Financial Services Bill

Lord Stevenson of Balmacara Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

As I was saying, lead generators are involved in misleading and misrepresentation by holding themselves out as organisations such as the Money Advice Trust or StepChange, or representing themselves as government to pull in for financial gain those who sought help for their debt difficulties. It is a pernicious practice, preying on those who are, without doubt, extremely vulnerable as a result of debt. It is unfortunate that the arena for their taking is the world wide web—one of the greatest gifts to humanity from one of the greatest of great Britons, Tim Berners-Lee. It is such a tragedy that his world is populated by these tawdry takers.

Amendment 111 would amend the FSMA to bring lead generators into the world of regulation to end this pernicious practice and to address the current asymmetry in FCA regulation: if you are introducing creditors that is a regulated activity; if you are introducing a debt advice service or the like, that is currently unregulated. The problem is large: StepChange and the Money Advice Trust estimate that at least 10% of those in need who seek their help and that of other debt advice services are caught up in and misdirected by such lead generating practice. That is an extraordinarily high figure.

We often see the world in a grain of sand when we consider personal testimony. One man said: “I am caught up in this world of these people. I am called, if not once, five times a day. Fortunately, I’ve managed to sort out my debt problems, but this harassment from these organisations is almost as bad as the debt itself. It’s having a detrimental effect on my life; it’s having a detrimental effect on my mental well-being.” That is the outcome of this mendacious practice, of this fakery and falsehood, from these tricksters and takers.

When my noble friend the Minister considers Amendment 111, would he agree that when individuals look for support in their hour of need as a result of a debt situation, they should find help, not harm? I am delighted that the amendment has the number 111; it is a single Nelson of an amendment. It is a single amendment with a single intention: for it to pass to make one single, simple change that will help hundreds of thousands. Will my noble friend the Minister channel his inner Nelson and give Amendment 111 its victory?

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I declare my interest as a former chair of StepChange Debt Charity. I thank the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, for their kind words about the work we have done with StepChange and all the other groups involved in supporting the repayment of debt and the management of unmanageable debt. It has been a pleasure to work with them and I have listened to their words very carefully, but it has also been wonderful, over the years I have been working on this issue in your Lordships’ House, to see the number of people who have become interested in it and who are prepared to join in and support it grow. It is now a very solid group with very firm views about how things should move forward, as we just heard.

I was very struck by what the noble Lord, Lord Holmes, said about the way people prey on those who have problems with debt. When I was working at StepChange we decided to change the name from the rather uncomfortable Foundation for Credit Counselling, which no one ever used. It was not a foundation, we did not deal with credit, and we did not counsel. It was a problem to get across what we did do, but we decided to be bold, as one is when coming to a new organisation and thinking about how you might change it. We decided to go for a name that took us away from any descriptive elements, and came up with StepChange.

One thing that we did not expect, which plays back to what the noble Lord, Lord Holmes, said, was that within 24 hours of our name being announced to the world there were between 15 and 20 groups preying on the same group of people we were trying to help, in exactly the way that the noble Lord described: they had changed their names to variations on StepChange. They also changed their colour coding, the whole look of their websites and the whole way that they approached potential customers. It was a wonderful example of the difficult area in which we operated. Here we were, trying to help people who were desperate to repay the debt that they had got themselves into. They were, by and large, decent, ordinary people for whom something had gone wrong with their lives and as a result they were spiralling into unmanageable debt. Yet here were these other companies trying to make money out of them, as the noble Lord explained. It was just awful, and to do so in a way that showed that they were watching how we operated in the market and were prepared to copy our techniques to get people to pay them money which they could not afford in order to get out of debt, was an extraordinary basis.

That leads into the amendments in this group, which are largely about trying to work with the Government in their good and well-thought-through plans, which are slowly coming to fruition. Perhaps they could go a little faster, but that is part of this discussion. My principal point is that I want us to support what the Government are doing because they are on the right track. We would like to do anything that we can to help them.

