Financial Services Bill (Eleventh sitting)

Stella Creasy Excerpts

Committee stage & Committee Debate: 11th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

I stress that that is very different from a consumer going to their credit card provider and asking for an increase in their credit limit; of course, that should be available to consumers. We are not being prescriptive on personal freedom, but we are saying that this could go some way to redressing the imbalance of power and information between financial service providers and their consumers. That is why we have tabled the new clause.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Davies, as ever, for the last time on this Bill. Let us make it a good one. I will try to keep it lively and maybe capture the attention of everybody on the Committee about the things we can do.

The new clauses provide the moment to finally talk about the big beast in this Bill: the Financial Conduct Authority. I say “big beast”, because, as someone who has tracked not only high-cost credit, but credit companies—as I know the Minister has for many years—I sometimes feel like Bob Peck in “Jurassic Park”, who played the warden, Robert Muldoon, who tried to warn people about the velociraptors, but was also supremely impressed by the way in which they evolved to be able to kill. In this case it is about evolving to be able to exploit.

It matters that we take a careful look at what the FCA is doing, because the FCA is our constituents’ best defence against the velociraptors of the credit industries in this country. I use “credit industries” widely, because for me this is not just about the high-cost credit industry. However, in supporting the new clauses, I want to share with the Committee the experiences around the high-cost credit industry and, in particular, the pay-day loan sector, because I think they speak to the challenges with the Financial Conduct Authority and why we need to amend the Bill, to ensure that as we give the FCA more powers, it truly has our constituents’ interests at the forefront of its mind.

I do not doubt the impact that the FCA has had. I want to put that on record, because the Minister and I have talked for a long time about my concerns about the FCA. I acknowledge that it has made progress. My point is about the pace at which it has made progress, about cutting through the stand-off that we sometimes see, whereby people recognise that this is a problematic type of credit or, as my right hon. Friend the shadow Minister has talked about, where issues arise for our constituents—the people who come into our constituency offices and tell us about their ongoing battles—and about ensuring that we do not just give them protection, which means avenues for redress, but actually prevent those problems. I believe that the FCA was set up to prevent problems, but if we look at its track record in some of those problem areas, we see where delays in dealing with them has led to our constituents paying the price.

Bear with me, Committee; I think it is worth sharing that example, because it explains why these amendments make sense. Indeed, I believe the Minister agrees with me on this. A bit like earlier, with the lead generators, I am sure he already has a folder full of examples of where the FCA has done brilliant work in tackling consumer detriment. In fact, I can see all the paper—goodness me, all the trees that have gone into that! However, I know that he wants the FCA to be more agile and does not want to have people like me continually coming to him and him knowing that there is a problem, but seeing this trade-off, as this aspect is overthought almost, with too much emphasis on the unintended consequences of acting and no emphasis on the unintended consequences of not acting on some of these issues. In order to cut through that, these amendments would give a clear direction to the FCA about what consumer detriment is, why and how it needs to act, and the particular issue it needs to take into account when it comes to debt.

On Tuesday, we talked a lot in this Committee about the debts already in our communities and the debts to come, which is why this is an urgent issue that cannot really be dealt with in another review or consultation, which will go on for 18 months, because by then, in every one of our constituencies, too many people will have lost their jobs and possibly their homes, and will be in what we are calling problem debt for decades to come. Indeed, I believe this Committee is already having a positive impact on that conversation, because on Tuesday we talked about the importance of making problem debt as much of an issue for the sidebar of shame in the Daily Mail as Kim Kardashian’s derrière, and last night I saw that the Daily Mail had started talking about the horror of middle-class people having to go to food banks.

Clearly we are starting that conversation in our country, but we need to do much more. Why do we need to do much more? Because it took too long to deal with the payday lending industry. In 2010, when I was first elected, I already knew many colleagues in this place were seeing these companies on their high streets and the problems with the eye-watering interest rates, where people thought they had missed where the decimal point was. Yet nothing was done for years, and those companies exploded, not just in our high streets but online, and our constituents got into huge amounts of debt. I know that the Minister agrees with me that it took too long. I know, too, that the Minister is not his predecessor, who, when I first went to see him about payday lending, literally patted me on the back, congratulated me on finding an issue that I could issue a press release to my local community about and sent me on my way. I know he is not like that; he recognises when there is a problem. However, if he looks at the regulatory history of the FSA on this issue, he will also see that there was a problem.

Let me set that out with companies that people will have heard of. They will have heard of Wonga, QuickQuid and BrightHouse, all of which operate in constituencies across the country. All these companies have collapsed or are in financial difficulty because of the debts they owe to their customers, our constituents, because of the way in which they lent them money on credit. They have not collapsed as a result of the work of the FCA, but because of the work of the ombudsman. In 2014, when Wonga was clearly a problem for so many of our constituents, the FCA agreed a redress scheme for 375 customers and announced that it had appointed a skilled person to monitor the new lending decisions that Wonga was going to make, to ensure that the issue was sorted. In November 2015, the FCA agreed a redress scheme for 4,000 QuickQuid customers worth £1.7 million, and in October 2017 it agreed a £14.8 million redress scheme for 250,000 BrightHouse customers in respect of 384 agreements for lending that may not have been affordable.

That is the critical issue here. At every point, the FCA has acted to look at the affordability of the loans. However—given it is that time of year—it does not take a rocket scientist to work out that if we ask turkeys to decide what is on the menu for Christmas, they will often say that a nut roast is better, and that is what happens when we ask these companies whether a loan is affordable. They would tell their clients that they could afford these loans, because the way they made their money was to re-lend. It was not for someone to borrow from them and pay it all back—it was for that person to borrow from them and get into a cycle of continually borrowing from them, because they would make a lot more money. Once a person was hooked, they would borrow and borrow. That was the decision about affordability.

