Financial Guidance and Claims Bill [Lords]

Gareth Thomas Excerpts

3rd reading: House of Commons & Report: 3rd sitting: House of Commons
Tuesday 24th April 2018 Commons Chamber

[Craig Tracey (North Warwickshire) (Con)]

First, I should like to declare an interest as the current chair of the all-party parliamentary group on insurance and financial services. I welcome the Bill, because it will tackle some of the important issues that my constituents talk about. It includes a commitment to ban cold calling relating to pensions and to the creation of a single financial guidance body—an SFGB. I know that this approach also has the broad support of the insurance and financial services industry, but it is important that the SFGB should work with all stakeholders to fulfil its objective and of course ensure good consumer outcomes. With the Bill, we have an excellent opportunity to improve financial resilience by promoting early intervention to help to prepare people for income shocks and life events. These preparations include planning ahead for care and understanding the benefits of protection products such as income protection insurance, critical illness insurance and life insurance.

There is a lot in the Bill that I could talk about, but given the time constraints, I want specifically to speak against new clause 8, which seeks to put a duty on the Financial Conduct Authority to ban unsolicited direct approaches by claims management services. I agree with the Government that the Information Commissioner’s Office is best placed to implement any ban and that existing legislation means that data gained illegally is already restricted. However, I agree that there is an urgent need for reform relating to claims management companies.

Previously, there have been calls for the FCA to assume responsibility for CMCs, so the fact that the Government have taken action on this is to be warmly welcomed. The Association of British Insurers has stated:

“Confirmation of tougher regulation of claims management companies cannot come soon enough for people who are plagued by unsolicited calls and texts. Disreputable firms are fuelling a compensation culture that contributes to higher insurance costs for many.”

Last year alone, there was a total of 752 authorised personal injury CMCs, more than in any other claims sector, including PPI. Measures in the Bill will go some way towards tackling bad practice in the personal injury claims market, which has been costly for insurance companies, put up premiums for consumers and frequently delivered outcomes in which claimants’ interests were not put first.

Added to some of the measures in the forthcoming Civil Liability Bill, such as tackling the high frequency of whiplash claims, this Bill will help to ensure the success of the Government’s wider efforts to tackle these problem areas. It is therefore encouraging that the insurance industry has expressed confidence in the FCA’s more robust regulatory regime and its ability to properly oversee these firms, citing two significant benefits, both of which will play a vital role in addressing the problems associated with this sector.

First, a strong regime based on understanding the business models of individual CMCs will prevent firms that do not offer good value to consumers from operating. Secondly, personal accountability for senior managers of CMCs will ensure that when a firm struck off, its directors cannot simply resurface as a new CMC, as is currently happening. It is anticipated that, as a result of this change, consumers will be given more information about the services that CMCs offer and more transparency about the fee structure. It is therefore important that the improved regulation of CMCs should be implemented alongside the personal injury reform proposed in the Civil Liability Bill. It can only be good news for consumers when their interests are put above all others.

As I have said, this is an excellent Bill, but I would like to propose a couple of areas in which I think it could be strengthened, and I ask the Minister to take them into consideration when summing up. First, it would be useful if he clarified the exact scope of the services that the SFGB will provide for consumers. There is a great opportunity to look at how the Department for Work and Pensions could work with the financial services industry to make guidance a recognised norm and to look at ways to support interventions that could improve the retirement process, such as the introduction of a mid-life MOT.

Secondly, will the Minister provide a timeline for the introduction of the FSGB and tell us when the FCA will assume responsibility for CMCs? Swift action is necessary, particularly in relation to CMCs, given the drastic spike in claims relating to gastric illnesses by people who have been on holiday. It is no coincidence that this surge has coincided with CMCs preparing for the deadline for bringing PPI claims and the introduction of measures to tackle whiplash claim frequency.

The Opposition amendments to this part of the Bill are unnecessary. The Government are committed to banning cold calling in relation to pensions and by CMCs. Moreover, they and the SFGB will keep cold calling under review. If the Minister will give consideration in his summing up to the points I have made, I will have no hesitation in supporting the Government through the Bill’s remaining stages.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I rise to speak to the three amendments in my name. According to a recent Bank of England survey, the average level of household debt, excluding mortgages, is £8,000. While everybody should be able to access basic debt advice, people on low incomes with much higher levels of debt, at higher rates of interest, clearly need significant support. Unlike in the United States, it is difficult to work out with any certainty where such people are living in the UK, beyond relying on an individual to approach their local citizens advice bureau or another advice service.

At present, the new financial guidance body will not have access to data to allow for a detailed mapping of debt at a local level. Indeed, it will not have access to a full picture of the activity of banks and other lenders in our communities. There is no requirement on banks, payday lenders and other financial services providers to be fully transparent about the services in each of our constituencies—specifically where they lend, what rate they lend at, and the types of loan that they offer. Were that data available to public bodies, it would allow for the accurate mapping of who is lending and what is being loaned. Banks and other lenders do hold such data down to postcode level, and such data are released in the United States. Many British lenders that are active in the US are used to releasing that information, which allows public bodies to map the activities of banks and other lenders.