I have two amendments in this group and would have signed others, but I did not need to because they have a lot of support in other areas. Amendment 54 probes the nature and content of the regulations that will establish the statutory debt management scheme, which is complementary to and foreshadowed by the debt respite scheme mentioned by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes of Richmond. Amendment 70 calls for a formal review of the debt respite and statutory debt management schemes within a two-year period after Royal Assent. It looks very straightforward on the surface but when the Minister responds I am sure that he will realise where the amendment is trying to take him. It has the same impact as the points made by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, which is that we are a bit worried about the time that it has taken to get this scheme going. The idea was—

[The Deputy Chairman of Committees (Lord Caine) (Con)]

My Lords, as there is a Division in the Chamber, the Committee will adjourn for five minutes.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I will move on to the first of my amendments: Amendment 54. Clause 34 as drafted, is quite short, and it is hard to reconcile it with what I understand to be the Government’s ambition. I would be grateful if, when he comes to respond, the Minister could confirm whether plans remain to replicate the Scottish statutory debt management plan, which has worked well for debtors and creditors. The reason for Clause 34, at its heart, is to take the necessary powers to ensure both that creditors participate in the scheme and that they contribute towards the funding so that the full range of advice and support for the SDMP is available.

The experience of the scheme in Scotland is that the Government are on the right track. Recent discussions with Ministers have been very reassuring, and I thank them for their time. However, it would be helpful if we had a little more detail put on the record; whether he is able to do this in response to the points I am about to make, or whether he would like to write to me, I should be grateful to hear further from the Minister in relation to some of my points.

One point is that the breathing space regulations—SI 2020/1311—define a debt advisor as having FCA permission for debt counselling or a local authority. That is quite a wide group: when he comes to respond, can he make that a little bit narrower? Presumably, this is a local authority which is currently offering a full debt advice system. Of course, that has been badly affected by cuts in recent years, so I hope that more detail will be provided on that. Can he confirm that this definition used in relation to debt advice will also be available for the debt-advice component of the statutory debt-management plan?

Secondly, the Minister will also be aware of the concern that debt advice should continue to be available for free. There is considerable evidence that many people do not get access to the debt advice that they need. The pandemic is obviously a worry that may yet crystalise into concern about, interest in, and need for debt advice. We have not seen the numbers increase very significantly recently, but that is because the Government have been effective in getting the funding necessary to maintain people’s continuing existence at the moment. However, when those schemes wind up—and it will be some time before they do, but they will wind up—then there will, of course, be some concern about the amount of debt advice available and whether it will be fundable on a continuing and sustainable basis.

In this context, my third point is that the Government have said that they wish to restrict the funding of the SDRP providers to 9% of the effective debts. This sounds like a reasonable proportion, and there might be a lot of support for it, but it exposes a gap in the current arrangements, which are based on a fair share plan of 13%, so it is a reduction of about 4%, including the costs that are currently absorbed within the structure being made explicit and being met by the overall system. This is a detailed point and I am sure that the Minister will be pleased to hear that I do not expect a very detailed answer at this point, but it would be helpful if more detail could be provided in a letter. We need to know the basis on which the direct cost of the statutory debt management scheme will be operated and that there will be funding available for debt advice, which is the other part of the equation that needs to be funded.

My final point on this list is the question of timing, which has already been addressed by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes. I do not think it is sensible to set an artificial time limit for the Government on this. It should come through as and when the Government can get it right and get it out, but I hope that my Amendment 70, which is couched in the form of an amendment asking for a report, is a sufficient stick to suggest that a little more effort on this would be very welcome all round.

We have already touched on my next point in relation to those who seek to benefit from people who are suffering from unmanageable debt by offering them commercial services. A number of companies offer this, and a number of other amendments deal with this, but it is important to establish that the scheme that the Government are supporting is entirely on a non-profit basis. Clearly, if there were to be profit-seeking FCA-authorised debt advice providers also included in this group, it could mean additional costs for the scheme or else a reduced service for those participating. I cannot believe that it would be in the public interest to have a situation where people were obtaining commercial returns from what should be a free service. I accept that the original policy statement by the Government said that debt advice providers would not be able to charge fees in addition to the FairShare scheme, but I should be grateful if, when he comes to respond, the Minister can confirm that that will be set out properly in the regulations.

