Lord Sassoon
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Financial Services Bill
Lord Sassoon Excerpts(11 years, 5 months ago)
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Lord Sassoon
“(1) This section applies where—
(a) the Treasury consider that it is in the public interest that either regulator should undertake an investigation into any relevant events, and(b) it does not appear to the Treasury that the regulator has undertaken or is undertaking an investigation (under this Part or otherwise) into those events.(1A) The Treasury must”
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, this group of amendments concerns Part 5, which is concerned with inquiries and investigations. It carries forward provisions relating to independent inquiries called by the Treasury and applies these powers to both the PRA and the FCA, also introducing a number of new provisions for the regulators to carry out investigations when regulatory failure has occurred, or may have occurred. As such, Part 5 is a very important part of the Bill, as indeed my noble friend Lady Noakes noted when she described the provisions in it as “crucial to the Bill” when we last discussed these matters on 25 October. During our discussions on that day, I indicated that I would go away and consider carefully the important points made by my noble friend and the noble Lord, Lord Davies of Oldham. I also promised to reflect further on a topic on which we have spent many a happy hour—namely, the uses of “may” and “must” in the Bill.
I hope that noble Lords will be pleased to note that the Government are bringing forward a number of amendments informed by our previous discussion of Part 5. Amendments 107B and 107C amend Clause 76, which provides the Treasury with a power to require either regulator to carry out an investigation when the Treasury considers it in the public interest for the regulator to do so. The current drafting of Clause 76 provides that in such circumstances the Treasury may order an investigation. Amendment 107B changes this discretion to a duty by changing “may” to “must”, and Amendment 107C is consequential on Amendment 107B. The Government agree with the points made that when the public interest test is met, surely the Treasury must require an investigation. Changing “may” to “must” is the right course of action. If an investigation by the regulator is in the public interest, and the regulator is not already carrying one out, then it is right that the Treasury should be required to order an investigation.
Amendment 107D responds to issues raised by the noble Lord, Lord Davies of Oldham, in Committee. The amendment provides that where the Treasury directs either regulator not to carry out an investigation into possible regulatory failure or otherwise gives a direction to the regulator as to how it should carry out such an investigation, then such a direction should be laid before Parliament. The amendment also provides that the Treasury should do so as soon as is practicable after issuing the direction. I share the view of those contributing to debate in Committee that this will increase transparency and therefore confidence in the regulatory regime. However, in recognition of the fact that there may sometimes be circumstances where laying the direction before Parliament could have negative and unintended consequences, the amendment provides that the Treasury need not lay the direction before Parliament if doing so would be against the public interest. I beg to move.
Lord Barnett
It behoves me to say thank you to the noble Lord. It is hard to believe that the amendment that my noble friend and I tabled has now been accepted. I do not know what to say. Thank you is the only thing I can say.
Lord Sassoon
Lord Sassoon
“(fa) provide for any provision of sections 162 to 165 and 174A of CCA 1974 which relates to—(i) the powers of a local weights and measures authority in Great Britain or the Department of Enterprise, Trade and Investment in Northern Ireland in relation to compliance with any provision made by or under CCA 1974, (ii) the powers of such an authority or that Department in relation to the commission or suspected commission of offences under any provision made by or under CCA 1974, (iii) the powers that may be conferred by warrant on an officer of such an authority or that Department, or(iv) things done in the exercise of any of those powers,to apply in relation to compliance with FSMA 2000 so far as relating to relevant regulated activities, in relation to the commission or suspected commission of a relevant offence or in relation to things done in the exercise of any of those powers as applied by the order;”
Lord Sassoon
My Lords, it may be helpful to the House if I speak early in this debate. The amendment explores how the FCA will regulate the payday lending sector. The Government have been clear from the outset that the FCA should be able to take action to address the problems that are rife in the payday loans sector and, indeed, in the consumer credit sector more widely. That is why the Bill in its current form already empowers the FCA to make rules regarding the regulation of payday loans when credit regulation is transferred to the FCA in 2014.
I welcome the opportunity to debate this important issue. The Government are, like all of us, concerned about the appalling behaviour of some firms in this sector and the harm that vulnerable consumers suffer as a result. I shall say up front that, if the noble Lord agrees to withdraw this amendment, I will table a government amendment for debate at Third Reading that will address the issues raised by the noble Lord. The Government will go further, not only embedding stronger payday loan regulation in primary legislation but ironing out the potential weaknesses that they see in today’s amendment.
