Financial Conduct Authority Redress Scheme

Marcus Jones Excerpts

Thursday 4th December 2014 Commons Chamber

[Guto Bebb]

I am grateful for that intervention. The issue of consequential losses is of significant concern, because when the FCA redress scheme was established it clearly said that consequential losses would be dealt with on the basis of accepted legal principles, and yet of the £310 million-worth of consequential losses that have been paid out, £305 million relates only to interest at 8%. In other words, claims for other consequential losses have been derisory under the scheme thus far.

I want to highlight two other concerns. Tax treatment of redress payments is a real concern that can be dealt with by the Government and, as I have said, I will also touch on the exclusion of those businesses sold embedded swaps.

I will be quick, because I am aware that many hon. Members want to speak. I have a simple first example of the lack of consistency. When the scheme was established, it was decided that consequential losses and the redress would be paid in one instalment. Many businesses argued that that was unreasonable and unfair, and as a result of the second Backbench Business debate on this issue, nine of the 11 banks that are in the scheme agreed that they would split those payments. The FCA, however, despite saying that it wanted a consistent scheme, has allowed two banks to continue to insist on a single payment. That is a clear example of a lack of consistency.

The evidence I have gathered also shows that there is a lack of consistency on outcomes within individual banks, which clearly raises a question about how the work of independent reviewers is being overseen. If they are coming up with conclusions and recommendations for redress that are significantly different for businesses with very similar problems, there is a question as to whether the work of those independent reviewers is being monitored properly.

[Mr Marcus Jones (Nuneaton) (Con)]

My hon. Friend has been a stalwart campaigner on this issue and deserves great credit. On transparency, is there not a question about whether those reviewers, the review process and the reports they provide are truly independent? Constituents of mine who have been caught up in this have not received any of that information.

[Guto Bebb]

I am grateful to my hon. Friend for his intervention and agree with his rather depressing analysis, because my second point is that there is a concern about the significant lack of consistency on redress among the banks. We have to draw the attention of the House to the accusation published in The Times this morning that some banks have been putting pressure on their independent reviewers to make recommendations for redress that are acceptable to the banks rather than to the business in question. The allegation is made by a whistleblower who worked for KPMG on the independent review of RBS cases. It reflects anecdotal evidence from Bully-Banks, the campaigning organisation, that RBS customers have a 12% chance of getting a full tear-up, which is significantly less than the 65% at Barclays, 89% at Lloyds Banking Group and 64% at HSBC. If this is a consistent scheme, it is difficult to understand how the outcomes for individual businesses in one bank are so significantly different from those in other banks.

One of my concerns about transparency is that the FCA is not making available figures that highlight the outcomes on a bank-by-bank basis. It is simply giving us global figures. I accept that my concerns are based on anecdotal evidence, but it does seem to match evidence from other sources, including that provided to me by an independent reviewer working for HSBC who claims that HSBC feels that RBS is taking advantage, and that from the whistleblower from KPMG who worked on the RBS redress scheme who claims that RBS is challenging any claim over £750,000. The evidence is stacking up that this is not a consistent scheme.

[Mr Marcus Jones]

I thank my hon. Friend for giving way again—he is being very generous. Does he agree that the FCA should look for consistency rather than simply come to us as constituency MPs when we raise issues and tell us, in effect, that it agrees with a bank’s independent reviewer without explaining why?

[Guto Bebb]

I could not agree more. Put simply, the regulator should be regulating its own redress scheme. It is simply not good enough for the FCA consistently to say that the decision has been approved by the independent reviewer if there are doubts about their behaviour.

--- Later in debate ---

[Mr Marcus Jones (Nuneaton) (Con)]

I thank my hon. Friend the Member for Aberconwy (Guto Bebb) for the work and effort he has put into this issue not just on behalf of his constituents but on behalf of people who have been wronged by the banks up and down the country. He has done a fabulous job and we should all congratulate him on that.

