Debates — Financial Services Act 2010

Committee stage in the Lords

07 Apr 201052 speechesView in Hansard ↗

Lord Davies of OldhamMy Lords, it will be appreciated that this Bill has been the subject of considerable discussion and the government amen…
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Lord Davies of OldhamLabour
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My Lords, it will be appreciated that this Bill has been the subject of considerable discussion and the government amendments reflect the discussions that we have been able to enjoy with the opposition. These issues have also been the subject of considerable consideration elsewhere. Amendments 38 and 39 require the FSA, when discharging its general functions, to have regard to the desirability of enhancing public knowledge and understanding of financial matters, including the financial system. The amendments place a new obligation on the FSA that complements the education body’s remit to lead the financial education agenda. This outcome-focused provision also complements the more operational requirement in Part 1 of the new Schedule 1A to the FSMA to ensure that the new body is capable of exercising its consumer financial education function. It also provides a clearer framework for collaboration between the body and the FSA. Amendment 40 requires the FSA, when discharging its consumer protection regulation objective, to have regard to information provided by the education body to the FSA as part of the consumer financial education function. This expands on the FSA’s obligations to protect consumers, set out in Section 5(2) of the FSMA, whereby it must already consider the differing degrees of risk to consumers of various kinds of financial transaction, and consumers’ information and advice needs. Along with Amendments 36 to 39, this will further strengthen the framework for collaboration between the FSA and the new body. Amendment 59 will ensure an independent board that is made up of suitably qualified and informed individuals, while avoiding any unintended constraints on the board’s composition. It allows sufficient flexibility for a variety of different people to be appointed to the board. The government amendments include authorised persons, those who represent the interests of consumers and those with knowledge of education. Amendment 68A and 68B require that the consumer education body must specify in the annual plan how it will measure the success of its objectives, including both annual and long-term objectives. This is a response to concerns raised in debate and in discussions with stakeholders. Amendments 75 to 77 and 80 provide for fees to be collected by the FSA from firms authorised by the FSA under the Financial Services and Markets Act 2000. However, payment service providers are regulated by the FSA under the Payment Services Regulations 2009. As such, the Bill does not give the FSA the power to levy these firms to contribute towards the costs of the consumer education body. These are therefore technical amendments that are designed to correct this minor lacuna in the Bill. I beg to move.
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Baroness NoakesMy Lords, we have said from the outset that we support the work that is planned for the consumer financial education bo…
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Baroness NoakesConservative
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My Lords, we have said from the outset that we support the work that is planned for the consumer financial education body. The FSA’s own research has shown what a shockingly low level of financial capability exists in the UK, and the sooner that a proper co-ordinated start is made on that, the better. On that basis, we are content for Clause 6 and Schedule 1 to remain in the Bill, as amended by the Government’s amendments. My noble friend Lord Eccles had given notice of his intention to oppose Clause 6 and Schedule 1. I confirm that he will not be opposing stand part today. Our support for these parts of the Bill does not mean that we regard the way in which the body is being created as perfect and there is scope for scepticism as to whether the money guidance project, which is waiting to be rolled out by the new body, will raise standards of financial capability. I am sure that it will do some good, but whether financial capability will be raised is a moot point. The Minister will know that my noble friends and I had together tabled more than 40 amendments to Clause 6 and Schedule 1 and we regret that we will be unable to debate our concerns today. Some of our concerns are met, in part, by the Minister’s amendments, but others will remain undebated. I hope that if my party is elected in a few weeks’ time we will have an opportunity to revisit this part of the Bill when we bring forward legislation to implement our vision of the future of the FSA. Amendments 38 and 39 are, in effect, a government U-turn, and Amendment 40 builds on the rather touching idea in Clause 6 that this new body should be educating the FSA about the benefits and risks of financial dealing. The amendments do no harm, a category into which I would also place Amendments 75, 76, 77 and 80. Amendments 68A and 68B respond to concerns that lay behind one of our amendments—that the planning cycle of the new body was too short term and insufficiently focused on measuring success or failure. We welcome the Government’s amendments. That leaves only government Amendment 59, which responds in part to amendments which both I and my noble friend Lord Hodgson had tabled concerning the make-up of the board of the new body. I regard Amendment 59 as vague. It does not seem to move the argument much forward and could be regarded as positively dangerous because it could sanction a board comprised solely of academics who specialise in consumer financial education and awareness. It also provides no obvious place for someone who does not have that background but could provide a sense of challenge from a diverse perspective. If we had reached government Amendment 59 in Committee in the ordinary course, I had planned to oppose it for the reasons I have just given, although I would have given them at greater length. However, we are not in the ordinary course and I shall let it pass.
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Lord Oakeshott of Seagrove BayMy Lords, I rise from the substitutes’ bench to lead for the Liberal Democrats on the remaining stages of this Bill bec…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, I rise from the substitutes’ bench to lead for the Liberal Democrats on the remaining stages of this Bill because our star striker on it, my noble friend Lord Newby, is abroad. I declare an interest as a pension fund investment manager for the past 34 years and, specifically, as a director of an investment management firm which is regulated by the FSA. We support the amendments and the provisions in the Bill. The noble Baroness referred to the low standards of financial education—I would say financial illiteracy—as a serious problem in this country. Heaven knows, more education is needed. Automatic enrolment into NEST is rapidly coming down the track and there is a considerable danger that a serious accident is waiting to happen. Given the detailed provisions in the Bill, we need to get across to people how serious the problem is, particularly if you are saving for a pension and expecting returns of, perhaps, 6 or 8 per cent a year. There will now be a 2 per cent skim-off from the front of all contributions in NEST while, at the same time, many people will be paying debt interest rates of 20 or 25 per cent on their credit card bills. Getting across that message and that integrated advice will be exceptionally important. If the Conservatives win the election—indeed, this is already causing some problems—staff of the FSA who operate in these and other areas could be left in the kind of limbo of not knowing the plans for the future. However, obviously that part of the Bill is no longer there and so, with those points, I support the amendments.