I cannot accept the noble Lord’s amendment as I think that the Government can, with the additional resources provided by officials and parliamentary counsel, improve on it in a number of ways. But, first, allow me to put on record three important points about the problems in the payday loans sector and how the Government will ensure that the FCA will be able to address these problems. Just last week, the OFT set out a wide range of concerns about detrimental practices in the payday loans sector, from firms failing to perform adequate checks that customers can afford a loan to a lack of forbearance when consumers are in financial difficulty. While restrictions imposed on the cost and duration of credit may address some of these problems, it is clear that regulation of the high-cost credit market as a whole needs to improve. Compared to the current regulatory regime under the OFT, the FCA will have a broader and more effective toolkit to monitor and tackle developments in the market and to supervise practice among firms. Its consumer protection objective provides the FCA with the mandate to use those powers and tools.
Secondly, capping the cost of credit and the number of times the loan can be rolled over is a major market intervention. It could bring huge benefits for consumers, as a recent study in Japan has indicated, but experience in Germany and France has shown that there can be equally momentous unintended consequences, including reduced access to credit for the poorest and most vulnerable consumers, even driving them to illegal loan sharks. These international lessons demonstrate that we need robust evidence to support any decision to introduce such a cap.
As noble Lords may be aware, the Department for Business, Innovation and Skills has commissioned research from Bristol University into the impact of a cap on the total cost of credit. This is one of the most comprehensive pieces of research undertaken into the UK high-cost credit market. I am pleased to confirm that the research will be published in the next few weeks and will enable the Government and, in future, the FCA to take an evidence-based approach to regulating the high-cost credit market and, in particular, to assess the pros and cons of a cap on the cost of credit.
However, we need to ensure that the FCA grasps the nettle when it comes to payday lending and has specific powers to impose a cap on the cost of credit and to ensure that the loan cannot be rolled over indefinitely should it decide, having considered the evidence, that this is the right solution. In this, I am entirely in agreement with the noble Lord. So, while I support the spirit of the amendment, I cannot accept it as it is framed as it may have unintended consequences and introduce loopholes which could be exploited by unscrupulous firms. For example, the amendment refers to the,
“maximum duration of a supply of a product or service”.
Firms might offer an ostensibly new product or agreement in order to circumvent the cap on the duration of the agreement. The amendment also focuses on the terms of the credit agreement and does not pick up charges imposed under connected agreements, which may often be significant. Again, this would open up a potential loophole for firms to exploit.
However, the Government believe that there is scope to go further than this amendment and to put in place stronger, automatic consumer protections and make the deterrent effect more robust by providing that a breach of these rules would make the agreement unenforceable by the lender. I will draft an amendment and discuss it with the noble Lord, Lord Mitchell, to ensure that it fully meets his concerns, as I believe it will—I believe it will go further—and I can confirm explicitly that it will cover both the total cost and total duration of credit.
Lord Sassoon
If the noble Lord will permit me, I will allow him to intervene in a moment, but let me conclude my argument.
Our objectives here are the same: they are to ensure that consumers of financial services have access to credit when they need it and at a price they can afford; and to ensure that the regulator is under a clear obligation, and fully empowered, to ensure that consumers are protected. I hope and expect, therefore, that when the noble Lord, Lord Mitchell, sees the draft amendment he will feel able to add his name to what the Government propose.
Lord Peston
What the noble Lord said is extremely welcome and conciliatory to all of us. However, he left out one part: when will the rest of us get to see this draft amendment—I believe it is proposed that Third Reading should be next Wednesday—so that we, too, can scrutinise it to see whether it meets the requirement? One of the most compelling parts of the noble Lord’s argument was how difficult this area is—I thought it was all very simple—and he outlined a series of problems which he claims that he and his officials will solve. Has he actually solved them? Does the draft amendment exist and will we see it no later than, say, this Friday?
Lord Sassoon
I assure the House that I will get the amendment drafted as soon as we possibly can. I have given as clear a commitment as I can give to the House that the amendment will cover the two specific points that the noble Lord, Lord Mitchell, and the other noble Lords who have put their names to the amendment are looking for. However, we want to go further. If we are going to do this, we should get it right. This is a critical area which needs cleaning up and I am fully confident that when your Lordships see the draft amendment it will command the acceptance of the House.
In conclusion, I hope that the noble Lord will feel able to withdraw his amendment. I look forward to further debate on this important issue at Third Reading and on the stronger and more effective amendment that we will bring forward.
