time talking about it. We would not want to give people the impression that it is safe to indulge in investing in it.

At the same time, both sides of the Committee realise that digital payment systems and coins are a huge and rapidly developing area that national Governments must get a grip on. That is why we all welcome the fact that the Bank of England is looking at launching its own non-fungible token, or whatever we want to call it. We have to keep a very close eye and watch this space to see how it evolves. Will the Minister give us an impression of whether the clause is evolutionary enough for his purposes in that rapidly changing environment? Might he want to change it through some later piece of legislation?

Finally, we all know how much energy is used in the creation of Bitcoin. I confess myself ignorant about whether the creation of other non-fungible tokens is as energy intensive as the creation of Bitcoin. Perhaps the Minister can enlighten us. There is a green side to the issue as well.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

My point is further to those made by my hon. Friends the Members for Hampstead and Kilburn, and for Wallasey. My hon. Friend the Member for Wallasey asked whether the definition was evolutionary enough, and I want to pin down the Minister’s response. Does he believe that the definition of “digital settlement assets” is broad enough to allow for regulation to cover the wide range of cryptocurrency, other cryptoassets and exchanges?

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[Dame Angela Eagle]

I want to focus on parliamentary scrutiny of these changes. They are quite technical, but they could be very important, including for consumers. If we do not get them right, they could have unintended consequences for financial stability and so on, because of the range of agreements under discussion. One assumes that those negotiating the agreements have a reasonable model of what they want to achieve, but that will also be the case for those with whom we are negotiating. The context is about gaining an advantage in the international competition for financial services. Indeed, both Front Benchers have hinted at that. If we are looking for a competitive advantage and growth, that kind of struggle for an advantage has obvious implications.

Until we left the EU, much of the negotiation on the financial directives that were promulgated went on within the European Commission. The UK had a great deal of influence over how those directives were negotiated, but it did not always win out; for example, the markets in financial instruments directive was a cause of some consternation for our financial services, because it did not fit with our kind of plan. We were always the country with the largest financial services sector, and were mostly likely to be impacted by agreements and compromises that did not clearly represent our best interests. We can now hope to move back towards that position, if we can come to an agreement. However, as my hon. Friend the Member for Hampstead and Kilburn said, we are constrained by the fact that a great deal of our financial services activity happened within the EU. I suspect that the divergence is likely to become greater over time. What does the Minister think would constitute a timely attempt by Government to ensure proper parliamentary scrutiny of these things? Aside, that is, from Parliament potentially debating 50 pages of extremely technical statutory instruments.

We know that the Treasury Committee will have a say, but some of the changes negotiated in these agreements with other countries may have important impacts on consumer rights, and larger number of Members of Parliament might want a say on them. Perhaps the Minister could say how he envisages the process going forward. I presume we will have some agreements—there has been a slow start. How can Parliament keep an appropriate eye on the philosophy behind the agreements, and the way in which they are going, as we diverge more from our closest partner?

[Emma Hardy]

I want to probe the Minister a little further. Obviously, it is a huge disappointment that we do not yet have a memorandum of understanding with the EU. Will the Minister indicate when we will have one?

Financial Services and Markets Bill (Sixth sitting)

Debate between Emma Hardy and Angela Eagle

Committee stage
Thursday 27th October 2022 Public Bill Committees

[Dame Angela Eagle (Wallasey) (Lab)]

It is a pleasure to follow my hon. Friend the Member for Kingston upon Hull West and Hessle, whose comments I wholeheartedly support. I suspect there will be widespread support among Committee members for the objectives of her amendment. Perhaps the Minister will argue that a “have regard” to financial inclusion is the wrong way to go about it, but I would argue that not having these things in mind when an industry is being regulated can make a situation worse.

We know the level of financial exclusion because my hon. Friend mentioned the figures. I do not intend to go over all that, but essentially what we have—this has developed because of the way the market works—is a retail financial services sector that is very focused on a set of quite complex products. It is also very focused on its distribution networks and not so much on the customer. Retail financial products have often focused on the relationship between those who introduce products and those who sell them on to the ultimate customer, often with quite rewarding levels of sales commission. The bad end of that kind of financial services model is that we get a structure that is not focused enough on consumers, and a range of ever-increasing complexity that costs more and excludes more people who might be on basic incomes.

Over time, the dynamic of that structure means that the financial services sector gets more and more complex, more and more focused on the distribution networks, and less and less focused on the end customer. One understands that when the industry starts complaining about the lack of financial education. There is some truth in that, but there is also truth in the fact that the opacity of the price mechanisms and the complexity of the products that the industry comes up with make it confusing, and of course that increases the cost base, which excludes more low-paid people.

A previous Administration that I might have been a member of tried to address the issue with stakeholder products that were meant to be much simpler with very up-front but capped pricing that everybody would understand. Those were throttled out of existence because the industry did not really want them to succeed, and what has happened since—not by anyone’s design but by the dynamics of the way the market works—means that there is less and less available for those who have small amounts of income because the products are simply not profitable in the current structure of our retail financial services.

This is a systemic issue that needs to be solved, because we need a financial services retail sector that serves everybody. We do not have one, and we are getting to a stage where market dynamics make it less and less likely that we will have one; they are actually excluding more people. I think that a “have regard” that prompts thought about structures and, perhaps, about the regulation of some simpler products that could be made available is a really important part of addressing that market failure.

Like my hon. Friend the Member for Kingston upon Hull West and Hessle, I am worried that the Minister will say that we have consumer protections in place. This is not about those who are currently consuming the products; it is about those who cannot even afford to have basic bank accounts, those who have to go to money lenders because they are in such precarious circumstances, and those who pay the poverty premium because accessing financial services costs so much more as a percentage of their overall income than it costs someone on a higher income. I can tell the Minister—I am sure he has come across this in his own constituency—that many people who exist on very tight incomes, and who really have to budget, shy away from having basic accounts because they cannot afford to go into deficit and be charged a fee. That would destroy all their very careful balancing.

This issue is particularly important for people who are on benefits and have them paid into a bank account at a set time, but who have bill payments coming out at a different time. I would really appreciate it if the Minister would think profoundly about how the problem can be solved, so that our financial services sector can get to a stage where it can make profit—a modest profit perhaps, but some profit—out of dealing with people on much more modest incomes. After all, there are millions of them, and the dynamic of the market structures we have at the moment is moving provision away from people on lower incomes.

[Emma Hardy]

On my hon. Friend’s point about consumer duty, the evidence suggests that one of the unintended consequences is that it can make some currently marginally profitable products unprofitable, thereby excluding more people from them, so one of the things that the consumer duty is trying to address is actually making it more difficult for some people in society to have anything.

[Dame Angela Eagle]

I agree with my hon. Friend.

I will wrap up. Given that this is a systemic issue, a “have regard” is the best way of dealing with it. I hope that the Minister will think carefully about that and about how it might help us arrest the dynamic that is taking financial services away from people on modest incomes, and making it less and less profitable for the industry to serve them, leaving them much diminished in their attempts to engage appropriately in our society in ways that many people take for granted, such as by having a credit card and bank account, or being able to conduct electronic cash transfers and so forth.