Financial Services Bill

Lord Tunnicliffe Excerpts

Wednesday 28th November 2012 Lords Chamber

Moved by

[Lord Tunnicliffe]

116ZA: After Clause 99, insert the following new Clause—
“Power of the FCA to make provision about regulation of commercial debt management
The FCA may make rules or apply a sanction to authorised persons who offer debt management services on commercial terms, or on terms that the FCA judge to cause consumer detriment.”

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[Lord Tunnicliffe]

My Lords, I rise to move Amendment 116ZA on behalf of my noble friend Lord Stevenson, and I hope for a response from the government Benches which produces as much happiness as we have just enjoyed.

We considered the question of regulating debt management companies in Committee, but I make no apology for returning to this issue. We estimate that there are some 6.2 million families in this country in financial jeopardy and all the signs are that increasing numbers will need help, advice and solutions to their unmanageable debts over the next period.

At present there are a variety of providers. A number of companies operating on a strictly commercial basis compete for business with the free services provided by the charitable sector. While it is right that consumers have choice, it is important that those who need independent debt advice get it in a timely way; that it is transparent, with no hidden fees or payments; and all within a regulatory environment that ensures that all providers are working to the same high standards. The Money Advice Service has a great deal to do in this area, working with the existing major players.

This amendment calls on the FCA to ensure that our regulatory structures in this area are ready as soon as responsibility for this area transfers from the OFT; that they look forward as well as back; and that we do not miss the opportunity to protect consumers from the new problems as well as learning lessons from the past.

The Bill now contains good provisions for the transfer of consumer credit regulation from the OFT to the FCA. Despite the excellent work done to date by the OFT, the current licensing regime has arguably not provided consumers with enough protection, not least because the OFT has not been given the resources properly to police the industry. It has been argued that powers already exist in primary legislation, but that does not mean that the FCA will be ready and willing to move into these areas with the speed that may be required.

We are looking for a firm commitment in the Bill that the FCA will regulate commercial debt management companies along the following lines. The Money Advice Service needs to co-operate with stakeholders, where they share joint aims, forming partnerships to improve the long-term availability, quality, consistency, efficiency and effectiveness of the advice available. The FCA must ensure that the MAS is providing clear and directly enforceable standards for business conduct and the design of products. The FCA needs to set threshold conditions that will keep rogue firms and harmful business models out of the market. There need to be tougher sanctions, including unlimited financial penalties, enabling the FCA to build a credible deterrence strategy against bad practice. There needs to be more effective supervision and enforcement. The FCA needs the power to order firms directly to compensate their customers for losses arising from business conduct that falls below required standards and to ban misleading advertising, which the OFT has found is one of the main areas of concern in this market. We think that good commercial debt management firms would welcome such an approach. I beg to move.

[Lord Borrie]

My Lords, I congratulate my noble friend Lord Stevenson on putting forward this amendment —and, indeed, my noble friend Lord Tunnicliffe, who has taken his place today. As we discussed at some length on the previous amendment, self-regulation has been attempted in the field of debt management, but with only questionable effect. Multiple debtors can, of course, be tremendously assisted by debt management companies arranging how the debts can be paid off over a period in amounts that the debtor can afford. The debtor often cannot manage their cycle of debt sufficiently, so needs assistance. Some commercial operators have sought as best they can to raise their game, but only last week, the Office of Fair Trading decided to revoke the licence of First Step Finance, a member of the Debt Resolution Forum, which runs one of these debt management self-regulation schemes. I expect that responsible operators—they do exist—and consumers would benefit a great deal from a regulatory structure under the aegis of the Financial Conduct Authority in the new legislation.

In Committee, I made an intervention about debt management that I followed up with a letter to the Minister setting out my concerns. I had an extremely helpful response from him. He pointed to the powers that the FCA will have in 2014 to make rules of conduct on matters falling under its remit. In his letter, the Minister said:

“The FCA could, for example, impose restrictions or requirements on debt management plans where it considers that such rules are necessary or expedient to advance the consumer protection or competition objectives … Under the new regulatory regime, the Government will look in the first instance to the FCA as an independent and expert regulator able to put in place the right framework for debt management plans”.

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[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.

Amendment 116ZA withdrawn.