Lord Kennedy of Southwark
My Lords, I, too, congratulate my noble friend Lord Mitchell, the right reverend Prelate and other noble Lords for bringing forward this amendment today. I also pay tribute to the Member for Walthamstow in the other place, who has done more than anybody else to bring forward this issue. I would like clarification from the Government on the amendment that they will bring forward at Third Reading. Will it enable interest rates to be capped? That is key here; the cost of the charges and the interest rates levied are the nub of the issue. If that matter is not dealt with, we will unfortunately be back here at Third Reading and all sides will be very cross about it. Will the Minister clarify that?
The Lord Bishop of Ripon and Leeds
My Lords, I share the gratitude of the House to the noble Lord, Lord Mitchell, to my right reverend friend the Bishop of Durham and to others for bringing forward the amendment, and to the Minister for his response. I could talk about examples in Leeds very similar to those which people have raised. However, I will raise two particular points. The one point at which I was concerned at the Minister’s response was when he talked about the danger—which I acknowledge—of driving people into the murky world of illegal loan sharks. That is true and it can happen, but it is very important that we do not allow it to dominate the way in which we establish these provisions.
Where illegal lending is taking place, it needs to be dealt with by prosecution. We need to encourage the police to take action. That should not prevent us from being very firm in the way in which we—the law—control the debt industry. The Minister cited Japan as a good example of a society where that control appears to have worked. It would be interesting to see what contrasts there are between Japan, France and Germany, to ensure that we provide proper control and do not give in to illegal loan sharks because of their power.
I am grateful to the noble Baroness, Lady Kramer, for raising the point that there needs to be credit available. One thing that I have not heard very much about in these debates, although we talked about it often in the past, is the role of credit unions. Those unions seek to tackle debt but their growth has been sadly limited in this country and they appear to be unable to provide the necessary cover to give security to those struggling in our society, although the work that they do is excellent. I hope that as we go forward in discussing the issue of debt, we shall encourage credit unions to play a much greater part in providing a way forward and one answer to the major issues that we face.
Lord Sassoon
“Payment to Treasury of penalties received by Financial Services Authority
(1) The Financial Services Authority (“the FSA”) must in respect of its financial year beginning with 1 April 2012 and each subsequent financial year pay to the Treasury its penalty receipts after deducting its enforcement costs.
(2) The FSA’s “penalty receipts” in respect of a financial year are any amounts received by it during the year by way of penalties imposed under FSMA 2000.
(3) The FSA’s “enforcement costs” in respect of a financial year are the expenses incurred by it during the year in connection with—
(a) the exercise, or consideration of the possible exercise, of any of its enforcement powers in particular cases, or (b) the recovery of penalties imposed under FSMA 2000.(4) For this purpose the FSA’s enforcement powers are—
(a) its powers under any of the provisions mentioned in subsection (5),(b) its powers under any other enactment specified by the Treasury by order,(c) its powers in relation to the investigation of relevant offences, and(d) its powers in England and Wales or Northern Ireland in relation to the prosecution of relevant offences.(5) The provisions referred to in subsection (4)(a) are the following provisions of FSMA 2000—
(a) section 56 (prohibition orders),(b) section 63A (penalties relating to performance of controlled functions without approval),(c) section 66 (disciplinary powers in relation to approved persons),(d) section 87M (public censure of issuer),(e) section 89 (public censure of sponsor),(f) section 89K (public censure of issuer),(g) section 91 (penalties for breach of Part 6 rules),(h) section 123 (penalties in case of market abuse),(i) section 131G (short selling etc: power to impose penalty or issue censure),(j) sections 205, 206 and 206A (disciplinary measures),(k) section 249 (disqualification of auditor for breach of trust scheme rules),(l) section 345 (disqualification of auditor or actuary), and(m) Part 25 (injunctions and restitution).(6) “Relevant offences” are—
(a) offences under FSMA 2000,(b) offences under subordinate legislation made under that Act,(c) offences falling within section 402(1) of that Act, and(d) any other offences specified by the Treasury by order.(7) The Treasury may give directions to the FSA as to how the FSA is to comply with its duty under subsection (1).
(8) The directions may in particular—
(a) specify descriptions of expenditure that are, or are not, to be regarded as incurred in connection with either of the matters mentioned in subsection (3),(b) relate to the calculation and timing of the deduction in respect of the FSA’s enforcement costs, and(c) specify the time when any payment is required to be made to the Treasury.(9) The directions may also require the FSA to provide the Treasury at specified times with information relating to—
(a) penalties that the FSA has imposed under FSMA 2000, or(b) the FSA’s enforcement costs.(10) The Treasury must pay into the Consolidated Fund any sums received by them under this section.