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Lord Hodgson of Astley AbbottsI shall say a few words about Clause 6 stand part and Schedule 1 stand part. Even at this late stage, I think that the…
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Lord Hodgson of Astley AbbottsConservative
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I shall say a few words about Clause 6 stand part and Schedule 1 stand part. Even at this late stage, I think that the Government have got wrong the shape of what they propose. I hope that I can convince them that there is a reason for reassessing their approach to this important topic. Before I do so, I declare an interest: I am a non-executive of a company which provides compliance training and fund management services to independent financial advisers. The Committee should be aware that it is directly in the area which we are discussing today. The company is regulated by the FSA and I am an authorised person. Clause 6 is headed: “Enhancing public understanding of financial matters etc”. With that, no one could disagree; it must be a very good objective. However, once one moves from the strategy, as expressed in that strap line, to the means by which it should be carried out, one becomes very much more doubtful. As my noble friend Lady Noakes said, I, she and others on this side of the Chamber tabled a number of specific amendments to address these points which we have been unable to discuss. However, I should like the Government to take on board three or four major points in relation to their approach. The first is my long-standing concerning about the title, “consumer financial education council”. “Consumer” conveys the wrong basis for the terms of trade in this important area. The Minister’s people will no doubt look up the definition of “customer” and “consumer” in the dictionary and say that they are very similar, and that it is a distinction without a difference—I can almost see the speaking note from here. But—and it is a very big “but”—there is a difference in the real world between customers and consumers. A consumer has a very short, transitory relationship—you consume toothpaste or soft drinks, for example. A customer has, or expects to have, a longer-lasting relationship, based on trust, professional standards and delivery of a service over time. You are not a consumer of the services of a law firm; you are a customer. Paragraph 10 of the Explanatory Notes to the Bill emphasises the need for and importance of a long-term relationship. To make this shift, to effect a subtle but important change of public attitudes towards this sector of the market, we need to change the terms of trade. The Minister will be aware of the enormous amount of work that the FSA has done on the Retail Distribution Review, or RDR. That very worthwhile piece of work, which has been a long time in gestation, will be endangered, even have a stake driven through its heart, by the proposals before us. At its heart, RDR proposes the creation of a new profession of financial advisers, with levels of competence and ability demonstrated by the passing of examinations. The scope will range from simple advice focusing on basic needs, perhaps given by a single person, to complex, multidisciplinary advice, available only from a firm employing different specialists. Just as one does not expect a single solicitor to be available to advise on property, contracts, estates and wills, and litigation, so one should not expect a single person to be able to advise on inheritance tax planning, pensions, mortgage protection and so on. These firms will have customers and long-lasting relationships. They cannot and should not properly be described as consumers. There is the other side to the coin: we need to find ways to attract new, younger blood to the financial advisory profession. It is well known that the average age of IFAs is the mid-50s. It is expected that between 20 per cent and 30 per cent of them will be unable or will choose not to achieve QCA level 4 by 2012, when, under RDR, it will become obligatory. We will therefore have a shortage of advisers at a time when saving will never have been so important for the reasons that the noble Lord, Lord Oakeshott, mentioned. Why has this been so? It has not been seen as an attractive profession for a younger person to work in. Using and continuing with the consumer-type terminology does not help to create that profession. We need to assist in the transformation of this IFA industry, creating a new profession that attracts competent, dedicated people to work in it, with proper career prospects, so giving confidence to investors and savers so they will be well looked after. That is my first problem with what the Government propose. My second problem is that the tasks of the new body are wrongly defined. New Section 6A(2) in Clause 2 says: “The consumer financial education function includes, in particular … promoting awareness of the benefits of financial planning … promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services … promoting awareness of the benefits and risks associated with different kinds of financial dealing”. All that is perfectly and properly worth while, but to use an educational comparator, this is an A-level syllabus. As my noble friend Lady Noakes made clear, we need to start at least in parallel at a much more basic approach, which is what we were going to try to encourage the Government to do in our amendments that we never got to discuss in Committee, because it was cut short. We need to discuss the management of debt, the control of personal spending, living within an income and protection against disaster; all those things need to form part of the council’s remit. At the moment, it is starting at far too high a level and is not going to tackle the really important part of the market. A couple of years ago I talked to the chief executive of a major life insurance company who said that at the height of the boom, the persistence of a pension scheme—that is, the time that it lasted, usually a pension scheme and associated life insurance—was four years. People were putting money into a pension and then deciding what they should do, taking it out and putting it into a holiday, extending their house, moving or whatever else. Those are the sorts of issues that we should be tackling, because nobody can possibly have a satisfactory investment in a pension if they think that they are going to roll it out after four years. It is a long-term investment. Nowhere in the terms of reference of this body do I see sufficient attention to the basics. I see lots of stuff about much more sophisticated arrangements but nothing about the real hard core of basic financial knowledge and education for people. Instead, we have castles in the air. On the body itself in Schedule 1, I recognise that the Government have tabled some amendments, for which I am grateful. However, despite what I see—and maybe the Minister can reassure me on this—the FSA continues to have apparently untrammelled powers of appointment to the consumer financial education body, with the exception of the chair or chief executive, which requires Treasury approval. While Amendment 59, referred to by my noble friend, has some relevance, there is nothing there about geography. This could be a very M25-centric body, unless we had people drawn from the regions. There is nothing about the type of experience that people should have and nothing to ensure that this is a sufficiently broad-based body, which will command and give consumer confidence and confidence within the industry. If the Government read through the Financial Services and Markets Act and looked at Clause 9 on the practitioner panel, they would see it lay down the sorts of people whom the authority must appoint—in this case, the FSA, including, “individuals who are authorised persons … persons representing authorised persons … persons representing recognised investment exchanges, and … persons representing recognised clearing houses”. There is a much clearer way of ensuring that the body is able to represent and make an effective contribution. It goes further in Clause 10, on the consumer panel, which requires that: “The Authority must secure that the membership of the Consumer Panel is such as to give a fair degree of representation to those who are using, or are or may be contemplating using, services otherwise than in connection with businesses carried on by them”. So a great deal needs to be done on the structure of how the panel is set up. Finally, there is the question of reviewing the work of the body itself. I am disappointed that the Government have not written into the Bill the need for it to adhere to the principles of good regulation: that it should carry out its work—as the Better Regulation Task Force manuals say—in an efficient, effective and economic way.