I recall the initial debate in this Chamber on this important subject. I spoke about a business in my constituency that had been badly disadvantaged as a result of an interest-rate hedging product. The product in question was not just mis-sold by their bank; it was almost forced on my constituents by their bank. I was therefore extremely pleased when following that initial debate the FCA announced the redress scheme. The aims of the redress scheme suggested it would tick the boxes for my constituents—do the job and put my constituents back in the position they were in before the swap product was mis-sold to them.

It is important that we look at what the FCA scheme says in this regard. It states that the scheme provides for “fair and reasonable” redress, which

“means putting the customer back into the position they would have been in had the regulatory failings not occurred, including any consequential loss.”

So the FCA had in fact set a very high test, which in principle was the right and proper thing to do. It was a test that, if properly applied, would surely lead to a fair outcome for my constituents and many people similarly affected. In practice the FCA scheme has worked up to a point, but it has not gone anywhere near satisfying its original aims.

I shall deal with the issue of simple damages, which, on the whole, I believe has worked well. Most of the banks have agreed to pay simple damages and deal with the issue of consequential loss separately. There are two exceptions, however. One of those two banks is my constituent’s bank, Barclays, which has refused to do that. It has refused to deal with consequential loss separately. I will go into more detail in a moment about why that decision to link simple damages and consequential loss is so unfair, but first I would just like to touch on the mechanism that has been put in place for businesses to challenge the decisions of their banks regarding consequential loss. Again, I quote the relevant passage from the FCA scheme:

“All customers who receive a basic redress offer have the opportunity to make a claim for consequential loss…To facilitate this, banks are offering support for customers, for example, by providing guidance to help customers put their claims together.

Banks are also being pragmatic and customer-centric when customers ask for more time to put together their claims and will consider reasonable requests for extensions on a case by case basis…All claims are being assessed by independent reviewers. If claims are rejected, banks are providing constructive feedback so that…customers may be able to provide additional information to support their claims.”

My constituents, taking the FCA at its word, contacted their bank, Barclays, for information to help them ascertain their consequential loss. This information took the form of requesting a schedule to show what additional loan repayments and charges they had paid by taking the swap rather than staying on their original product. Initially there were positive noises from the bank, but the information never materialised, despite repeated requests for it. My constituents then decided that the best way to deal with this would be to have their case independently reviewed, as per the scheme. They were not told by Barclays that their case had already been reviewed, and to their dismay their review had been closed by Barclays. In essence, they were told by Barclays, “Take the simple redress, take the 8% or go to law.” I am not sure whether the review was independent—several right hon. and hon. Members have mentioned that issue. There was no report, no detail of who the review was carried out by and no detail of why my constituents were incorrect in their assertions. There was no transparency in this process whatsoever. I questioned this with the FCA, which did no more than back up the actions of Barclays—the whole arrangement between Barclays and the FCA seemed very cosy. At best I would say the FCA scheme was inadequate, but at worst I would say it was completely toothless.

This situation has, unfortunately, left my constituents having to pay the up-front cost to employ an expert to calculate consequential loss. They have also had no choice but to incur the up-front costs involved in considering whether litigation was economical or not. Now, 12 months from the initial offer made by Barclays, they are left with a choice: take on a David and Goliath fight with Barclays, without even the simple damages to help them facilitate it, or capitulate, taking the simple damages and the 8% for consequential loss and suffering the ongoing losses because they have not been put back into the position they were in originally. To a small business, such as the one I am talking about, that is Hobson’s choice: they have no choice whatsoever. Given what I have heard from right hon. and hon. colleagues, I am sure that this case is not unique; this is happening up and down the country, not just with Barclays, but with other banks.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

I have two companies in my constituency that I am particularly concerned about, Regal Fayre and Bennett Holdings. I very much hope that my hon. Friend will agree that Members of Parliament have come to take part in this debate, so the Minister and her team should take a specific interest in each of the cases.