(11) The scheme operated by the FSA under paragraph 16 of Schedule 1 to FSMA 2000 is, in the case of penalties received by the FSA on or after 1 April 2012, to apply only in relation to sums retained by the FSA as a result of the deduction for which subsection (1) provides.
(12) When section 6(2) is fully in force, the Treasury may by order repeal this section.”
Lord Sassoon
My Lords, this amendment is concerned with the regulation of commercial debt management services. It explores the extent to which firms that supply debt management services on commercial terms, or on terms that otherwise might cause consumer detriment, can be subject to specific rules or sanctions.
I am sorry that the noble Lord, Lord Stevenson of Balmacara, cannot be here but I well understand his concerns about the commercial debt management sector. However, it is worth saying in his absence, because we have touched on these things with him before, that he does an excellent job as chairman of StepChange, the debt advice charity which also provides not-for-profit debt management services. I share many of his concerns as they are reflected in the presentation of the amendment by the noble Lord, Lord Tunnicliffe.
Unscrupulous practices in the sector can cause real harm to vulnerable consumers struggling with debt problems—precisely those who desperately need help. However, I do not agree that the FCA should take action against commercial debt management companies just because they are offering these services on a commercial basis. The Government believe that it is important that consumers have access to debt management services to help them manage their debts where this is the right solution for them. But the Government also hold firm to the principle that consumers should have the choice to pay for these services if they wish to. They also acknowledge that there is a risk that not-for-profit debt advice and debt management providers may not be able to satisfy all the demand in the market.
In that context, I would like to highlight the important role of the Money Advice Service in signposting consumers to high quality, free-to-client debt advice services and in taking a strong strategic role in working with other organisations that provide debt advice to ensure that the market works effectively to help consumers struggling with debts. In April this year, the Money Advice Service took responsibility for the funding and management of face-to-face debt advice projects from the Department for Business, Innovation and Skills, and thus ensured the continuation of an important service which is currently on target to help around 150,000 people with debt problems this year.
Money advice and debt advice are, of course, two sides of the same coin. Promotion of financial capability and better money management will prevent people from getting into problem debt, while high-quality debt advice will ensure that those who find themselves with unmanageable debt are able to access appropriate specialist debt advice. In addition to funding and managing face-to-face services, the Money Advice Service has an important role in working with other organisations that provide debt services, in order to improve the availability, quality and consistency of the service available. The expectation is therefore that the Money Advice Service will continue to work with stakeholders such as StepChange, Citizens Advice, the Money Advice Trust and others to improve the long-term quality and effectiveness of the advice available. This will result in a more consistent sector, where there is agreement on what constitutes a full and effective debt advice service. This is clearly a challenging role for the Money Advice Service to undertake, and effective dialogue with its stakeholders and proper accountability will be key. So I encourage stakeholders in the sector to work with the service and to engage with its debt advice forum and the consultation on its business plan in the new year.
I, and the Government, entirely support the intent behind the amendment to ensure that the commercial debt management sector is subject to stronger supervision, more robust requirements and more stringent sanctions than is currently the case. The transfer of debt management company regulation from the OFT to the FCA will mark a significant shift in approach and powers. The FCA’s consumer protection objective will give it a strong mandate to take effective action to ensure that vulnerable consumers are protected from rogue debt management firms. That enables it to take action in the area of fees, if it believes that that is necessary and appropriate. With that, I hope that the noble Lord has the reassurances he seeks and feels able to withdraw the amendment.
Lord Tunnicliffe
I thank the noble Lord, Lord Borrie, for his remarks. I, too, am very sorry that the noble Lord, Lord Stevenson of Balmacara, is not here; he is not only our expert on debt advice services but, apparently, our expert on the wreck of the “HMS Victory”, sunk in 1744, and he is participating in a debate in the Moses Room.
I hear what the Minister says. He goes quite a long way towards what we are seeking to achieve with the amendment. Ideally, we would like it in the Bill, but with his assurances I beg leave to withdraw the amendment.
Lord Sassoon
My Lords, I am very tempted to get a few things off my chest as well about some personal experiences of the sort that we have all had, but the horse may well have long gone if I do. However, I am sure that the banks and the Payment Council are indeed listening. My noble friend has again raised an important point. Let me address two things: first, what we can or cannot do through legislation in this area and, secondly, what to do in practical terms given that I think my noble friend was accepting that it was unlikely that the Government would accept this amendment, which indeed we will not and cannot. I will explain why but let me go on to say how, prompted by his useful thoughts on this subject, I propose to take things further forward.