My amendments 1 and 2 would allow the single financial guidance body to facilitate the release of that information by lenders in an anonymised form so that we could know where debt is concentrated and what types of credit are used in different areas. That would allow for better, more strategic responses to the household debt crisis with which the House is familiar. The data would help to inform where to target the debt advice funding that the SFGB will dispense, encourage more engagement between mainstream lenders, and allow the community finance sector to scale up the provision of affordable credit in areas where there are specific problems. Indeed, such data would reveal market gaps and the communities excluded from mainstream credit.

Fair access to financial goods and services is a basic requirement for full engagement in modern society, but Thamesmead, an estate of 55,000 people in south-east London, has not been home to a mainstream bank branch for a long while. Charities report anecdotally that high-cost credit lenders such as doorstep or payday lenders are very active. More and more bank branches are being closed by the big banks, which is leaving whole communities, some in the poorest areas of our country, without a single mainstream bank branch. Thamesmead is not an isolated example.

At the same time, rumours persist that the big banks want to pull the plug on free cash machines. Which? has reported that over 200 communities in Britain already have poor ATM provision or no cash machines at all. The combination of a lack of access to cash machines and to mainstream bank branches could create the space for a much bigger increase in the activities of high-cost credit companies, doorstep or payday lenders or, worst of all, illegal loan sharks, as a response to the needs of people in such communities for short-term loans. We need to know where the other Thamesmeads are across the country so that charities, community banks and credit unions can be supported by the financial guidance body and other statutory bodies to target financial exclusion in such areas by signposting people to responsible financial providers.

In 2015, when considering this specific problem, the Financial Inclusion Commission, which was set up by the Government, argued for a much wider level of data disclosure to develop a greater understanding of the problem. It said specifically:

“If lenders were required to disclose data by postcode on credit applications and rejections, policymakers would be better able to understand the scale and shape of the low income credit gap.”

Since the financial crisis, banks and other lenders have withdrawn from higher-risk lending and raised the threshold for accessing mainstream credit. In turn, this has restricted the credit available to those with low credit scores, leaving them at the mercy of higher-cost lenders to bridge their income gap. Surely part of the long-term solution to the household debt crisis is to make it easier for low-cost credit providers and other alternatives.

It is true, as Ministers have previously suggested in Committee and in a letter to me, that there are other sources of data on debt. The Office for National Statistics and the Bank of England publish data on lending, but only at UK level—the data is not broken down by constituency or by area. StepChange, too, publishes some data on lending, as does the Money Advice Service, but the Minister might not be aware that it publishes only estimates of the number of people who are over-indebted.

I would not dream of criticising the Money Advice Service, but its data on lending does not go anywhere like far enough to meet the recommendations of the Financial Inclusion Commission. The Money Advice Service does not routinely collect information about the extent of debt problems at the most local level. Its last significant report was back in March 2016, and it set out estimates of the number of over-indebted households down to local authority level, not postcode level, which is what we need. The Money Advice Service data are estimates based on survey work, not actual individuals who take out loans.

I should be clear that some lending data is already released. The coalition Government, to their credit, required the British Bankers Association, which is now UK Finance, and the Council of Mortgage Lenders voluntarily to publish some data by postcode, primarily to try to tackle the challenges that small businesses were facing when accessing credit.

There are problems with the data. For example, it does not include high-cost, short-term credit—payday lenders. Additionally, it does not disclose lending levels or rates at postcode level. Some details of loan applications and credit providers’ registers are not released either, so a full picture of the level of lending at a postcode level has not yet been able to emerge.

At the moment, the data is released voluntarily. Legal underpinning is needed so that more statutory bodies working in this field can more easily negotiate improvements in data. Specifically in this context, for example, the single financial guidance body should be able better to negotiate the release of the data that it needs.

I say this gently to the Economic Secretary, who will be very helpful to me tomorrow, but efforts to re-engage the Treasury in getting UK Finance to improve the usefulness of the data its members release have not had much success recently. At the very least, I hope he will be willing to join me in meeting national groups operating in this field to hear their concerns about the data, and perhaps he might be willing to use his leverage to get at least small improvements in that area.

In the United States, the Community Reinvestment Act means that banks and other lenders have to report what they are lending, where to and at what rate. The disclosure requirements are critical as they enable independent, informed assessments of what the banks are doing. Crucially, they keep the banks honest. Before the CRA, access to credit was scarce in deprived areas, and that lack of access contributed to and prolonged the decline and deprivation in such communities.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

My hon. Friend makes an excellent point, but does he agree that the disclosure of such data would highlight the hotspots in communities such as the ones that we represent, and would therefore allow the Department for Work and Pensions to put in the necessary resources so that jobcentres and other advice bureaux can act as a preventive measure so that we do not see more of our constituents with little chance of getting out of the vicious circle of high-cost borrowing?