I have two final points. Can the Minister confirm that the reference to the Crown in Clause 34(4) means that all public body debts will be included in the scope of the statutory debt management plans? It is important to get that confirmation. It is really good that the Government have accepted that Crown debts will be included but, obviously, a significant number of debts are also owed to public services, which are not officially within the Crown, unless I am unaware of a definitional point here; that particularly applies to local authorities.

In that respect, it is also important that we can get confirmation that while individuals are in the debt respite scheme or the SDMP, they will be protected from enforcement action—particularly bailiff action. This has been one of the most welcome measures in the pandemic moratorium affecting those people in unmanageable debt. The suspension has released a great deal of concern that people had about this. It seems unlikely that the Government would want to see a scheme that, on the one hand, protects those who are attempting to repay their debts by obtaining breathing space and then entering a plan to do so but, at the same time, does not seek to restrict the possible bailiff action that would have such a deleterious effect on them.

We will come back to this issue in a later group because there is now an amendment around it—that may well be a better time to discuss it—but I would be interested to have an initial response from the Minister when he comes to respond.

--- Later in debate ---

The supporters of this amendment might not care very much whether it is possible to parcel up consumer debt subject to a debt respite scheme and sell it off, but the sale of debt is a normal part of financing arrangements for financial institutions. It frees up capital and liquidity from the original lending institution and allows that lender to use that capacity to make more consumer lending. Without access to that, some lenders would struggle to carry on where some of its debts are in semi-default via a debt respite scheme. I urge the noble Baroness, Lady Bennett of Manor Castle, and the right reverend Prelate to think very carefully about what they wish for.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, that was a very interesting intervention from the noble Baroness, Lady Noakes, which enhances her reputation as a banker of some repute. I am sure her figures are absolutely right; I was still writing them down as she finished. She has made the case that you need to be able to do these sorts of sums and mathematics if you are dealing with the sorts of debts we have been talking about for most of the afternoon.

I put my name down to speak on this debate, but not because I have a particular view on the merits of the amendment, which I thought was extremely well argued by the noble Baroness, Lady Bennett of Manor Castle. She raised issues on the wider context of how debts are managed in society, which I think the Committee will be very grateful for having on its mind as we focus on the issues. She gave us a tour d’horizon of the various ways in which those who run into unmanageable debt have to deal with the process of repaying, absent a debt respite scheme and absent a scheme under which statutory repayments are organised. They are extremely tough and, to go through an IVA, a debt relief order or full bankruptcy is not something that one would recommend to people if there was another way of doing it.

Indeed, part of the debates we have been having are about how wide we should take this discussion. As my noble friend Lord Davies of Brixton mentioned, the way debt impacts on society is something that is worthy of wider consideration in a more general sense rather than in relation to the particularity of the processes that we are involved in.

That said, it is good that we are having this debate about the wider context within which debt operates in society. It is not a debate that you hear very often, and it is an area of policy that could be afforded a lot more consideration. As such, I will join with the noble Baroness, Lady Noakes, in suggesting that the amendment should not progress at this stage, but for completely different reasons. I think there is a better way of dealing with this relating to the way debts are sold.

The argument that the noble Baroness, Lady Noakes, made, which is that this is how financial institutions obtain the liquidity necessary to maintain the cycle of lending on which we all depend, means that we need to have a better understanding of what happens when debts go wrong and when big institutions of the type that she talked about have to deal with the consequences. I do not mean to go through that in any real detail, but perhaps when the Minister responds he could take into account some of the thinking on this for when we look in detail at the regulations that he has promised us sight of on the statutory debt management plan, and in relation to what I think will be necessary at some point in the not-too-distant future: a reconsideration of the role of the debt relief order and the IVA’s structure, which is part and parcel of the process of dealing with this.

