Financial Guidance and Claims Bill [Lords]

Ronnie Cowan Excerpts

2nd reading: House of Commons
Monday 22nd January 2018 Commons Chamber

[Neil Gray (Airdrie and Shotts) (SNP)]

May I say on behalf of those on the Scottish National party Benches what a pleasure it is to see you back in the Chair where you belong, Mr Deputy Speaker? Welcome back.

I am pleased to have the opportunity to speak for the SNP in this debate, and I should say at the outset that we broadly welcome the Bill’s aims and will not oppose its Second Reading.

By way of background and context, I should say that the Bill sets out in part 1 the proposal to merge three Government-sponsored guidance services—the Money Advice Service, the Pensions Advisory Service and Pension Wise—to create a new single financial guidance body. The UK Government hope that this will help to

“ensure that members of the public can access good-quality, free-to-client, impartial financial guidance and debt advice.”

The SFGB is expected to be set up and operational from late 2018, as predicted during the passage of the Bill through the House of Lords.

Part 2 will make changes to the regulation of claims management companies. CMCs provide advice and services to assist people in making compensation claims in various sectors, such as personal injury and financial products such as payment protection insurance.

The Government have expressed concern that

“there is evidence of malpractice”

in the industry. In March 2016, following an independent review, the Government said that they would change the regulatory system for CMCs. Under the Bill, the regulatory responsibility will pass from the Ministry of Justice to the Financial Conduct Authority.

Also under part 2, complaints handling will be transferred from the legal ombudsman to the Financial Ombudsman Service, and the FCA will be given the power to impose a cap on the fees that CMCs can charge for their services. Ahead of that, an interim cap on fees will apply to payment protection insurance claims.

The Bill also makes provision for the devolution of levy funding associated with debt advice provision. Powers over debt advice are, of course, already devolved to Scotland. I shall elaborate on all those elements during my speech.

On advice services, we welcome any measures that make the pensions or financial markets more accessible for people. There are aspects that we wish to query, and we hope to get some reassurances from the Minister in his response. First, I would like some detailed reassurances from the Minister that the amalgamation of three expert services into one will not dilute the overall service in any way, in terms of either output or quality. The Minister is shaking his head, but I hope he can provide some detailed reassurance as to how the Government will make sure of that. Whenever there is a merger of this sort, it normally results in a reduction of either specialism or capacity. I hope that he can assure us all that neither will happen. I also hope he will commit to significant investment in the new body to ensure that it is properly promoted and that awareness is therefore increased. Government and Opposition Members have already stressed the importance of that.

We need reassurances on funding. It appears that all funding discretion currently rests with the Treasury, so who will take the decision on the budget of the new single body? Who will be able to challenge the Treasury on any additional funding? It is clear that for the new body to work, it needs to be properly resourced by both the financial sector and the Government. I ask because we all—not least the Government, I am sure—hope that the Bill will do some of the work necessary to catch up on some of the problems with pension freedoms that we all warned about and that are now starting to happen.

According the FCA, more than a million defined-contribution pension pots have been accessed since George Osborne’s reforms were introduced. The FCA also says that it has become the new norm to access pension pots early. That is where our concern starts. Between October 2015 and September 2016, the number of non-advised drawdown sales was on the rise, and it is currently at 30% of drawdown sales, compared with 5% before the reforms. Some 63%—almost two thirds—of all annuity sales are now to consumers who have not received advice. Indeed, the FCA estimates that only around 20% of consumers who accessed a DC pension in the third quarter of 2016 had a Pension Wise appointment either by telephone or face to face. That is a huge concern that I am sure the Government share. Indeed, I know that it now concerns them, because they are trying to play catch-up on the issues with pension freedoms that we warned about when they were being introduced. I am not sure that the Bill adequately addresses those issues yet.

