Financial Services (Banking Reform) Bill

Lord Walney Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

I will say a little more about the timetable in a moment, but it is a bit unfair of the hon. Gentleman to say that the Government have had years to introduce the cap, when the Government whom he supported had 13 years to introduce a cap and did nothing.

A number of steps must be taken before the cap can be implemented. All of those steps are important and if they are rushed, it will put consumer protection at risk for the sake of speed. There must first be evidence gathering and analysis. That is critical in getting the cap right. The FCA will draw on the evidence that the Competition Commission has collected. It might also have to get information from lenders and others in the market to get on with its work as quickly as possible. Yesterday, the Government laid secondary legislation before Parliament that will allow the FCA to seek information from the industry. That will support the design of the cap and the cost-benefit analysis that the FCA must issue.

The second and most vital part of the process is the consultation with interested parties on the proposals and their impact, as set out in the cost-benefit analysis. The final component that is necessary for the successful implementation of the cap is that lenders must be given a short period in which to update their systems and processes to meet the new requirements and become responsible, compliant lenders. Difficult though that is, we are not prepared to compromise on the process because that could lead to poor outcomes for consumers.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

rose—

[Sajid Javid]

I need to plough on; I am sorry.

I thank the hon. Member for Kilmarnock and Loudoun for giving me the opportunity to set out the FCA’s plans for implementation. I hope that has provided reassurance that the FCA is committed to taking action as soon as possible, and that she will feel able to withdraw her amendment.

In summary, the Government believe that a cap on the cost of payday loans is necessary better to protect consumers from excessive spiralling costs, working alongside regulatory interventions that the FCA is already proposing to clamp down on the causes of consumer harm in the payday lending market.

Amendments 162 and 163 will provide significant benefit to consumers and financial services businesses that have been affected by poor practice in the claims management industry. Claims management companies have a legitimate role in helping consumers claim compensation, but a minority have acted irresponsibly. Despite the threat of suspension or cancellation of authorisation, some CMCs act speculatively and submit illegitimate claims that clog up the system and ultimately impose costs and delays on consumers. The amendments will give the claims management regulator power to impose financial penalties on CMCs that are guilty of misconduct.

The Government’s amendments provide a new form of redress—including financial compensation for consumers affected by a poor service from CMCs—by introducing a mechanism for the cost of handling complaints to be recouped from the industry. Together, the amendments will help ensure that the claims management industry acts more responsibly, and where it does not the regulator and Office for Legal Complaints can take action.

The Government agree with Lords amendments 153 and 154 that provide the PRA with a secondary competition objective and the FCA with competition powers that are exercisable concurrently with the Competition and Markets Authority. The Government are committed to improving competition in our banking sector to drive up consumer outcomes. A secondary competition objective for the PRA was recommended by the PCBS, and the Government accepted it. That objective will ensure that the PRA remains above all the watchdog for financial stability, but we will require it to play a more proactive role on competition.

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[Cathy Jamieson]

That is an important issue that ought to give us more food for thought. In certain circumstances, families might need to borrow on a short-term basis and be perfectly able to pay it back on time without it causing them long-term damage, but they would want to know, before taking out such a loan, that it could damage their credit rating.

I want to return to those who perhaps suffer most from the payday lending sector. Despite changing their tune and bowing to pressure from the Opposition and campaigners at the sharp end, the Government have not gone far enough to protect hard-working families from falling into unmanageable debt. That is why, even at this late stage, we have tabled our amendments. On the first, which relates to data sharing, I am sure the Minister will be aware of the concerns set out by StepChange Debt Charity about how the FCA’s proposed responsible lending rules fail to make payday lenders use real-time credit data in their loan decision making. It says that evidence from its clients suggests that payday lenders often use out-of-date credit data and therefore fail to pick up on whether borrowers have existing payday loans. Understandably, it then makes the point that lenders cannot be sure they are lending responsibly.

As we have heard repeatedly, multiple payday loans from different lenders are a major cause of debt problems. Two thirds of StepChange clients reporting financial difficulties with payday loans have been granted overlapping payday loans from different lenders. It also argues that the regulator’s responsible lending rules transpose Office of Fair Trading guidance into binding rules but continue to allow payday lenders to make loans without using that up-to-date information about borrowers’ existing financial commitments. That is obviously causing particularly severe problems for those who get into difficulty with multiple payday loans.

We should listen to what StepChange tells us about the growing problem of people being lent one unaffordable loan after another as they struggle to pay off the loans falling due. It tells us that more than 30,000 people contacted it for help with payday loans in the first six months of 2013—almost double the figure for the previous year. The average amount owed on payday loans by its clients has risen to more than £1,600, creating severe financial difficulties for those clients. In some circumstances, even a whole month’s income would not cover the repayments. It also tells us that a typical client with payday loans now has three payday loan debts and that one in five have five or more with different lenders.

Therefore, it is clear that different payday lenders granting overlapping loans is a major cause of payday debt dependency and that current procedures are not working. It is thus sensible for the FCA to require payday lenders to make use of up-to-date credit information on a borrower’s short-term commitments when they decide whether to issue or extend a loan. Payday lenders have long claimed to be working towards a system of sharing credit data in real time. They have been talking about it for more than two years, but there has been no solution.

[John Woodcock]

My hon. Friend is making a very good speech. We have heard the Minister say at the Dispatch Box that the Government are now committed to tackling this issue, whether belatedly or not. This is such a good opportunity to show that we can all be as one in the House and to take action where there is still clearly a problem, as she is so amply setting out.

[Cathy Jamieson]

I thank my hon. Friend for his kind words about my comments. I am simply putting forward the views brought to us by the people at the sharp end who have experienced the worst problems from payday lending. I pay tribute to those people again for doing so. I agree that it would be wonderful if we could secure some further consensus on these problems and send a clear message to the industry, particularly on advertising. The advertising spend of the top five payday lending brands apparently stands at about £36 million a year. That seems to suggest that they are investing heavily in attracting new borrowers at the same time as being not quite as willing to invest in responsible lending.