Financial Services (Banking Reform) Bill

Stella Creasy Excerpts

Wednesday 11th December 2013 Commons Chamber

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

My hon. Friend is making a fantastic case to show why real-time credit checking is so important in this industry. Does she agree that, in any other industry where money was being lent, the lenders would want to know about any other obligations that the people being lent to had. Is it not curious that this industry seems not to want to know what others are lending to their customers, and does this not reflect their irresponsible approach to their consumers?

[Cathy Jamieson]

My hon. Friend, who has campaigned for many years on this particular issue, makes a very good point again. It seems to me to make perfect sense for anyone who is lending money to want as much information as possible to ensure that the correct decision can be taken. Our amendment would mean that the FCA would have a duty to introduce a system for sharing credit data so that payday lenders could not continue to evade their responsible lending obligations.

--- Later in debate ---

[Mr Tyrie]

On payday loans, I only want to make two very quick points. First, we need to be very careful that EU regulation does not drive a coach and horses through anything we might try to do domestically. I also want to reinforce the point that it is extremely important not to displace what we may disapprove of in the formal sector into the informal sector of very nasty loan shark practices. This will require a great deal of supervision and care.

[Stella Creasy]

Will the hon. Gentleman give way?

[Mr Tyrie]

If the hon. Lady will forgive me, I will not, because I promised the Chair that I will speak for only three minutes. The hon. Lady will have an opportunity to make her own speech in a moment, and she has been a doughty campaigner on this subject for some time.

I want to speak briefly about part 5 of the Bill, which is the part that creates the payments regulator. This implements a recommendation the Treasury Committee made two years ago. It is worth explaining the origins of our recommendations.

The Payments Council—which is dominated by the banks and other firms involved in the payments system—decided in 2011 to abolish the cheque, without providing any explanation of how it would provide an adequate replacement. That was a profound mistake, and the Committee decided to investigate. The justification for that decision looked pretty threadbare and the abolition also carried a considerable consumer detriment both for charities and for a lot of people who use cheques. I did 20 radio and TV interviews on this subject after the report was published. I asked each of the interviewers whether they had a chequebook; 19 of them said they did and they very much wanted to keep it. I think that brings home the value of cheques. This does not affect only the elderly; quite a large group of people want to keep some kind of paper-based transaction system for the time being.

Under pressure the Payments Council did a U-turn and cheques have been retained. The Treasury Committee also looked at how such a crass decision could have been taken in the first place. We concluded that the explanation lay with the structure of the Payments Council itself. Frankly, it has been little more than a poodle of the industry, and it certainly could not reasonably claim to act on behalf of consumers. A reasonable case can be made, however, that it is a monopoly controller of a crucial banking service. We recommended that that responsibility for the payments system be brought within the ambit of regulation, and we gave an outline of how that should be achieved. Amendments 63 to 134 would implement that central recommendation of our report. It is now up to Parliament to ensure that the FCA is much more responsive to the needs of consumers and competition, on this and a good number of other issues, than was its predecessor. I warmly welcome this part of the Bill.

--- Later in debate ---

[Sajid Javid]

I have had discussions with the FCA about this. We expect that by the end of next year the process will be set up, but there are a number of issues to be dealt with before that can be confirmed with more certainty. That is the time scale that the industry is working towards.

Let me move on to some of the other issues that were raised in relation to high cost credit. The hon. Member for Kilmarnock and Loudoun mentioned excessive bank charges, and I agree with her concerns. The Government are concerned about default charges across the unsecured lending market, not just the payday loan market. The Government are strengthening regulation for consumer credit across the board by giving responsibility to the FCA. The FCA recently committed to consider carrying out a thematic review of market practice in relation to fees and charges, once it has full regulatory authority over consumer credit.

I will turn briefly to the timetable for introducing a cap on the total cost of payday lending, which we discussed earlier. As the shadow Minister said, 2 January 2015 is just a back-stop. Of course I would like to see it introduced sooner, as I think we all would. However, as we have discussed, it is better to have a cap that works and protects consumers, rather than one that has been forced on the regulator by an artificial time scale. It is important to listen to the FCA, the regulator that will establish the cap, so it is worth reiterating what Martin Wheatley has said:

“It is very important that we are clear with you on the practical implications of any further shortening in the timetable, the principal one being that we believe it is impossible to have as strong a cap based on a shorter deadline. To such a tight timetable we would be forced to perform less analysis on the methodology and level for any cap, and so would be forced to set the cap at a more conservative level (that is, higher) to reflect the inherent legal risks. This cannot be the intended outcome from a consumer protection standpoint.”

It would be foolish for this House to ignore the FCA’s view, as I am sure we all share the objective of having a cap that works and protects consumers.

[Stella Creasy]

We know that 1 million families in this country have already said that they will pay for Christmas this year with a payday loan because of the cost of living crisis they are facing. The Minister is talking about delaying the introduction of any form of cap until 2015, so there is a real question about the impact that might have next Christmas, which will be the default position of not supporting the proposed amendment. Introducing even a conservative cap before next Christmas might do something to lessen the damage that those toxic types of lending are doing to people, given that the cost of living crisis will continue for the year ahead.

[Sajid Javid]

I thank the hon. Lady for her comments. As she will have noted from the letter I just quoted from Martin Wheatley, one of the concerns about a conservative cap is that it would be open to much greater legal risk. It would serve nobody in this House if there was some kind of legal challenge to a cap and how it works if the process has not been followed properly and if some people believe that the FCA has not followed its own rules, particularly on the time for consultation. Had the hon. Lady been here at the start of the debate, she might have heard that the Competition Commission’s investigation into payday lending, which is already under a tighter timetable than it usually has—it is normally around two years, but it has agreed to make that 18 months—will report in November next year. I think that everyone would agree that it is very important that the FCA takes into account the results of that investigation.