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Lord Davies of OldhamMy Lords, I am grateful for the contributions to this short debate and I note that the noble Baroness accepted with gre…
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Lord Davies of OldhamLabour
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My Lords, I am grateful for the contributions to this short debate and I note that the noble Baroness accepted with great generosity the government amendments, which were meant to be responsive to the points made by the Opposition and the anxieties they expressed. I heard her reservation about Amendment 59, but we do not need to interpret that as being unduly restrictive. After all, her noble friend from the Back Benches, the noble Lord, Lord Hodgson, has emphasised how much the issue of financial education needs to be addressed with the greatest care. With Amendment 59, we are quite clearly insisting that the necessary relevance to the consumer financial education function is contained in the appointment. That seems to me to be absolutely right. We are dealing here with what the noble Lord, Lord Hodgson, accurately identified as an area that needs very great and considerable attention; he was buttressed by the contribution from the noble Lord, Lord Oakeshott, particularly on pensions. We all appreciate greatly how much that issue has to be embedded in the public consciousness, so that short-term decisions on such long-term considerations can no longer be the basis on which anyone acts on the pensions position. We particularly all appreciate the extent to which personal and private provision will play such an important part in the future. I do not think that Amendment 59 does anything but specify what is absolutely necessary, but I am grateful to the noble Baroness for indicating that she will not oppose it on this occasion and that she accepts the other amendments in the spirit in which they were given—of contributing to a joint position on this part of the Bill. I very much appreciate the concern and, indeed, the expertise of the noble Lord, Lord Hodgson, on this issue. He will forgive me if I chide him a little. At one moment, he was saying that it just will not do that we have the wrong phraseology in this title, while at the end he was saying that the important thing is that we must insist upon consumer confidence—which is exactly what we have expressed in the Title of the Bill. His own speech indicated that the extent of the interchange on the concepts of customer or consumer ought not to detain us a great deal. I feel that we may be dancing on the head of a pin here; after all, he says that there is no such thing as a short-term relationship for a customer. Well, I hate to say this but in one day’s travel on a train you are likely to hear the rail company referring to you as a customer. I recognise that you may be lucky if you have a short-term acquaintance there, as the journey is often more protracted than one had expected. Nevertheless, the noble Lord will recognise that these terms are close to being interchangeable, and not ones that ought to concern us in legislation.
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Lord Hodgson of Astley AbbottsI am grateful to the Minister. It is a fact that the rail companies and Tesco use the word “customer” because it is see…
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Lord Hodgson of Astley AbbottsConservative
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I am grateful to the Minister. It is a fact that the rail companies and Tesco use the word “customer” because it is seen as a more prestigious title than “consumer”.
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Lord Davies of OldhamThat may be, but we ought not to be governed by these contemporary fads and fancies. I have known the reaction of many…
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Lord Davies of OldhamLabour
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That may be, but we ought not to be governed by these contemporary fads and fancies. I have known the reaction of many people who regard themselves as passengers on the railway and other forms of transport. The distinction between “consumer” and “customer” in the effectiveness and efficiency of the service that is delivered has largely escaped me. Therefore, although the noble Lord has made some very important points, this issue of nomenclature is not that significant. On the noble Lord’s more general point, I agree with him entirely.
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Lord Oakeshott of Seagrove BayI am not sure I understand the difference between “consumer” and “customer”. In our business we like to call them clien…
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Lord Oakeshott of Seagrove BayNon-affiliated
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I am not sure I understand the difference between “consumer” and “customer”. In our business we like to call them clients, if that helps.
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Lord Davies of OldhamWe are in danger of indulging in an English language hierarchy, which I would hesitate to speak on with authority from…
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Lord Davies of OldhamLabour
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We are in danger of indulging in an English language hierarchy, which I would hesitate to speak on with authority from this Dispatch Box. I was going to say how much I agreed with the noble Lord, Lord Hodgson, about the importance of financial education. We should recognise that there is a nuts-and-bolts dimension to this. Noble Lords will appreciate the extent to which the Government share this viewpoint. That is why we have, over this past decade, put a great deal of emphasis on financial education in schools. The basis of understanding must be communicated to schoolchildren. When they become adults they will find themselves with responsibility for their futures, in which it is very important that they understand the basics of how they save and make dispositions of their resources in the financial sector. However, the representations in these debates by the noble Lord, Lord Hodgson, will certainly be taken on board by the body. Its task will be to increase the level and perception of financial education in this country, and it will be judged on how effectively it does so. The Government position on this is clear. This is an important function of the FSA and it is important that it is in the Bill. I am grateful that the Opposition have worked and fought hard over the nature of the financial education. What we have now is a package that provides the FSA with the necessary role that it must play in this very important area. I am grateful for noble Lords’ contributions today. I commend Amendment 38.
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Lord MynersMy Lords, we seek to remove from the Bill the clauses relating to the FSA’s international remit. The Council for Financ…
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Lord MynersCrossbench
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My Lords, we seek to remove from the Bill the clauses relating to the FSA’s international remit. The Council for Financial Stability—Clauses 1 to 4—the FSA’s international remit—Clause 8—and the provisions relating to collective proceedings—Clauses 18 to 25—were casualties of the wash-up process. In order to secure the passage of the remainder of the Bill, the Government have agreed to withdraw these provisions from the Bill. That is why I have provided notice of my intention to oppose Clause 8 standing part of the Bill and lay government Amendments 322A and 332B, which make necessary consequential changes to Clauses 30 and 38. I will, in a moment, do the same for Clauses 18 to 25. Tomorrow, on Report, I will withdraw the Government’s support for Clauses 1 to 4 relating to the Council for Financial Stability. I should point out that the Government continue to believe that all these provisions are necessary, sensible and desirable. However, in the interests of securing other important elements of the Bill on which greater consensus exists, the Government have agreed to withdraw them. I therefore urge noble Lords to support these government amendments.
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Lord MynersIt is clearly appropriate for full parliamentary scrutiny to apply in instances where the regulations placed on firms w…
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Lord MynersCrossbench
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It is clearly appropriate for full parliamentary scrutiny to apply in instances where the regulations placed on firms will be strengthened. Similarly, it is appropriate for Parliament to scrutinise fully any efforts to reduce the regulatory requirements placed on firms, particularly where such regulations are designed to prevent excessive risk taking. We believe it is very unlikely that any future Government would wish entirely to remove the reporting requirements in this clause. However, in order to ensure that this cannot happen without adequate scrutiny, Amendments 108 and 109 will require the affirmative resolution procedure to be used for any and all regulations made under these powers. I do not believe that it is necessary for sunset clauses to apply in these cases for two main reasons: first, because these clauses are designed as permanent rather than temporary enhancements to the regulatory regime; and, secondly, because they do not prescribe the specific content of regulation—instead, they provide enabling powers. These are designed precisely in order to allow for further subsequent consultation on the detail and to enable future international standards and agreements to be built into these requirements. Sunsetting these clauses would cause confusion and a lack of clarity about the regulatory requirements the industry is expected to meet. In light of this and the strong international commitment to many of these clauses, and given that much of their detailed content will be specified in FSA rules and subject to further consultation, I do not consider that it would be appropriate to sunset these provisions.