The essential point here is about how, and on what basis, those who have decisions to make about debt make them about individuals who have repayments to make. My understanding, picked up over the time that I was at StepChange, was that, by and large, we are not dealing with a very large proportion of society who are feckless about incurring debts. What tended to come across to me from looking at StepChange’s clients, listening in to the calls that were made to it and observing some of the emails and discussions around electronic systems was that most people—the huge majority—were appalled to be in unmanageable debt situations and were desperate to make a repayment. However, they did not have the financial knowledge and understanding of the system and the world in which they were operating to deal with it themselves. They needed help, which led to the debt advice and the subsequent process of repayment that we have been talking about.

However, at the heart of this is the same calculation that the noble Baroness, Lady Noakes, made: if someone in a credit card organisation or bank is lending money to someone and learns that that debt is going wrong, then there is an immediate calculation of the likely return from it. While we in this country stick to the idea that the creditor must always be repaid in full—or as close to it as possible—the reality is, as the noble Baroness, Lady Noakes, explained it, that a decision has to be reached about what proportion of that debt will be repaid and over what timescale.

My impression is that we are talking about a very large difference in perception. I return to the noble Baroness’s example of a £100 debt that goes bad—she says that one in five will not repay. In a sense, that is the start of the conversation that the person who made the loan has to have with their boss to assess what rate of recovery the loan will have. I believe that we need to have further understanding—not necessarily today or on this Bill—about how that process needs to work better for society. I agree with my noble friend Lord Davies of Brixton: a social issue needs to be addressed at some point, not necessarily today.

If it is true that a loan of £100 has a default rate of at least one in five—I suspect it is higher than that—then we should not be thinking in terms of trying to get a 100% return; we should set in our minds a figure that society could accept and which would be more reasonable in relation to the overall quantum of debt, better afforded by those who need to make repayments and more acceptable to those who do the lending. We are not yet there, and I do not have a solution to this; we are probably too early in the process of discussion and debate. I look forward to the Minister’s comments. This is a conversation that we should have more generally, away from a Bill, on a broader understanding of debt in society.

[Baroness Kramer (LD)]

My Lords, the noble Baroness, Lady Noakes, and I very rarely seem to agree on the types of issues covered in this amendment, but on this one we are totally of one mind. I am very grateful because I tried to write an explanation of how this process would work and it was so inferior. The noble Baroness, Lady Noakes, not only explained it very clearly, step by step, but included numbers, which makes it much more evident.

I think there must be some misunderstanding. As the noble Baroness, Lady Noakes, explained, it is perfectly normal for an originating company to sell off the loans it has, sometimes because it can sell them to someone who has a different funding profile or a different tolerance for the average duration of the book of loans being sold, or because somebody may take a different view on how many of the loans will pay in full, pay in part or default. It is a perfectly standard process and provides liquidity to the market. As the noble Baroness, Lady Noakes, said, if an organisation had to keep all the loans it generated on its books and could not sell them off, it would find very quickly that it was constrained in doing any new business. That would be hugely damaging to many of the people who go out and borrow. It tends to be a completely different business that will buy loans in the secondary market.

The question that underpins this is: is the Statutory Debt Repayment Plan right and fair when it is put in place? If that is true, it should not matter if the money is paid to the originating company or to the secondary buyer. Within the portfolio, there will be some people who can and do meet the full obligations of the Statutory Debt Repayment Plan, and surely that is appropriate. There will be others who fail and end up in bankruptcy, and whoever is holding the loan will lose out.

My question is whether there is any read-over from the kind of issues we have had with mortgage prisoners. It is important that where there are expectations about how the original lender will behave, they are carried over to the secondary lender. For example, if the original lender is quite likely to offer an alternative loan or new terms and conditions or whatever else, you would expect to see that reflected in the secondary lender. I would not want a situation where the secondary lender was able to levy additional charges or put additional costs on the borrower that would not have been expected by the original lender but perhaps are not covered in the minutiae of the contract.

Otherwise, the honest truth is that I just do not understand this amendment. I am absolutely certain that it completely seizes up any possibility of having a secondary market, and the people who will pay the greatest consequence for that are those who need to go out and borrow from time to time and are at the margins of being appropriate borrowers.