At various points the FCA has been brought into these companies to determine whether they were making good affordability decisions—whether, in layman’s terms, they were ripping off our constituents. At every point, that affordability decision did not meet the needs of those customers. How do we know that? Because the ombudsman then had to interfere to help people who were in debt. The result was the same: the lenders all fell into administration, not because of the action of the FCA but because the ombudsman was making them repay our constituents, who had been ripped off by them.

--- Later in debate ---

[John Glen]

I thank the hon. Ladies and the right hon. Gentleman for their speeches, to which I have listened carefully. I will try to address fully the 10 new clauses that have been tabled. In essence, they relate to the effectiveness of the FCA’s oversight; that is the substantive point behind them.

The lead new clause is new clause 6, which has two functions. Subsection (2) requires the FCA to have explicit regard for vulnerable consumers when discharging its consumer protection objective, and subsection (3) introduces a statutory requirement for the FCA to make rules requiring authorised persons to adhere to a duty of care when providing a product or service.

UK financial services firms’ treatment of their customers is governed by the FCA in its principles of business, as well as specific requirements in its handbook. The FCA’s principles for businesses require firms to conduct their business with due skill, care and diligence, and to pay due regard to the interests of their customers and treat them fairly. The FCA already has recourse to disciplinary action against firms that breach the principles.

The FCA has already announced that it will undertake work to address potential deficiencies in consumer protection, in particular by reference to its principles for businesses. Although the coronavirus pandemic has caused the FCA to reprioritise its resources and delay certain pieces of work, including the next formal stage of this work, delaying these initiatives has ensured that firms are able to focus on supporting their customers, including the most vulnerable, during this difficult period.

I draw attention to the second purpose of new clause 6, alongside new clauses 38 and 39, which require the FCA to introduce a duty of care. A number of other amendments here also relate to the duty of care.

The Government believe that, as the FCA is already taking steps to ensure that consumers are treated fairly and financial services firms are obliged to exercise due care and regard when offering products, services and advice, a statutory duty of care requirement is not necessary. I have already set out a number of actions that the FCA is taking to ensure that customers are properly protected.

On new clause 39 in particular, the Government believe that the scope, which applies to all financial services providers, is inappropriately broad. For example, it is unclear whether that would include persons exempt under the exemptions order, which includes entities ranging from central banks to any employer offering a cycle-to-work scheme. Furthermore, there is no indication of the territorial scope of the financial services provider. Assuming that the duty of care would apply only to actions being done within the UK, the vagueness is still likely to lead to enforcement difficulties if a provider is based outside the UK.

Finally, it is inappropriate to apply the provisions to all financial services providers as no assessment has been made, in relation to unauthorised firms, of the extent to which the existing common law and other consumer protection legislation is or is not sufficient to achieve the right level of consumer protection. For example, where providers are subject to supervision or oversight by other professional bodies, as is the case with professional firms, it is unclear how this proposal would interact with the remit of those bodies who may be better placed to assess matters relevant to duties of care.

New clause 40 would require the Treasury to review at least once a year the case for instructing the FCA to introduce a duty of care for all financial services providers. The Treasury will of course keep this question under consideration. However, it is disproportionate to set this requirement in statute. I have already set out the actions that the FCA is taking to ensure that customers are properly protected.

I want to pause here and note that I have enormous respect for the perspectives of the hon. Member for Walthamstow on this issue. I do not have her encyclopaedic knowledge of dinosaur names, but I do respect her engagement on the issue. I have engaged very closely with the FCA. I recognise that she is still dissatisfied with where things have got to and she makes some reasonable points, on which I am happy to continue the dialogue, but there have been significant changes in recent months with respect to the work that is going on—that is live at present. I suspect she will not be satisfied, but let me carry on and then we can see where we get to at the end of this.

On new clause 41, the Government believe that the FCA, as the independent conduct regulator for the financial services industry, is best placed to judge the merits of a duty of care for the financial services industry. It would therefore be inappropriate for the Treasury to instruct it to impose a duty of care on authorised firms, although that dialogue is ongoing.

On new clause 42, the FCA has already published a feedback statement following its discussion paper on duty of care last year. The FCA will also publicise the findings of its upcoming work on how to address potential deficiencies in consumer protection. Therefore, the Government view is that it would be unnecessary at this point for the Treasury to report on the FCA’s position on the need for a duty of care.

The Government believe that there are sufficient protections in place without expanding the FCA’s statutory consumer protection objective or introducing a statutory duty of care, but I reassure members of the Committee that we will continue to work closely with the FCA to keep this issue under review—I am not saying “No, never.”

New clause 15 would require the FCA to have explicit regard to the prevention of consumer detriment, including the promotion of unaffordable debt, when discharging its consumer protection objective. The Government believe that the FCA, as the UK’s independent conduct regulator, is best placed to judge how to protect financial services consumers from detriment, including that which arises from the promotion of unaffordable debt. The existing legislation accounts for the prevention of consumer detriment as a result of section 1C(2)(e), which outlines

“the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the degree of risk involved…and the capabilities of the consumers in question”.

[Stella Creasy]

I am conscious of time, but approximately 1 million households that could ill afford it have lost out on about £1 billion of compensation from Wonga and QuickQuid. Does the Minister really believe that under the existing regime that he is defending, there has been sufficient recognition of what it means to consumers when it goes wrong, and that there is no need for change?