Credit Cards: Cost Regulation

Steve McCabe Excerpts

Wednesday 7th February 2018 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Mr McCabe. I thank the hon. Member for Walthamstow (Stella Creasy) for raising this significant issue with characteristic passion. I will seek to answer the specific questions she has raised about the role of the FCA and how fluid the situation is.

Consumer credit, including credit cards, plays an important role in our economy, helping consumers to smooth their income, spread costs over time and cope with unexpected financial shocks. However, risk is inherent in any credit product, so it is vital that consumers are treated fairly and protected from unscrupulous or predatory practice. The Government recognise that and are working with the regulator to ensure that such activity is curtailed.

I think it will be helpful if I set out first what the Government have already done on consumer credit. Our vision is of a well functioning and sustainable consumer credit market that responsibly meets the needs of all consumers. That is why we fundamentally reformed regulation of the consumer credit market, transferring regulatory responsibility from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The Government have given the FCA a robust set of powers, designed to protect consumers, in three key areas. The FCA assesses every firm’s fitness to lend and it has put in place a binding standard on firms. The FCA requires all firms to assess each customer’s ability to repay. The hon. Lady gave the example of Vanquis being able to lend £1,000 without any checks. I repeat: all lenders must make that assessment of their customers’ ability to repay. Firms must also treat customers who fall into arrears fairly. Thirdly, the FCA monitors the market. The characterisation of the FCA as passively waiting for a crisis does not do justice to the actions it has taken. I will go on to set those out and describe how they are still under review.

Focusing on the areas that are most likely to cause consumer harm, the FCA has a broad enforcement toolkit to punish breaches of its rules. The FCA’s enforcement arm supports its objectives by making it clear that there are real and meaningful consequences for firms and individuals who do not follow the rules. There is no limit to the fines it can levy. Crucially, it can force firms to provide redress to consumers. For example, in October 2017 the FCA announced that BrightHouse, a rent-to-own firm, will pay over £14.8 million in redress to customers in respect of agreements that may not have been affordable and payments that should have been refunded. That is just one example of the effectiveness of the FCA enforcement action. In total, the FCA issued fines of nearly £230 million last year, and as of December 2017 it had secured £734 million in redress for more than 1.47 million customers in the consumer credit market.

I turn now specifically to credit cards. When the Government gave the FCA responsibility for consumer credit regulation in 2014, it sought to build a sound understanding of the credit card market and to assess whether it was working well in the interests of consumers. To that end, as the hon. Lady mentioned, the FCA conducted an extensive study of the credit card market between 2014 and 2016. It found that competition within the industry was working well for the majority of consumers, but identified concerns about the scale and extent of problematic credit card debt. Last year the FCA consulted on remedies to tackle persistent credit card debt and proposed a robust package of remedies to tackle the issues—

[Steve McCabe (in the Chair)]

Order. There is a Division in the main Chamber, so we will have to suspend the sitting and you will all have to come back to conclude. We will suspend for 15 minutes.