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Baroness NoakesMy Lords, I will speak to the remuneration clauses together. The noble Lord has spoken to Amendment 108, which affects…
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Baroness NoakesConservative
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My Lords, I will speak to the remuneration clauses together. The noble Lord has spoken to Amendment 108, which affects Clause 9. It is perhaps as well that we are dealing with these remuneration clauses in wash-up as I had envisaged that we would have several interesting and lengthy debates on the clauses had we discussed them in an ordinary Committee. I hold no candle for bankers’ bonuses but I share the very real concerns that the financial services sector and others have raised about the powers in Clause 11 in particular, which, inter alia, have no parliamentary oversight. An excess of regulatory zeal when implementing these powers—and, indeed the disclosure regulations under Clause 9—could be damaging to the UK. I shall not labour the point but say merely that whatever Government are in power after May will have to monitor how these powers are used and their impact on the international competitiveness of our financial services sector. Clauses 9 to 11 would, I believe, benefit from the sunset clause that the noble Baroness, Lady Valentine, has tabled, and to which I hope she will speak in a moment. On an ordinary Committee day, the noble Baroness’s amendment would have received our enthusiastic support. The clauses would also have benefited from the report after three years, proposed by the amendment we had tabled, but that amendment has fallen by the wayside. I turn to the amendments tabled by the Government. We of course have no problem with Amendments 108 and 109, given that we tabled similar amendments in the first instance to which the Minister had added his name. Indeed, the Marshalled List still shows that that is the case as regards Amendment 109, although not Amendment 108. It is right that all the regulations made under Clause 9, not just the first, are subject to the affirmative procedure.
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Baroness ValentineI speak to Amendment 336 which would apply sunset clauses to the clauses of the Bill relating to remuneration, living w…
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Baroness ValentineCrossbench
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I speak to Amendment 336 which would apply sunset clauses to the clauses of the Bill relating to remuneration, living wills, short selling and the FSA’s disciplinary powers. I must declare my interest as chief executive of London First—a not-for-profit business membership organisation. As set out on the website of the Department for Business, Innovation and Skills, sunset clauses are particularly appropriate when proposals are made based on a particular set of market conditions in an area characterised by fast-moving events. The financial services industry is characterised by its fast-moving nature, and the turbulent economic circumstances that currently prevail make it important to revisit this legislation, once stability has returned. I regret that this Bill has been pushed into wash-up and hence that time has not been available for adequate consultation and scrutiny. The complexity of this legislation and the volatile economic climate lead me to suggest the application of sunset clauses. I do not intend to divide on my amendment, but I support the recommendations made earlier by the noble Lord, Lord Rooker, on a review in due course of wash-up legislation, which would, in part, deal with my concerns.
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Lord Oakeshott of Seagrove BayMy Lords, we have some sympathy with the arguments of the noble Baroness, Lady Valentine, on sunset clauses, but not wi…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, we have some sympathy with the arguments of the noble Baroness, Lady Valentine, on sunset clauses, but not with those in relation to disclosure of remuneration—the point that the noble Baroness, Lady Noakes, touched upon. If I heard her correctly, the noble Baroness is concerned about an excess of regulatory zeal in dealing with well paid bankers’ remuneration packages. If only. There has been precious little sign of that so far. There is plenty of room for more. There would be no danger of damaging the UK’s competitive position. What has damaged that is the lack of dealing with such packages and the wild operations in the City of London that have done much damage to Britain’s reputation as a place to do business. We support the Government on this amendment.
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Lord Hodgson of Astley AbbottsI support the noble Baroness, Lady Valentine. She made some extremely sensible points about the need for a sunset claus…
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Lord Hodgson of Astley AbbottsConservative
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I support the noble Baroness, Lady Valentine. She made some extremely sensible points about the need for a sunset clause. As she rightly pointed out, legislation that is rushed through in response to a particular set of events may well prove to be outdated and unnecessary. If Parliament as a whole has a chance to examine the efficacy of the provisions some years hence, sufficient time will have elapsed to see how the dust has settled and how the new architecture, whatever it may be, has taken shape. The noble Baroness’s amendment is entirely sensible.
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Lord MynersMy Lords, I express appreciation from these Benches for the gracious approach of the noble Baroness, Lady Noakes. I ful…
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Lord MynersCrossbench
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My Lords, I express appreciation from these Benches for the gracious approach of the noble Baroness, Lady Noakes. I fully agree that all issues of regulation need to be tempered by tests of reasonableness and proportionality. We must have regard to competition. However, we must have regard to competition which is responsible and does not place the financial system—and thereby the taxpayer—at risk. In response to the points on a sunset clause eloquently made by the noble Baroness, Lady Valentine, and supported by the noble Lord, Lord Hodgson, these clauses are not designed as short-term fixes which might be removed once stability has returned. Rather, they are designed fundamentally to improve the regulatory regime and its effectiveness. Improved remuneration practices and robust contingency plans, for example, are crucial regulatory requirements that should become a permanent feature of our strengthened regulatory regime. We are undoubtedly moving towards much greater stability, but we should not be seduced into believing that the restoration of stability means that the problems of the past will never revisit us. The powers contained in these clauses are designed to empower the regulatory bodies with appropriate measures, and shareholders with appropriate information, whereby they may fulfil their right and proper functions in terms of contributing towards the abatement of any risks to financial stability. I also note the support given to these clauses by the noble Lord, Lord Oakeshott, who is speaking as a substitute on this occasion, but who is evidence of the considerable strength in depth on the Liberal Benches on these issues.
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Lord MynersThe amendments in this group are technical and aim to clarify in the Bill the position of an “authorised person” or a “…
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Lord MynersCrossbench
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The amendments in this group are technical and aim to clarify in the Bill the position of an “authorised person” or a “skilled person” with regard to certain information that would otherwise be subject to a contractual or other requirement to keep in confidence. The current crafting of new Section 139E(6) creates a gateway for other parties to provide confidential information relevant to the preparation of a recovery or resolution plan to an authorised person or a skilled person under specified circumstances. The amendment to new Section 139E makes clear that an authorised person may, for example, include such information in its recovery or resolution plan and submit it to the FSA without having to seek the consent of a third party. The amendment to Schedule 2 addresses the same point, but relates to a skilled person appointed under Section 139E(2). A skilled person under the new provision is to be treated under Section 348 of the FSMA in the same way as a skilled person appointed to make a report under Section 166, and would accordingly be subject to restrictions on disclosure. A corresponding amendment will need to be made to the table in Part 1 of Schedule 1 to the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 to provide the necessary gateway for the skilled person to disclose information to the FSA. I beg to move.
