Financial Services (Banking Reform) Bill

Debate between Lord Walney and Sajid Javid

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.