Financial Services (Banking Reform) Bill

Stephen Doughty Excerpts

Wednesday 11th December 2013 Commons Chamber

[Cathy Jamieson]

We pressed for an earlier introduction of the measure so that we could debate and finesse it if necessary. However, the Government were prepared to move only at the last minute, through a successful amendment in the other place, and it is disappointing that they now want to strike it down.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

My hon. Friend is making a strong case. I, too, served on the Committee and witnessed our efforts on this matter. Why have the Government been on the back foot throughout the process? We are talking about the culture of banking, but I wonder whether there is an issue with a Government culture of continual caution, rather than the challenge that ought to be presented to some of those interests in society that have failed our country.

[Cathy Jamieson]

I thank my hon. Friend for his comments. I do not know what was in the Government’s mind, but in Committee the Bill was very thin. We raised the matter on a number of occasions, but the Government resisted every attempt to amend the Bill in Committee, apart from on one minor detail. In retrospect, that is not the way to produce the best possible legislation. The Bill will undoubtedly have been improved by the end of the process—I do not detract from the work that has been done—but it would have sent a stronger message to the general public and the financial services industry that this place took the matter seriously if the Government had accepted amendments at an early stage.

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[Sajid Javid]

The measures that the FCA has already suggested, and on which it is currently consulting, go a long way to protect consumers in this sector. Of course, the FCA has broad powers in this area and there is nothing to prevent it from considering future measures as it learns more about aspects of the market. For example, the hon. Gentleman may know that the Competition Commission is currently looking into this sector. It is due to report back with its preliminary findings next May and a final report around November. It will look at the sector for about 18 months in total. I am sure that the FCA will take that into account and see what further measures it could take, if necessary, with the broad set of powers it already has. I hope that is of some reassurance to the hon. Gentleman.

Designing the cap on the cost of credit is a job not for the Government but for the independent and expert regulator. Nor is it right that the detail of a cap should be enshrined in primary legislation, given that the industry it is intended to bind is so fast-moving and innovative.

Lords amendment 155 makes clear the FCA’s overarching objective in this endeavour: it must make rules to impose a cap to protect consumers from excessive charges imposed by high-cost, short-term lenders. This language echoes the FCA’s consumer protection objective. The FCA must make rules to advance one or more of its operational objectives, namely consumer protection, market integrity and competition. That applies to the rules to implement the cap, just as it does to all FCA rule-making. The FCA’s competition duty also applies. It must consider how the rules affect the ability of the market to serve consumers’ interests.

As we have heard, introducing a cap is not without risks or potential adverse consequences, including reducing access to credit for some individuals who find themselves in financial difficulty. The FCA will not be able to eliminate those risks, but it will seek to manage them. It will be important that the FCA strikes the right balance in designing and setting the cap.

[Stephen Doughty]

Given that the Government have moved belatedly on this issue—I hope it will make a big difference, notwithstanding the risks mentioned—will the Minister pay tribute to organisations such as Sharkstoppers and Movement for Change and the many community activists around the country who have highlighted the dangers posed by the payday loan industry, which is getting people into thousands of pounds’ worth of debt? The Government have listened to those voices, so will the Minister pay tribute to them?

[Sajid Javid]

I assure the hon. Gentleman that we as a Government have spoken to many stakeholders, including hon. Members, on this issue. Many people have done a good job and deserve credit for looking at the evidence in more detail.

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The FCA is already getting on with gathering the evidence and detailed analysis that it needs. It will consult in the spring on its draft proposals, at around the same time as the Competition Commission is due to publish its provisional findings. Consultation will take place over the summer and the FCA plans to make the rules in the autumn of next year. Again, that is likely to be at about the same time as the Competition Commission issues its final report. The cap will come into effect, at the latest, by the beginning of January 2015.

[Stephen Doughty]

Notwithstanding the points that the Minister is making, many consumers and campaigners on this issue will be concerned about what he has said about the time scale. The Government have dragged their heels on this issue for a number of years and could have taken action well before the date that has been set. I would like to see a cap before this Christmas. I agree with other hon. Members that it is crucial that the cap is in place before next Christmas. One of the campaigners from Swansea whom I met, a woman called Serai, got into more than £1,000-worth of debt with one of these lenders after taking out a very small loan to help pay for her kids’ Christmas presents. This is a crucial point, so I hope that the Minister will give a little more hope to the many campaigners who would like to see the cap introduced before next Christmas.