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Baroness NoakesMy Lords, we shall not oppose the Minister's amendments, although we are always wary about statutes overriding the need…
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Baroness NoakesConservative
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My Lords, we shall not oppose the Minister's amendments, although we are always wary about statutes overriding the need to keep information confidential. That will have to be a debate for another day. We shall also not oppose Clause 12 standing part of the Bill because we agree with the principle that banks ought to prepare living wills. However, I should place on record our concerns about Clause 12, because we shall not have the opportunity to debate the several amendments that we had tabled. We had been advised that this clause was not actually necessary to enable the work currently being undertaken under the auspices of the FSA’s requirements for resolution and recovery plans. The sheer breadth of the new powers and the fact that they can be used by the FSA to go way beyond the large banks at which the clause is clearly aimed in the first instance has concerned other parts of the financial services industry. We are less than clear about the role of the Treasury in these new powers and we do not understand why the use of the powers is mandatory for all time. The Government normally pray in aid flexibility by using “may” for drafting requirements, but they have drafted these new powers in the “must” form. The sunset clause proposed by the noble Baroness, Lady Valentine, in Amendment 336 applied also to Clause 12 and I regret that we shall not have the opportunity to include that in this Bill. This underlines the importance of the Government of the day, whoever they are, keeping the impact of this sweeping clause under review. What is right for today may not be right in a few years’ time.
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Lord Oakeshott of Seagrove BayMy Lords, we on these Benches have no objections to the clause. However, following the remarks of the noble Baroness, L…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, we on these Benches have no objections to the clause. However, following the remarks of the noble Baroness, Lady Noakes, perhaps I could ask the Minister, although the main provision here is for dealing with banks, what other institutions it is intended that the provisions should cover.
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Lord MynersMy Lords, I am grateful to the noble Baroness, Lady Noakes, and to the noble Lord, Lord Oakeshott, for their comments.…
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Lord MynersCrossbench
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My Lords, I am grateful to the noble Baroness, Lady Noakes, and to the noble Lord, Lord Oakeshott, for their comments. The noble Baroness questioned whether Clause 12 was necessary. I agree with the noble Baroness that the clause is drafted widely and should be used with care. It is the sort of clause that should be kept under review when it comes to implementation. However, there can be no doubt that the experiences and the pain of the past two years have shown us that we must ensure that financial institutions are structured in a manner that means that they can never again place such extraordinarily large calls on the taxpayer and society. In answer to the noble Lord, Lord Oakeshott, there is no intention that these powers should be used more broadly than to regulate banks. However, in the early stages of the financial crisis, in late 2008 and early 2009, our concerns were not limited to banks. Other major financial institutions were beginning to excite concern and were the subject of regular meetings between myself, my officials and representatives of the FSA. That experience taught me that the powers proposed here would be a valuable addition to the regulatory responses available in order to protect the interests of savers, those with insurance policies and those with other forms of investment. It is with that in mind that the clause has been drafted.
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Lord MynersAmendment 167A will require the Financial Services Authority to have regard to any internationally agreed measure on sh…
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Lord MynersCrossbench
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Amendment 167A will require the Financial Services Authority to have regard to any internationally agreed measure on short selling when making its own rules. Amendment 179A ensures that the supplementary powers in relation to the production of information and documents that are currently set out in Section 175 also apply where the FSA is seeking information under Section 131E. Amendment 180A is a consequential change extending the FSA's enforcement power. Amendment 181 proposes a limitation period of three rather than four years. I beg to move.
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Baroness NoakesMy Lords, we welcome Amendment 167A, which deals with the need to have regard to international conformity. We had raise…
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Baroness NoakesConservative
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My Lords, we welcome Amendment 167A, which deals with the need to have regard to international conformity. We had raised the issue in an amendment that we have now withdrawn. We have no problems with the other amendments in the group. I shall say no more today on the subject of short selling. However, many people will be watching carefully to see whether the FSA uses the powers in Clause 13 wisely and reasonably.
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Lord MynersClause 16 enables the regulator to impose a penalty on a person who is performing a controlled function without the nec…
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Lord MynersCrossbench
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Clause 16 enables the regulator to impose a penalty on a person who is performing a controlled function without the necessary FSA approval. Amendments 184A, 184B and 186A change that drafting so that the FSA will be able to impose a penalty only where it is satisfied that the person concerned knew or could reasonably be expected to have known that they were performing a controlled function without approval. The noble Baroness, Lady Noakes, tabled similar amendments, for which I express my appreciation. A limitation period applies to the FSA's enforcement action. Currently, the FSA must begin proceedings against an individual within two years. The Bill increases this limit to four years because the current two-year limit does not give the FSA enough time to investigate the most complex cases. In addition, cases against individuals are usually hard-fought, and the FSA suspects that individuals are often deliberately unco-operative as a delaying tactic to frustrate enforcement action. Individuals can therefore deliberately obstruct an investigation in order to run down the clock and evade disciplinary action. This is clearly wrong. However, I am also mindful of the concerns expressed in another place and by the noble Baroness, Lady Noakes, who tabled amendments to this part of the Bill. Amendments 194 and 204 reduce the proposed increase in the limitation period from four to three years. I believe that this strikes the right balance between providing the FSA with enough time to conduct a proper investigation and addressing the concerns of the Opposition Front Benches here and in the other place. Amendments 200, 201 and 202 ensure that the FSA must have regard to a number of factors when determining both the level of a fine and whether it should be imposed in the first place on an individual who has performed a controlled function without approval. The Bill states that the FSA's policy on penalties must require it to have regard to the conduct of the individual and the length of time during which they performed a controlled function without approval. Amendments 200, 201 and 202 would ensure that the FSA's policy would have regard to two additional factors when determining whether to impose a fine, and the level of that fine: first, the extent to which the individual could reasonably have been expected to know that they were performing a controlled function without approval; and secondly, whether it is appropriate to take enforcement action against the individual as opposed to, or in addition to, the firm. The amendments also require the FSA to set out the sorts of circumstances in which it would reasonably expect an individual to know that they were performing a controlled function. This provides a comprehensive set of safeguards. I beg to move.