[Mr Jones]

I thank my hon. Friend for his invention, and I will address that issue in a moment. I know that my hon. Friend the Economic Secretary takes a considerable interest in this and I am sure she will take that interest further as a result of what she has heard today. People such as his constituents and mine need action. One way in which they could get the redress would be if these people were properly protected under the umbrella of the ombudsman. My constituents qualify for the criteria of the ombudsman scheme, but the maximum award of damages the ombudsman can offer is completely inadequate. I have spoken to the Minister on a number of occasions and at some length about that. Many people are going to the ombudsman and finding that it is recommending damages above and beyond what it can impose. I am aware that some banks are willing to honour that, but I am also aware that in many situations banks are not willing to honour what the ombudsman is saying. That brings us back to the point about inconsistency raised right at the start of this debate by my hon. Friend the Member for Aberconwy.

At the moment, I would probably give the FCA five out of 10—some people may think I am being generous—in achieving its aims under the scheme. If the FCA and the Government want to get 10 out of 10 in the eyes of my constituents, the FCA needs to have more teeth—if it does not have the power to deal with these issues. They need to make sure that a number of things happen. First, they need to make sure that all banks decouple the payment of simple damages from the matter of consequential loss. They also need to compel banks properly to assist their customers to assess their loss.

[Guto Bebb]

Although the FCA scheme says there is no need to get professional advice to help with the consequential loss claims, the evidence seems to suggest that the people who have taken on such advice have a better outcome than those who have not. Is that not another example of inconsistencies?

[Mr Jones]

My hon. Friend is absolutely right about that. The issue of consequential loss is reasonably simple in some cases but extremely complex in others. Even in the most simple cases it is difficult for the people involved. We must not forget that they are “non-sophisticated customers” and it is difficult for them to assess their loss, so they should be helped in that.

Let me highlight a number of other things that must happen to make sure that people are satisfied that they have had a fair deal from this process. There needs to be far more transparency in the review process, for the reasons mentioned by right hon. and hon. Members. The banks need to be compelled to divulge the identity of the reviewer, and all the correspondence and other supporting documentation in relation to that review process. There also needs to be a review of the maximum level of compensation the FCA can award, to make sure that all small businesses are truly protected without having to go to law.

Finally, my hon. Friend raised an extremely important point about the tax treatment of people who get compensation. I know that the Government have already set a precedent in this regard; it may have been not for commercial loss suffered, but in relation to the Equitable Life scandal, which this Government have done their best to clear up. The payments made by my right hon. Friend the Chancellor to people affected by that scandal have not affected recipients’ tax positions. It is extremely important that we look carefully at this to make sure that the same applies in this regard.

This issue is about fairness; it is about fair redress for the loss that people have suffered. That redress can be fair only if the FCA scheme and the ombudsman can truly put people affected by this scandal back in the position they were in before they were mis-sold these awful interest rate hedging products.

--- Later in debate ---

[Andrea Leadsom]

I am sorry, but I will not give way.

Many Members have mentioned the financial ombudsman scheme’s money award limit that it is able to offer to customers. This level was deemed to be most appropriate. It does ensure that most complaints made by consumers and micro-enterprises can be addressed, but reflects the fact that cases involving very large sums of money may be more appropriately dealt with by the courts, rather than an informal process that has limited prospects of appeal.

In the event that the financial ombudsman scheme considers that fair compensation requires payment of a larger amount, it can make a recommendation that a firm pay the balance. That decision on the higher amount is not binding on the firm, but there is evidence that suggests that firms that subsequently go to the courts will find the courts take into account the recommendation of the FOS in determining what the outcome should be.

[Mr Marcus Jones]

Does my hon. Friend not accept, however, that many of these businesses are extremely small and are not in a position to go to law to see the ombudsman’s recommendation backed up, and that therefore the ombudsman’s remit in terms of the damages it can impose needs to be wider?

[Andrea Leadsom]

I agree with my hon. Friend in principle, but, as I have just set out, the intention has been that the sophistication test captures those who are not sophisticated as well as those businesses that are small and do not have the means to go to the courts. In addition, if they have been to the FOS, the intention is that that would cover the vast majority of cases. As I have said, I urge Members to write to me with any specific cases that they want me to look at.