Financial Services Bill

Debate between Stephen Gilbert and Baroness Burt of Solihull

Monday 6th February 2012 Commons Chamber

[Stephen Gilbert (St Austell and Newquay) (LD)]

It is a pleasure to follow the eloquent contribution of the hon. Member for Leeds East (Mr Mudie). He declared to the House that he had dropped his speech, but I do not think that anyone noticed. I intend, for all our sakes, to hold on to my own speech.

I want to raise three issues. First, I want to speak about the enhancement of consumer protection that the Bill provides, and I hope that my comments about that will be echoed by the hon. Member for Walthamstow (Stella Creasy). Secondly, I want to discuss the relationship between the FCA and the PRA. Thirdly, I want to develop a theme introduced by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley): the representation of British interests overseas.

Let me say in passing, however, that I share the concerns of other hon. Members about the oversight of the new macro-prudential powers which may need to be handed to the Bank of England, and which I believe could fundamentally alter vast swathes of the UK economy. It has already been mentioned that the ratio of mortgage lending may be one of the macro-prudential powers that the Bank of England wants to take on. It may be necessary to regulate an individual’s debt levels, and to regulate the debt exposure of small and medium-sized enterprises. All that needs proper parliamentary scrutiny, and I was pleased with the Chancellor’s response to my intervention on that point.

Let me begin with consumer protection. As we know, the Bill will establish a new code of conduct business regulator, the Financial Conduct Authority, which aims to protect consumers, promote, competition, and ensure that there is integrity in markets. Many consumer groups, including Citizens Advice and Shelter, have welcomed the FCA’s proposed objective of promoting competition in the interests of consumers. It is welcome that the FCA will have additional tools to deal with business conduct that is causing, or is likely to cause, consumer harm, to take action on products, to promote greater regulatory transparency, to tackle misleading financial promotions and to enforce the requirement to satisfy the regulator that a business model is suitable.

[Lorely Burt (Solihull) (LD)]

Does my hon. Friend agree that short-term consumer credit, payday lenders and the managing of consumer debt companies will now be much more strongly regulated, as has been called for by Members on both sides of the House?

[Stephen Gilbert]

My hon. Friend is quite right; that is a welcome step forward, although there are some bits that still need to be tidied up. I shall come to those later.

It is particularly welcome that the FCA will have a super-complaint power. This will allow Citizens Advice and other consumer bodies to use their evidence of widespread consumer harm to make complaints on behalf of all consumers, including those who might not know how to complain, and those who do not understand that their rights have been infringed. To make this new era of consumer protection effective, however, the Bill should require the FCA to respond quickly and effectively to super-complaints concerning widespread consumer harm, and I ask the Minister to consider what improvements could be made to the Bill in that regard when it goes into Committee.

As we know, the Bill sets out a framework for moving the regulation of consumer credit lending to the FCA. That, too, is welcome. But it is vital that not only lenders but debt collectors, brokers, debt managers and retail lenders that sell insurance products are regulated by a single, strong regulator. I believe that the responsibility for all that regulation should go to the FCA. In recent years, we have seen a succession of widespread consumer problems with financial products and services, including the mis-selling of payment protection insurance, poor lending and arrears collection practices in sub-prime mortgage markets, unacceptable debt collection practices by major credit providers, irresponsible lending of unsecured credit, and the ongoing saga of bank charges. It is clear that a change in the way in which consumer credit is regulated is necessary to protect consumers better in the future. I am looking at the hon. Member for Walthamstow as I say that.

Under the Consumer Credit Act 2006, the Office of Fair Trading has too little power or policy autonomy to respond quickly to emerging consumer harm, particularly when it concerns new products, services and business practices. That makes it easy for firms engaged in bad practices to target vulnerable consumers. It also undermines attempts by the sector to police itself, and makes the task of regulatory enforcement much harder. The level of financial penalties is also too low to act as a deterrent.

The OFT does not have the power or resources proactively to supervise regulated firms, or to identify and stop bad practice at an early stage. OFT guidance does not have the quality of rules, the breach of which could lead to a sanction, so enforcement is also slow. In respect of payday lending problems, for example, the OFT appears unable to make a specific rule limiting the number of times a loan is rolled over, or binding provisions on how a payday loan firm should ensure that it is lending responsibly, or to require a firm to deal with borrowers in financial difficulty in a specific way.

The Consumer Credit Act conduct regime is highly enforcement focused. There are few powers to pre-empt causes of consumer harm, or even to require firms to compensate consumers who have suffered harm. I think that all Members would agree that the consumer credit market needs a regulator that can regulate products and prevent consumer harm before it becomes widespread.