[Sajid Javid]

I will say a little more about the timetable in a moment, but it is a bit unfair of the hon. Gentleman to say that the Government have had years to introduce the cap, when the Government whom he supported had 13 years to introduce a cap and did nothing.

A number of steps must be taken before the cap can be implemented. All of those steps are important and if they are rushed, it will put consumer protection at risk for the sake of speed. There must first be evidence gathering and analysis. That is critical in getting the cap right. The FCA will draw on the evidence that the Competition Commission has collected. It might also have to get information from lenders and others in the market to get on with its work as quickly as possible. Yesterday, the Government laid secondary legislation before Parliament that will allow the FCA to seek information from the industry. That will support the design of the cap and the cost-benefit analysis that the FCA must issue.

The second and most vital part of the process is the consultation with interested parties on the proposals and their impact, as set out in the cost-benefit analysis. The final component that is necessary for the successful implementation of the cap is that lenders must be given a short period in which to update their systems and processes to meet the new requirements and become responsible, compliant lenders. Difficult though that is, we are not prepared to compromise on the process because that could lead to poor outcomes for consumers.

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[Stephen Doughty]

I apologise for omitting to mention my membership of the national committee of Movement for Change, which has been campaigning on this issue, Madam Deputy Speaker.

Does my hon. Friend share my surprise at the continual chuntering from the Government Benches? As she rightly says, there has been an explosion in the past few years on this Government’s watch, and they have been dragged, kicking and screaming to this point. I have seen an explosion of these stores on high streets across Cardiff, and an explosion in cases of people who have got into trouble with payday lenders.

[Cathy Jamieson]

My hon. Friend makes valuable points, which I will come on to address.

The Government opposed the proposals initially, but eventually gave in and passed their own amendments in the other place. The FCA has so far failed to use its powers to introduce a cap. There were concerns that unless pressure was applied it would not necessarily have been able to speed up new powers, and we could have seen a further delay in real-time monitoring across the high-cost loan sector. That is why, some months ago, the Leader of the Opposition promised to introduce a cap. He also suggested an extension to a levy on payday lenders’ profits, which would be used to double the level of Government funding for alternative low-cost providers, such as credit unions, for those struggling with the cost of living crisis.

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[Cathy Jamieson]

I thank my hon. Friend for his kind words about my comments. I am simply putting forward the views brought to us by the people at the sharp end who have experienced the worst problems from payday lending. I pay tribute to those people again for doing so. I agree that it would be wonderful if we could secure some further consensus on these problems and send a clear message to the industry, particularly on advertising. The advertising spend of the top five payday lending brands apparently stands at about £36 million a year. That seems to suggest that they are investing heavily in attracting new borrowers at the same time as being not quite as willing to invest in responsible lending.

[Stephen Doughty]

My hon. Friend has made an important point about the amount of money such companies are investing in advertising. Many Members will have noted how much investment those companies are putting into advertising in football. Fans are targeted, which I think is particularly heinous, and a number of organisations have campaigned against that. Does she agree that football clubs should resist that type of advertising, which will put their supporters into great debt?

[Cathy Jamieson]

My hon. Friend tempts me to talk about football, which is one of my favourite topics. I will resist that temptation, except to say that I share his concerns about that.

Returning to our amendments and what the industry could do, I understand that there are differences of opinion about how best to tackle the problem. As we have seen, however, technology is available. The Veritech software is, I understand, used in 14 states in the US. Arguably, lenders would have the resources to bring that in if they wanted to. If lenders will not do something voluntarily, surely it will make sense to require them to do that, because in the meantime consumers are falling into debt. The Government should therefore act as soon as they possibly can.

Interestingly, we have heard that this issue is not just about the impact on consumers. The 118 118 company has told us that it believes the introduction of data sharing would enhance levels of competition, arguing:

“It is probable that if real time data was available, and lenders could be more confident in their lending decisions, many more of them would be attracted to this market segment. We would hope and expect that the FCA would be very cognisant of this point in view of its explicit competition objective”.

That is an interesting view. Where lending is being done, we want to know that it is being done by reputable companies, backed up by the proper technology and proper principles.