High Cost Credit Bill
Debate between Jo Swinson and Paul Blomfield
Jo Swinson
I understand the hon. Gentleman’s point, but, first, the Financial Conduct Authority is not the only thing that is happening; and secondly, because of the complexity, it is better to have a regulator that is able to make rules and to change them quickly, because markets change quickly. That is the whole point of having a regulator that can be responsive. Otherwise, if primary legislation sets out everything prescriptively, it is much more difficult to respond to changes in the market. Indeed, the Financial Conduct Authority has also made it clear that this is a priority for it. I hope that that provides some reassurance.
Paul Blomfield
I want to restate, as the Minister will know from discussions that we have had, that the Bill does not seek to limit the opportunities for the Financial Conduct Authority to respond to a changing market. It specifically does not include detail; it provides a direction of travel and empowers the Financial Conduct Authority. In that context, would not it be better if we could talk about the detail in Committee?
Jo Swinson
I welcome the hon. Gentleman’s contribution and his constructive approach to this matter, but I would say that his Bill limits the independence of the Financial Conduct Authority. It is not helpful for us to set that out or to mandate exactly what it should do. The FCA is producing a draft rule book for September, which is only two months away—we are not talking about this going into the long grass—and it will be consulted on. I am sure that the hon. Gentleman and other hon. Members will want to contribute to that consultation. That rule book will then be finalised in advance of the transfer of consumer credit regulation, which, of course, happens in April, so it will be in place then.
Of course, the Financial Conduct Authority will have really tough new powers. The Office of Fair Trading, the current regulator, was mentioned earlier and I will come to its action shortly. We have recognised that stronger powers are needed. The FCA will have new powers to make binding rules on firms, including to ban certain products if necessary. It will have tougher sanctions—for example, the ability to impose unlimited fines and to order redress for consumers who have been ripped off. It will also be setting a higher bar for entry in the first place, so when it is granting a consumer credit licence, the applicant will have to prove that its business model is not based on ripping off consumers. We had the discussion earlier about roll-overs and whether, if some companies are making significant proportions of their profit from roll-overs, their business model in fact depends on people’s not repaying in time, and whether that is an acceptable business model. The FCA will be able to look into these issues before people get a consumer credit licence.
The FCA has made it clear that it is committed to plugging gaps in payday regulation and has outlined four specific areas that it wants to target: first, affordability checks; secondly, continuous payment authority; thirdly, advertising; and fourthly, roll-over loans—all of which hon. Members have rightly raised today as issues of deep concern, and which the FCA has said it is keen to tackle as a priority. Indeed, the chief executive of the FCA, Martin Wheatley, has written to me to outline its work on that, and I will place a copy of that letter in the Library so that Members can have a look.
The Office of Fair Trading, the current regulator, recently announced a crackdown on payday lenders and has been delivering real results. It has also referred the market to the Competition Commission, to investigate the root causes of problems with payday lending and it can, of course, use its powers to fix that. An investigation by the Competition Commission is a serious thing. It takes a bit of time, which is why we are ensuring that we take other action at the moment—it is important to do that at the same time. However, it is important that fundamental problems within the payday lending market are looked at, and the Competition Commission is well placed to do that.
The National Audit Office report into the OFT was mentioned. Of course, one of our responses to that has been to ensure that the OFT has further powers. For example, in February, we gave the OFT further powers to suspend a credit licence immediately, if it had reason to believe that that was necessary to protect consumers, rather than waiting to go through the whole process of revoking a licence. We are also transferring the regulation to the FCA, which will have more powers. It is important, in the spirit of balance, to recognise that the NAO also said in its report that it was encouraged by the action that the OFT had been taking on this issue since March. I should like to share with the House a little bit more about where that has got to, because the situation is changing every week owing to the action that is being taken.
In March, the OFT completed its review into compliance in the payday lending industry. It identified the top 50 firms, which between them make up more than 90% of the market, and did a significant investigation into the practices of each of those. Those 50 lenders were sent a detailed dossier of where their practices were not up to scratch, with a 12-week deadline to sort out the problems that they were causing or face losing their licence. That has brought real results. Those 12-week periods, which are on a rolling basis to enable the OFT to process the responses, have been coming to an end and will all be finished by the end of this month.
So far, 28 of those 50 have responded to the OFT. I am sure that hon. Members will be interested to hear that 10 of those 28—more than a third—have left the payday lending market altogether as a result of that action, either by giving up their consumer credit licence entirely or by continuing to operate in other areas of consumer credit but no longer in payday lending. In addition, a further three licences have been revoked from lenders outwith the 50 largest and one further licence has been handed in. So since March, 14 payday lenders, including 10 of the biggest 50, have left the payday lending market. That shows that the tough action is starting to work. Market exit can be a good thing in a market where there are significant concerns about unscrupulous behaviour.
To respond to my hon. Friend the Member for Shipley, last week I called the payday lending summit to take stock of the progress that we had made since March and to look ahead to the new FCA regime. We delivered a strong message to the payday industry that it must get its house in order in preparation for the transfer next April. The meeting included regulators from the OFT, the FCA and the Advertising Standards Authority, which has a role in advertising that I will come to. It also involved charities and campaign groups such as Citizens Advice, Which? and those who provide debt advice to individual consumers. It was a successful summit. It was helpful to have that kind of event as the FCA produces its rule book that is due in September. I was very encouraged by the responses from the regulators.
I will turn to the various issues that are raised in the Bill. First, advertising is something that I feel strongly about. People should not be lured into taking out a payday loan when it is not the right thing for them to do. [Interruption.] I am not sure whether the hon. Member for Harrow West (Mr Thomas) wants to intervene. I am happy to be generous if he does.