The essential reason why this amendment does not work comes back to the money-laundering regulations that implement the EU’s third money-laundering directive. Rightly or wrongly, it is just a fact of life that it is not compatible with the directive to require the new bank to rely on the checks carried out by the old bank in all cases. Neither is it compatible with the directive to provide that the new bank is not legally liable where it relies on checks carried out by the old bank, because under the directive each bank is responsible for ensuring that adequate checks have been carried out on all its customers.
I know my noble friend may say that moving the information across does not necessarily take one all the way down that path, but this is getting pretty close to encouraging the banks to do something that is not compatible with the directive by suggesting pretty strongly, if not requiring it, that they rely on the checks of the old bank. We must remember that switching can be between two accounts that are already open and we should distinguish, as I am sure my noble friend does, between switching and account opening. They are not the same thing because we could be talking about switching between existing accounts that an individual has opened.
Having said that I cannot accept the amendment, I shall talk about what I am trying to push forward. I was very struck by the example of Metro Bank and driving licences, because I was not aware of it. I have asked my officials to conduct an exercise with the banks to find out who is doing what, and I have already discovered that Metro Bank is not unique and one or two others are using driving licences.
I, as the Treasury, cannot tell banks how to do their “know your customer” due diligence, and neither can the FSA. However, I am initiating a dialogue with the banks to encourage them to think constructively that a driving licence is already good enough for a number of banks, and plainly it could make things a lot easier for their banks. Because the majority of banks have done it in different ways for a number of years, at the very least I want to ensure, either directly with the banks or through the BBA, that they revisit the practices of the past few years and consider whether there is something more that they can do.
My noble friend Lord Flight has served a very useful purpose in raising this topic during the passage of the Bill, and I intend to continue to press the banks to think harder about the burdens that they are putting on their new and existing customers in relation to the responsibilities that the banks themselves have under the money-laundering regulations. I hope that with that explanation my noble friend might consider withdrawing his amendment.
Lord Flight
My Lords, I thank the Minister for his supportive response and my noble friends Lord Trenchard and Lady Kramer for their support. I am delighted to hear that my noble friend Lady Kramer will be pursuing this aspect as part of the banking review; I make the simple point that it is obvious that it should be easy to move accounts. I also thank the noble Baroness, Lady Hayter, for her support.
I would not say that I was surprised but I am interested to note that the Minister cited yet another example of protectionist practices in the EU. To the extent that what he described is there to stop the transfer of such information or to make it unacceptable, it is clearly a barrier to trade. Anyone in the financial services industry who thinks that the single market means a free and competitive one has another thought coming, because the practical barriers to trade and financial services in the EU are substantial at a retail level. I am not sure if the Minister is right, however, because the law as it stands is that it is up to each bank to do what it wants to or feels is necessary and adequate to comply with its “know your customer” due diligence, and I would have thought that if the new bank got all this information it could make it a decision that it thought was sufficient.
I say to my noble friend Lord Trenchard that my amendment provided 10 working days for the information to be transferred once you had given notice that you were going to move your account.
Lord Sassoon
“Bank of England Act 1998 | Section 1(3).” |
Lord Sassoon
“( ) an order under section 36(2) (power to amend sections 391 and 395 of FSMA 2000);”
Lord Sassoon
“(1A) The FSA may disclose to the Bank of England any information which the FSA considers that it is necessary or expedient to disclose to the Bank in preparation for the commencement of any provision of this Act conferring functions on the Bank.”
Lord Sassoon
I will not take up much time. It would be nice to end this mini-marathon of a Report stage with a flourish, but this is not going to be terribly exciting and will not detain us for very long.
Amendments 118A and 118B are minor technical amendments to the transitional provisions in Schedule 20. They enable the FSA to disclose information to the Bank of England in advance of the new regime coming into force to allow the Bank to prepare for the functions conferred on it by the Bill—for example, the regulation of clearing houses. Paragraph 9 of Schedule 20 already makes provision for the FSA to disclose information to the PRA to assist in its preparations for undertaking its new functions. These amendments make similar provision in respect of the Bank. I beg to move.
Lord Sassoon
Lord Sassoon
“section (Payment to Treasury of penalties received by Financial Services Authority);”