[Gareth Thomas]

My hon. Friend makes a good point.

In the United States, federal banking regulators regularly assess how banks are meeting local credit needs. Their assessments affect the way in which the banks are allowed to expand, merge, do acquisitions and so on. Banks can get credits towards their assessments if they invest in community banks or credit unions. Not surprisingly, both the community banking movement and the credit union movement are in even better health in the US than they are here.

Santander, HSBC and Barclays all operate in the United States, where they release far more data on lending, down to postcode level, than they do here. So surely the questions for this House are: why are they not willing to do that here, too; and, as I believe, should they be forced to do so? Last October, Santander announced an $11 billion, five-year settlement on lending and community development in eastern parts of the United States, which is the market in which it operates. That represented a 50% increase in its Community Reinvestment Act-related activity. No such equivalent increase has been announced here in the UK. The Community Reinvestment Act has cross-party support in the US, being backed by Republicans and Democrats alike, including for its data disclosure requirements. If Ministers are not prepared to accept my amendments, I would wish, with your permission, Madam Deputy Speaker, to press amendment 1 to a Division. These amendments are not onerous. Banks and other lenders record this data, and although a little work would be needed so that the information could be released in a useful format, a similar system works particularly well in the United States. In turn, the disclosure of lending details could help the single financial guidance body to make more effective choices.

I shall deal briefly with amendment 31. One key challenge for the single financial guidance body will be, as we all know, to help those who need loans, for whatever reason, to access the cheapest products—those offered by credit unions fall into that category. Surely the SFGB should be mapping where credit unions exist and what further action can be taken to promote the take-up of their services by those who are most in need. Credit unions have very low administration costs. They simply do not have the megabucks of a major bank or a payday lender’s marketing department, so many of those who most need the support that credit unions can offer are often unaware of the services they provide. Surely another challenge for the House is to work out how we help credit unions to make more information available about the products on offer. I know that Ministers are sympathetic to efforts to expand the credit union sector, so I ask them to give specific attention to thinking about what further steps can be taken to help the credit union movement to expand and to support the SFGB in achieving that aim.

[Julian Knight (Solihull) (Con)]

I refer Members to my entry in the Register of Members’ Financial Interests. I completely agree with what the hon. Gentleman says about credit unions. Does he agree that one key aspect of trying to promote them is improving their professionalism, IT and this information, and using the potential for workplace credit unions? Should we not try to bring this through the workplace and payroll?

[Gareth Thomas]

I agree with that point, which is why it has been encouraging over the past 10 to 15 years to see Departments beginning to do their bit to encourage the workplace take-up of credit unions. I hope the Economic Secretary may be able to tell me that Her Majesty’s Revenue and Customs will follow this trend soon, but the point about trying to increase professionalism is well made. Again, it would be good to hear commitments from Ministers that some of the problems that credit unions face due to poor regulation by the Financial Conduct Authority will be dealt with.

[Gareth Snell]

I apologise for intervening again, Madam Deputy Speaker. I was a director of a credit union in Staffordshire, but unfortunately it went under because the regulation from the FCA simply meant that it became unviable, because the authority did not understand the operating model. I therefore very much agree that the FCA has a big role to play, along with the Government, in making sure that credit unions are sustainable, because they offer a hope for constituents who would otherwise use high-cost lending.

[Gareth Thomas]

My hon. Friend amplifies the point I was making. One last point to make is that there is a need for legislative change to allow credit unions, in particular, to offer loans for cars and—

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. Before the hon. Gentleman comes to his last point, there seems to be a lack of understanding generally in the Chamber about what happens at this stage in a Bill. I cannot put a time limit on speeches; this is Report stage. We have two groups of amendments to go through, and we have until 6 o’clock. Many questions have been asked, and Members will expect the Minister to have some time to answer them.

If we go on as we have done for the last two hours, there will be no debate on the second group of amendments. It will not be up to me to explain to the hon. Member for Liverpool, Wavertree (Luciana Berger) why she does not get to make her speech on her amendment in the next group. Every minute that people take in this House takes away from another colleague. Of course, there are people who prefer to hear the sound of their own voice, who only want to hear their own arguments and who will not give time for others, but I am warning now that if speeches take more than three minutes, we will get to a stage whereby the second group of amendments will not be heard. I cannot stop the hon. Member for Harrow West (Gareth Thomas) finishing his speech—he can take as long as he likes, as far as the Chair is concerned—but I am sure that he will have a view to helping his colleagues.

[Gareth Thomas]

I had finished, Madam Deputy Speaker.

[Madam Deputy Speaker]

I am delighted to hear it.