Financial Services Bill

Debate between Stella Creasy and Susan Elan Jones

Monday 23rd April 2012 Commons Chamber

[Stella Creasy]

The hon. Gentleman slightly pre-empts me. I was about to say that the doorstep market, 67% of which is owned by Provident Financial, is not competitive. Nevertheless, his point about APRs being difficult to understand is well understood.

The amendment is not a panacea. We need total cost caps on credit charges so that consumers have an explicit amount beyond which the cost of any loan will never go—interest rates, administration charges and late repayment fees included. I also agree strongly with the hon. Member for North Swindon about financial education and investment in debt advocacy services to give consumers help to negotiate with creditors and the support needed to make good decisions.

We also need an expansion in alternative sources of affordable credit through credit unions and social finance. The idea that the market will somehow reduce prices where there is disparity between the consumer and supplier belongs in the textbooks, not real life. We also need a proactive regulator to ensure effective competition and protection against consumer detriments. The amendment would address those problems and provide the opportunity, presented by the FCA, to take action as quickly as possible and to prevent the problems in our communities created by these loans from becoming worse.

I agree with the Chair of the Treasury Committee, who said about replacing the FSA:

“The creation of the FCA is an opportunity to create something much better. If we are not careful, the FCA will become the poor relation among the new institutions. But it is the one that will matter most to millions of consumers.”

However, for the FCA to be that better institution, its power to act on toxic financial products needs to be made clear. The financial services practitioner panel stated:

“We acknowledge that it will be useful for the FCA to have tighter powers to control any product that can and does do harm.”

The amendment is in that spirit. It would give explicit powers to the FCA to cap, where it sees appropriate, the charges firms can apply.

I understand that the Government have been briefing people that those powers are not needed because the FCA already has product intervention powers. The Minister seems to think that that could happen, but he must address two questions: first, can it intervene; and, secondly, are its powers of deterrence or sanction appropriate to the toxicity we all want to prevent? Clearly, there are good grounds to fear that the first is not the case. In his speech today and in the document setting out the FCA’s powers, there are somersaults and loops worthy of the Olympics gymnastics team. The document states:

“The government has said that the FCA will not be an economic regulator in the sense of prescribing returns for financial products or services. The FCA will, however, be interested in prices because prices and margins can be key indicators of whether a market is competitive. Where its powers allow, the FCA will take into consideration more positively the cost of products or services in making judgements about whether consumers are being fairly treated. Where competition is impaired, price intervention by the FCA may be one of a number of tools necessary to protect consumers.”

I am sorry to disappoint the hon. Member for Vale of Glamorgan (Alun Cairns), who is not in his place, but that is part of the Government’s thinking.

The problem, however, is that the Government’s thinking is fuzzy. Lawyers in this area have highlighted the lack of clarity about whether the FCA is intended to be a price regulator and about whether the legislation proposes such a thing. John Odgers, the lawyer for Which?, highlighted that point in his written evidence to the Treasury Committee:

“It seems to me to be desirable that a power of price intervention should be spelled out, if it is intended. Financial services regulators have not in this jurisdiction previously exercised that type of power, and might in future be loth to do so without a specific statutory authority, as the use of such a power would be particularly likely to attract a challenge.”

The Minister should talk to the OFT. It is particularly well placed to tell the FCA about the problems that the fear of legal scrutiny places on consumer credit regulation. As it admitted, that fear has defined its work in this field and its lack of action against these firms. It has feared the cost to the public purse of unsuccessful legal actions. In his evidence to the Public Accounts Committee on 5 September last year, the chair of the OFT stated that

“there are companies now pursuing particular practices that 10 or 15 years ago perhaps would not have employed the most expensive lawyers and taken every point under the sun. Now, however, that is happening with an increasing number of cases where you might have otherwise expected the party to throw in the towel after the first round. They do not do that, and therefore we have to take very careful assessments. We have a particular case at the moment that I have in mind where, much to my surprise, the parties have involved the most expensive City lawyers, and we know perfectly well that we are at substantial risks on costs if we lose.”

It is little wonder that Google has a stronger track record on taking action against such adverts and firms than the OFT, which, in the past eight years, has managed to take action against one brokerage firm only.

[Susan Elan Jones (Clwyd South) (Lab)]

Are the Government extremely weak on this issue compared with other Governments around the world?

[Stella Creasy]

We should listen to the companies themselves. They state explicitly that they are coming to the UK and expanding their operations here at an alarming rate precisely because of the lack of regulation of our payday industry in comparison with other countries. They are clear that, because we do not have that regulation, we are fertile territory for their practices.

Consumer Credit Regulation

Debate between Stella Creasy and Susan Elan Jones

Tuesday 9th November 2010 Westminster Hall

[Stella Creasy]

I agree absolutely. It is a travesty. This debate is not just about cracking down on loan sharks; it is also about increasing access to affordable credit, as I shall discuss later. That decision will not help the people whom we are discussing. It is one thing to say that we are concerned about the market, but the proof of the pudding is in the eating: what are we doing to ensure that more people can access credit?

Given that and the concerns expressed by Members here, will the Minister make a firm commitment to consult on action to cap the total cost of all forms of borrowing—including the high-interest credit industry, rather than just suppliers of credit and store cards—in his Department’s ongoing credit review? I hope he will commit to so expanding the scope of the credit review, because it would make a difference to consumers.

Before the Minister makes that commitment, I will address an issue on which many MPs have been lobbied, and which the hon. Member for North West Leicestershire (Andrew Bridgen) mentioned earlier. It is possible to act on interest rates. I know that some of the companies concerned contacted Members before this debate claiming that such measures, although well-intentioned, would have unintended consequences. They use such arguments to justify the astronomical interest rates that they charge, arguing that any reduction in those rates would be impossible.

To tackle that point head-on, yes, concerns have been expressed not just by legal loan sharks but by organisations that work for those in debt, such as Citizens Advice. I am also aware of the work of the Office of Fair Trading and Consumer Focus, which have both expressed reservations about the impact of introducing a uniform cap on interest rates. They fear that it would close down or reduce pay-day lending, pushing people into the illegal loan sharking market.

Those difficulties—which, it must be said, are disputed by other organisations with counter-evidence—do not mean that we cannot act. We know from legislation dealing with dangerous driving, the introduction of a minimum wage and fireworks safety that there will always be people who point to those who will not abide by the rules. The arguments against a cap presume perfect consumers of the services in question who can make price-sensitive judgments about what loans they can access and their own credit situation, and competition for their custom. I hope I have shown that that is simply not the case. The problems with a rate cap do not mean that we cannot act. Rather, we must work harder and learn from others how best to act.

[Susan Elan Jones (Clwyd South) (Lab)]

Does my hon. Friend accept that other jurisdictions such as Canada and the American state of Ohio, where similar objections were raised, decided on balance to cap interest rates?

[Stella Creasy]

My hon. Friend is exactly right. There are many examples overseas from which we can learn, and I hope to put some of them on the record.