I am not sure that the Bill addresses those customers who do not make a decision upon retirement. We are seeing more people choosing just to draw down the pot and put it in the bank. With interest and inflation rates as they are, those decisions are clearly losing people money. But people are doing it because that is what they know and are comfortable with. Even to seek pensions advice or guidance is a daunting, complex and alien prospect to most people. I am keen to hear from the Minister about not only his expectation for increased usage of the new service, but how the Government plan to ensure that the service engages people who are put off talking about pensions at all. That will probably need to start with what they plan to call the organisation, because the “single financial guidance body” probably is not the most intriguing, approachable or marketable name.

I want a firm commitment from the UK Government that they will not in any way attempt in Committee to water down the amendment to clause 5, secured by the Opposition in the Lords, that requires scheme managers or trustees to check whether members have received any guidance. In fact, I wonder whether the Government wish to go a little further towards what some stakeholders feel might be more appropriate, which is automatic guidance with an opt-out system.

When most people are near retirement, they will encounter the pensions world and its lexicology and products for the first time. It is intimidating, which is why we see some people using pension freedoms to bung their pots in the bank. For them to get the most out of their investments, we need to make sure that people are properly guided to make not only a decision, but an informed decision that is of benefit to them. It is a high-stakes game: once an annuity is purchased, that is it—it cannot be reversed. We need to ensure that people have the confidence to take a decision, and that comes from being informed that taking no decision and hoarding cash may not be the best decision and that there is specialist help out there and it does not have to cost.

The Government also tabled a useful amendment to clause 2 in the Lords, which seeks to ensure that cognisance is taken of the needs of people in vulnerable circumstances. Perhaps that could be strengthened and clarified by including it in the clause 3 functions.

I would also appreciate it if we had a word from the Minister as to whether the UK Government plan to provide greater clarification on what guidance and paid-for advice will be in terms of the Bill. Providers and other stakeholders will appreciate that clarification.

Part 1 also covers action on cold calling. Clearly, we are delighted that the campaigning efforts on cold calling by the Scottish National party, the Scottish Government and my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) have started to pay off. I congratulate her on this partial win, which should hopefully make a difference to people, particularly pensioners, getting bombarded by nuisance calls. Recent research from the Money Advice Service suggests that there could be as many as eight scam calls every second—the equivalent of 250 million calls a year. Citizens Advice has calculated that 10.9 million consumers have received unsolicited contact about pensions alone since April 2015. Perhaps the UK Government may wish to use the opportunity in clause 4 to go a bit further on cold calling and hold company bosses accountable, as suggested by my hon. Friend in her Bill 18 months ago.

Clause 9 appears to afford a lot of power to the Secretary of State to direct the exercise of the functions of the new body, stating that it must

“comply with directions given to it by the Secretary of State”.

I hope that the Minister will explain why the UK Government feel that that is a necessary provision and how it will not be abused.

On debt, I want to query something that the Secretary of State said at the Dispatch Box in her opening speech. If I picked her up correctly, I think she said that household debt was falling. If that is the case, I am sure that she would want to correct the record because, clearly, household debt is not falling. Standard & Poor’s came out with very important research at the back end of last year about its concern regarding UK rates of household debt. Perhaps that could be clarified in time either by the Minister or the Secretary of State.

[Ronnie Cowan (Inverclyde) (SNP)]

Very briefly, on the subject of clarification, does my hon. Friend agree that, under devolution legislation, financial and economic matters—fiscal, economic and monetary matters, including financial services—are specific reservations held here at Westminster?

[Neil Gray]

That clears up an earlier point of issue in a previous speech regarding where responsibility lies for the regulation in these areas. I thank my hon. Friend for his intervention. We are pleased that the Scottish Government have secured an improved allocation in terms of the proposed funding formula for devolved levy funding for debt advice provision. That improved allocation will ensure that Scotland’s share takes account of our adult population share and the levels of indebtedness in Scotland. As a result of those discussions, Scottish Government levy funding will increase from around £2.2 million to more than £4.7 million, according to estimates from the Scottish Government.