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Baroness NoakesMy Lords, Clause 16 is not without difficulty. I regret the fact that the wash-up process has prevented us from debatin…
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Baroness NoakesConservative
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My Lords, Clause 16 is not without difficulty. I regret the fact that the wash-up process has prevented us from debating the need for additional disciplinary powers in Clauses 14 to 17. That aside, we welcome Amendments 184A and 184B, which deal with the burden of proof in the use of the unusual new power in Clause 16 to go after people who perform controlled functions without approval. The Minister referred to the amendments that we tabled, but I believe that his amendments are somewhat better. We similarly welcome Amendments 201 and 202 as providing further protection to people caught up unwittingly in Clause 16. Amendment 194, as the Minister explained, reduces the limitation period from four years to three years. We regard this as a move in the right direction, but of course it does not go as far as our own amendment. That would have reduced the period to two years, which we continue to believe is more reasonable. We have a similar view on Amendment 204 in relation to Section 66, but this is half-loaf time and so these amendments get a half-welcome. Lastly, we welcome Amendment 205, which enables the publication of details of decision notices. It does not go as far as the amendment that we had tabled; none the less, it is welcome on consumer protection grounds.
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Lord Oakeshott of Seagrove BayI can give the amendments a warmer welcome than that and say that they seem sensible to us. The idea of committing a cr…
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Lord Oakeshott of Seagrove BayNon-affiliated
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I can give the amendments a warmer welcome than that and say that they seem sensible to us. The idea of committing a crime without realising that you are being a criminal is obviously very difficult. It is sensible that that is recognised in these amendments and we support them.
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Baroness ValentineI speak to Amendment 186. As I set out in respect of Amendment 336, I believe that a time limit on this clause would be…
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Baroness ValentineCrossbench
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I speak to Amendment 186. As I set out in respect of Amendment 336, I believe that a time limit on this clause would be beneficial, given the unique environment in which this legislation is being drafted.
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Lord Hodgson of Astley AbbottsI seek information from the Minister. One issue that has concerned some people in the City is where a statement of case…
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Lord Hodgson of Astley AbbottsConservative
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I seek information from the Minister. One issue that has concerned some people in the City is where a statement of case is made against someone but is not then proceeded with particularly quickly by the FSA, which sometimes quotes a shortage of resources in relation to carrying out the investigation. Although I understand and appreciate that trying to run down the clock, as the Minister put it, to evade the consequences of justice is wrong, there is also, on the grounds of equality of arms, a requirement for the FSA to proceed reasonably and ensure that the case is heard quickly. The person under investigation is in a state of suspended animation, with his or her career being damaged. Does the Bill provide a requirement for the FSA to proceed with due haste?
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Lord MynersMy Lords, first, I thank the noble Baroness. Even a half-welcome is warmly appreciated from these Benches. I express wi…
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Lord MynersCrossbench
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My Lords, first, I thank the noble Baroness. Even a half-welcome is warmly appreciated from these Benches. I express with sincerity our appreciation to the noble Baroness and her colleagues for their help in drafting and developing our thinking in respect of these clauses. I note the contribution from the noble Baroness, Lady Valentine, to which I think I spoke earlier regarding our belief that these powers are not just for the moment but are there always to help us to address the need to avoid future risk. I appreciate the supportive comments of the noble Lord, Lord Oakeshott. The question of how long is required is interesting. I have no difficulty at all in expressing my personal agreement with the views aired by the noble Lord, Lord Hodgson, on the damage that can be done by unnecessarily delaying the process. Having discussed this matter with the FSA, I can say that it has an interest in moving as expeditiously as possible, as the quality of evidence can sometimes deteriorate with time and the ability to call witnesses and so on can be affected by delay. Therefore, I think that there is a symmetry of interest here between the wish of the FSA to promote an action as expeditiously as possible and the need to avoid someone being exposed to unnecessary, and possibly in due course unjustified, anxiety as a result of FSA action. On that basis, I hope that noble Lords will join me in supporting these amendments.
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Lord MynersAs mentioned previously, we have agreed to remove certain clauses from the Bill at this stage. This grouping seeks to r…
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Lord MynersCrossbench
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As mentioned previously, we have agreed to remove certain clauses from the Bill at this stage. This grouping seeks to remove Clauses 18 to 25—namely, those that deal with the new class action procedure or collective proceedings. I urge noble Lords to support the removal of these clauses from the Bill.
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Lord WhittyMy Lords, I wish to register my complete dismay at this whole swathe of the Bill being deleted in this arbitrary way by…
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Lord WhittyLabour
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My Lords, I wish to register my complete dismay at this whole swathe of the Bill being deleted in this arbitrary way by agreement between the Front Benches. As we move into an election phase, politicians of all parties will be going up and down the country meeting individuals and businesses who feel very badly let down by the banking system in particular. It will be difficult to explain why, of all elements of this Bill, the one that sought to redress the balance between consumers and the banking system should have been picked out for deletion by the Conservative Party and why the Government succumbed so easily to that proposition. I declare an interest as chair of Consumer Focus. With all due respect to the noble Lord, Lord Hodgson, this subsumes customers, clients, depositors, borrowers and so on in the financial system. This part of the Bill would have been a very popular and effective way of restoring the balance between the financial sector, which has so let down this country, and a lot of individuals and businesses. Seeing it deleted from the Bill in this way is a source of deep regret to me, as it will be, I think, for many people up and down the land.
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Baroness NoakesMy Lords, I completely understand the unhappiness of the noble Lord, Lord Whitty, with the deletion. Perhaps I may take…
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Baroness NoakesConservative
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My Lords, I completely understand the unhappiness of the noble Lord, Lord Whitty, with the deletion. Perhaps I may take a minute to explain the position of my party. At Second Reading, my noble friend Lord Henley set out our concerns with Clauses 18 to 25. They do not enshrine the principle that court proceedings should be a last, not a first, resort. We felt that important safeguards were missing from the clause and we were concerned at the degree of secondary legislation necessary to implement that. Secondary legislation, as the noble Lord, Lord Whitty, knows, has a minimal involvement of either House of Parliament. We also thought that it was unclear how the various remedies available to consumers in different parts of the Bill, and other Bills, would fit together. When we discussed that with bodies which represented those who would be on the receiving end of collective actions, our concerns were increased rather than reduced. We had tabled nearly 40 amendments in order to debate some of the issues, but we recognised very early on that, despite the very enthusiastic support from consumer groups—I certainly saw that from the groups which the noble Lord, Lord Whitty, represents and others—that the time is not right for this rather piecemeal approach to the remedies available for consumers in this one area. However the election turns out, we do not regard that as the end of the story on collective proceedings. We fully support further work on collective actions for consumers, but we believe that that should be on a holistic basis across the whole range of consumer redress and not simply on financial services. We also believe that we need to entrench firmly the principle that the courts are the last, not the first, resort in any final result. I thought it was worth explaining our position.