The Scottish Government have also obtained agreement on certain wider principles that shall apply in respect of the new body, in that it must take greater account of differences in the money and debt advice landscape in Scotland to ensure that available resources are pooled effectively, delivering a more holistic and joined-up advice landscape. It must also establish a committee with membership drawn from representatives from each of the devolved Administrations, thereby embedding the Scottish Government in its governance arrangements, providing the Scottish Government with influence and ensuring that collaborative working is achieved in practice across money and pensions guidance. It must also be capable of channelling funding in a way that best ensures effective oversight and co-ordination or delivery of debt advice, in the light of the devolution of levy funding.

Keith Brown MSP, the Cabinet Secretary for the Economy, Jobs and Fair Work, has met the chief executive and Scotland manager of the Money Advice Service as part of a series of Scottish Government stakeholder engagements, which are intended to help to ensure that there is a seamless transfer of debt advice responsibilities to the Scottish Government, and that the new body engages effectively and delivers for Scottish consumers from the outset.

I am grateful to StepChange for its briefing and for its questions to the Minister: will the Government agree on the importance of a certain implementation timeframe to ensure that organisations can plan and develop the relevant systems to deliver the breathing space scheme; will they consider amending the Bill to commit to a clearer target implementation date, for instance to have regulations in place by the end of 2019 so that the scheme can be launched by 2020; will they confirm their manifesto promise and commit to introducing statutory repayment plans as part of the proposed breathing space scheme; do they agree that the initial period of breathing space protection needs to be long enough for people to gain acceptance for a long-term solution to their debts; and will they consider allowing a regulated debt adviser to extend the initial protection where necessary?

Does the Minister agree that the breathing space scheme should cover all a person’s debts, including—this point has already been made—debts owed to the public sector? Does he agree that it would be unhelpful to the scheme’s success to have creditors outside the scheme undermining people’s ability to stabilise their finances? Could he also please clarify what powers will be conveyed under clause 21(7), which allows the Secretary of State to amend any provision made by an Act of Parliament, an Act of the Scottish Parliament, a Measure or Act of the National Assembly for Wales, or legislation of the Northern Ireland Assembly? That seems rather far reaching to me, so I would appreciate some guidance on the reasoning behind that provision.

With regard to part 2 of the Bill, which relates to claims management companies, I hope that the Minister can answer some queries and reassure us. Lloyds Banking Group has highlighted that, although a cap on the fees that CMCs can charge consumers on PPI claims is welcome, CMCs are bringing other types of claims on behalf of consumers that potentially require strengthened regulation—packaged bank accounts, for example, which are current accounts that come with a package of extra features, from mobile phone and travel insurance to better rates on overdrafts and loans. Have the Government looked widely at the claims being brought by CMCs, and can they provide an assurance that customers are not potentially being exploited through exorbitant fees for other types of claims?

I am also concerned that the Financial Conduct Authority should take ownership of this from the Ministry of Justice as quickly as possible, to ensure that people are not exploited in between times. We must bear in mind that, with a deadline for PPI claims set in the next 18 months, CMCs will be rather busy trying to muster business in that period. We want to ensure that we can protect vulnerable people as much as possible.

In conclusion, the Bill has the right intentions and moves us in the right direction. I have posed a number of questions, and if the Minister is unable to answer them directly this evening, I hope that he will follow them up in writing in plenty of time before the Bill goes into Committee. I am grateful to Just, the People’s Pension, Lloyds Banking Group, StepChange and others for their briefings for today’s debate. I look forward to maintaining close and constructive engagement with the Bill as it progresses to ensure that it guarantees consumer rights, offers proper support for those needing advice and protects people from those seeking to exploit them.

--- Later in debate ---

[Ronnie Cowan (Inverclyde) (SNP)]

I welcome the chance to speak in this debate. I will make a short speech on a topic that has been touched on by Members on both sides of the House. We seem to agree that the introduction of a duty of care for financial service providers would be a good thing. That is not currently in the Bill, but the Bill gives us a vital opportunity to take steps towards introducing such a duty of care and, in doing so, transforming the support that customers receive from their financial service providers.