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Lord Oakeshott of Seagrove BayMy Lords, earlier we had quite a discussion and expressed concern about the carve-up that has taken place in this wash-…
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Lord Oakeshott of Seagrove BayNon-affiliated
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My Lords, earlier we had quite a discussion and expressed concern about the carve-up that has taken place in this wash-up. That was as a result of agreement between the Conservative and Labour Front Benches, and it was not, as we pointed out, just the Liberal Democrat Benches or the Cross Benches that were not involved, but also the Back Benches. The noble Lord, Lord Whitty, has very properly made his concern clear now. We are also concerned that all this section has been lost. As the noble Baroness says, we accept that it is complicated. I speak from my own experience of being asked for advice on things like the split-capital investment trust scandal. That was a shocking scandal, which, years ago, the FSA did not get to grips with properly. Clearly, one sometimes sees firms of solicitors which perhaps do not have the best interests of customers at heart and I have certainly said, “The odds do not look very good in this case”. That is fairly topical. Only the other week, I had a letter from someone who had lost money in one of the former building societies which had been nationalised, asking whether he should join in the class action. Clearly, it is quite a complex situation, but we believe that consumers should have the right to seek redress and that it should be made easier. We are sympathetic with the general points made by the noble Lord, Lord Whitty, and we are sorry that all these clauses have been lost.
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Lord MynersThe Government have carefully considered points made in another place and by the industry about the ability to review r…
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Lord MynersCrossbench
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The Government have carefully considered points made in another place and by the industry about the ability to review rules made by the FSA establishing a consumer redress scheme. The Government have accepted that the Bill should expressly set out a means of challenging rules, rather than requiring parties to rely solely on the judicial review process. Amendment 285, therefore, provides that any person may apply to the Upper Tribunal—the successor to the Financial Services and Markets Tribunal—for a review of the rules made by the FSA under Section 404. The new clause provides for the review to be carried out by the Upper Tribunal. Although the new clause generally makes provision for the tribunal to apply usual judicial review principles, in two specific cases it provides for the tribunal to review provisions of the rules on their merits. First, the tribunal will be able to determine whether examples given by the FSA of things that are to be regarded as a failure to comply should in fact be regarded as such a failure. Secondly, the tribunal will also be able to review on their merits matters which the FSA has required firms to take into account or steps that the FSA has required firms to take for determining whether they have failed to comply with the relevant requirement and, if they have failed to comply, whether that failure has caused loss or damage to customers. Furthermore, in the light of industry concerns about the use of the power, we have also agreed to change the commencement of this clause so that it must be commenced by order rather than automatically on Royal Assent. Amendment 332C, therefore makes this change. I beg to move.
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Baroness NoakesMy Lords, Clause 26 radically changes the existing FSMA powers for consumer redress and gives the FSA sweeping powers w…
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Baroness NoakesConservative
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My Lords, Clause 26 radically changes the existing FSMA powers for consumer redress and gives the FSA sweeping powers with virtually no oversight or protection for those who could be brought within its ambit. The justification for the abandonment of parliamentary oversight has never been satisfactorily explained. The Government did not carry out a detailed consultation on these changes before the Bill was published and that accounts for a certain degree of shock in the financial services sector when it saw what was proposed. There was considerable concern about the lack of an appeal or challenge process built into the new arrangements, other than judicial review, which deals with substance and not merits and, therefore, is seen as inadequate. We had tabled around 50 amendments to Clause 26 so that the various concerns were debated and, in particular, those concerned the appeal mechanism. We regret that we are not able to debate them fully in the context of this Bill. Government Amendment 285 introduces an appeal mechanism involving the tribunal, but it is largely conducted on judicial review grounds and, hence, represents no substantive advance over judicial review proper—at least, that is the view of those who are affected by it. If that judicial review lookalike was all that was on the table, we would have had difficulty with Clause 26 remaining part of the Bill. Government Amendment 332C, which removes the immediate commencement of the clause so that the Government must make a positive decision to bring it into effect, ameliorates that position. We see that as allowing an incoming Government, of whatever hue, to decide on the basis of consultation and further deliberation whether Clause 26 can be safely implemented on the basis of the clause plus the amendment just proposed by the Minister, or whether it will require a further amendment. I am inclined towards the latter view, but we shall see how that turns out.
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Lord WhittyMy Lords, as my last intervention indicated, I regret the removal of substantial parts of this Bill, which would have f…
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Lord WhittyLabour
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My Lords, as my last intervention indicated, I regret the removal of substantial parts of this Bill, which would have favoured consumers. I am hoping that similar unanimity between the Front Benches will at least agree that we should restore some small elements of greater protection for consumers in the three amendments in this group. They deal with two different issues. The first one deals with the rate of interest on credit cards, which was covered by a consultation, conducted recently by BIS, in which the Government indicated their intention to do exactly what Amendment 301 proposes. At the moment, if you have a credit card due to be paid off monthly and you do not pay off the full amount at the end of the month, the debts that are removed are those with the lowest rate of interest—in other words, the highest rate of interest remains due in subsequent months and thereafter. The new clause is intended to reverse that and to require that where such a situation applies, the card holder will benefit from the amount with the highest interest rate being regarded as that being repaid on the outstanding balance. The Government have been sympathetic to that in the past, and I hope that the House will therefore be sympathetic to the amendment. If my noble friend cannot agree to it in the Bill, at least perhaps he—and, perhaps, opposition spokespeople—could indicate support for it appearing in secondary legislation or a lending code, as the present situation is certainly a serious abuse of consumers. The other two amendments relate to a wider issue, which is the way in which the FSA conducts its regulation. Most regulators, when they are investigating a company, put its name into the public arena. They indicate that there are issues with the company, so customers are at least warned that a company is being looked at, until the end of the investigation. That is not the case for the FSA. In fact, the FSA is required not so to do. Those two amendments would partially alter that. It would not be a full-scale naming and shaming exercise. Only where the FSA's judgment was that it was in the interests of its consumer protection objective would the name of an investigated company be in the public arena. There would therefore be a pretty substantial hurdle before that happened. The first amendment would allow the FSA to disclose any information that it finds in the course of its supervisory work, provided that it is in the interests of the consumer protection objective to disclose it. The second relates specifically to the point where the FSA issues a warning notice. At that point, almost all regulators put the name of the firm concerned into the public arena. The firm will already have gone through substantial investigation by that point. I hope that the Government will be prepared to consider and accept those amendments, which go some way to ensuring that the public understand in detail how the FSA is conducting its regulatory function. I beg to move.