As is recognised in the Bill, ensuring that people have access to the right help and advice as soon as possible is essential to stopping financial problems escalating. For people who are ill, or who are considered vulnerable in other ways, it becomes even more important. It is well known that being diagnosed with a health condition such as cancer can come with a huge and sudden financial impact. Research by Macmillan Cancer Support found that four out of five people with cancer are impacted financially by their diagnosis, which makes them, on average, £570 a month worse off. That impact, as one would expect, leaves many people struggling to keep up with their financial commitments.

Banks, building societies and other financial services providers are in a unique position to step in. They could offer short-term measures, such as flexibility on mortgage payments or interest freezes on credit cards and loans, as well as ensuring that customers are signposted early to financial help, which can help them to avoid problem debt. Some banks have made progress on that. For example, Lloyds and Nationwide have worked in partnership with Macmillan to deliver specialist support to customers who are affected by cancer. However, the overall picture is still mixed. Only one in nine people with cancer tell their bank about their diagnosis. Many people do not think that their bank can help them, or, worse, they worry that disclosing their diagnosis will have negative consequences. Of those who did tell their bank, nearly a quarter were dissatisfied with the support they received. That, to me, seems like a huge missed opportunity.

When someone is living with a long-term health condition such as cancer, the last thing they should be worrying about is money. But if people do not feel comfortable accessing support, or the support is not there when they try, their financial worries can quickly escalate. If financial service providers had a legal duty of care towards their customers, people would be given the confidence to disclose their diagnosis, knowing that they could trust their bank to act in their best interests.

For banks and other providers, that would mean being ready to respond to their customers’ needs, and designing the vital products and services that would help people focus on their health. Of course, the duty would not just help people with cancer. It would have wide-ranging benefits because it would ensure that the banking sector played its part in helping customers, particularly those who might be vulnerable, when they needed it most.

As Members may be aware, the Financial Conduct Authority has committed to publishing a discussion paper on the duty of care. Although that is welcome, I and many other Members have significant concerns about the timescale. The discussion paper will form part of the FCA’s handbook review, which will not take place until after the UK’s withdrawal from the EU is clear. What that timeframe means in reality is not yet clear. What we know is that a discussion paper would be only the start of a long process of consultation and legislation, so it could be many years before a duty of care came into effect. Meanwhile, during that time, nearly 1,000 people every day in the UK will receive the devastating news that they have cancer.

This is key. Often when we discuss such issues to do with financial regulation, the debates are technical and can feel removed from the general public. The duty of care is different. The public are starting to take a real interest in the issue, and those who see the terrible impact on people of conditions such as cancer are demanding that we take action. Take Miranda, a Macmillan nurse. In her role helping patients, she sees the financial impact of cancer at first hand. I want to share a couple of quotes from Miranda with the House:

“It’s enough to cope with the effects of the treatment and the psychological effects of the diagnosis, without having to worry about money as well”.

She continues:

“To relieve the pressure of not having to pay your mortgage for six months or so…will be a tremendous help to people.”

Supported by Macmillan, Miranda has written an open letter in support of a duty of care. It has been signed by nearly 20,000 people—that is 20,000 people who want action. They do not want to wait years for change. What would the Minister say to those people? How would he justify any delay to them?

Of course, we all appreciate that Brexit will have significant implications for the financial services industry and that they will need careful thought, but that is not a valid reason for delaying the duty of care. Action is needed now, so that future changes are built on the foundation that financial services firms have a duty of care to their customers.

I urge the Minister to listen to what is being said today and to commit to working with the FCA to deliver faster action on the duty of care. He should listen to the cross-party concerns that have been set out here and in the other place. He should listen to the numerous organisations that have supported the call for a duty of care, to the Lords Select Committee on Financial Exclusion, which recommended its introduction, and to the 20,000 people who have called on the Government to take action. I thank Macmillan Cancer Support for its parliamentary briefing, which has contributed in a big way to my speech. Finally, will the Minister meet representatives of Macmillan Cancer Support to discuss the introduction of a duty of care?