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Lord Oakeshott of Seagrove BayThe noble Lord, Lord Whitty, asked opposition parties to indicate whether they supported his amendments in principle. I…
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Lord Oakeshott of Seagrove BayNon-affiliated
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The noble Lord, Lord Whitty, asked opposition parties to indicate whether they supported his amendments in principle. I do not know whether the noble Baroness, Lady Noakes, will speak, but I am happy to make clear from these Benches that we support them. Appropriation of payments may sound technical, but it is actually a rather nasty, dirty little secret for too many banks and credit card companies, which are only too happy quickly to take the money from the account where it costs the customer most. I pay particular tribute to the Nationwide, which does not do that and has taken a lead on that, and to other banks which do the same. We support the noble Lord’s amendments.
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Baroness NoakesMy Lords, as the noble Lord’s amendment did not form part of what we expected to pass into the Bill today, I do not com…
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Baroness NoakesConservative
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My Lords, as the noble Lord’s amendment did not form part of what we expected to pass into the Bill today, I do not come with a specific assurance to give him, but let me say that he makes a very good case. It has been widely known for a long time that consumers are not well treated by the allocation processes. Not everyone can afford to pay off their balance monthly, and those people do not understand how it works. Although I cannot give the noble Lord a specific assurance, we are very sympathetic to some way being found to deal with that. Perhaps a code is the best way to start, with legislation following if necessary. On the noble Lord’s other two amendments, the Minister’s amendment to Clause 17 in part deals with the increased disclosure that the noble Lord seeks. We supported what the Minister produced, and I do not think that it is necessary to go quite as far as the noble Lord suggests.
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Lord James of BlackheathI am happy to support the new clause moved by the noble Lord, Lord Whitty, in all its major respects, but with the ride…
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Lord James of BlackheathConservative
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I am happy to support the new clause moved by the noble Lord, Lord Whitty, in all its major respects, but with the rider that I regret very much that the opportunity has been missed to clear up another of what the noble Lord, Lord Oakeshott, called dirty little banking secrets. One has escaped the net. Nothing is being done to bring about better control of settlement figures by banks on early settlement of loans, where there is a profound problem of long-standing duration arising from the versatility or variety of the formulae by which banks calculate their settlement and—this is where the dirty trick is—the fact that they attribute a disproportionately high quantity of everything paid to them in the early stages to having been an interest payment so that they can claim at the end of the day that there is no interest left to repay, but only capital, because the interest has been paid upfront. That is a usurious sin and should have been eliminated long ago by either the Consumer Credit Act 1974 or by something else since. In supporting the amendments tabled by the noble Lord, Lord Whitty, I make a plea for any future Government to give urgent attention to correcting that appalling state of affairs.
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Lord MynersMy Lords, it will come as no surprise to the House that my noble friend Lord Whitty has made such a powerful and trench…
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Lord MynersCrossbench
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My Lords, it will come as no surprise to the House that my noble friend Lord Whitty has made such a powerful and trenchant contribution at this point of our debate. My noble friend’s commitment, vigour and energy on consumer issues is well known to the House and much respected by those who work with him in Consumer Focus and others who take an intense interest in protecting the affairs of consumers and customers. I hope that my noble friend took considerable encouragement from the sentiments expressed by the noble Baroness, Lady Noakes, as endorsed by the noble Lord, Lord Oakeshott. There are undoubtedly issues here deserving of continuing attention, and I am sure that they will receive that attention from the next Government. Many of the issues that he has raised might best be addressed through some form of code or agreement with the banking industry, rather than being prescribed in law. I will certainly follow up with the chief executives of our major banks the points he has made in today's debate. I share my noble friend’s concerns in this area. The Government were equally troubled by the practice of credit card companies of allocating partial payments to the cheapest debt first, thus prolonging the period over which borrowers must pay interest on the more expensive part of their loans. This practice is counterintuitive and not well understood by consumers, many of whom were unaware that that was what would happen when they made a payment. That very issue was reviewed by the Government in our recent consultation on the regulation of credit and store cards. As a result, lenders have acknowledged that the current situation regarding the allocation of payments needs to change. On 15 March, the Government and the credit and store card industry jointly announced five new rights for consumers, including what we have called the right to repay. That right explicitly states that all consumer payments will be put against their higher interest rate debts first. All credit and store card companies have agreed to implement that change by the end of this year—something that we shall be very carefully monitoring. The change will need to be included in cards’ terms and conditions, therefore making them enforceable by law. The requirement will also need to be incorporated into the Lending Standard Board’s lending code, as well as that of the Finance & Leasing Association. Together, those two codes of practice cover the lending behaviour of all credit and store card companies in the UK. In addition, the Government intend to put the broader agreement, which includes a wide range of changes in lending practice, on a statutory footing. I hope that, in the light of my assurances that the Government have already acted on the allocation of payments, and that the consumer credit industry is committed to reversing the practice as quickly as possible on a voluntary basis, my noble friend will feel able to withdraw his amendment. With regard to Amendments 330A and 330B, I appreciate my noble friend’s concerns about ensuring that consumers are made aware of events that might cause them detriment. However, I believe that government Amendment 205 addresses that concern thoroughly and that that view was echoed by the noble Baroness. This new clause widens the circumstances under which the FSA should disclose details of its enforcement actions against authorised firms and individuals so that the FSA is required to disclose information relating to decision notices as it considers appropriate. Currently, the FSA can disclose only information relating to a final notice, which follows any appeal to the tribunal, rather than a decision notice, which is issued after a firm has had the opportunity to make representations to the FSA but before the firm has had an opportunity to appeal. This new clause provides earlier transparency before any appeal has been heard but, importantly, after the FSA has heard the firm’s view and concluded that there is a clear case to answer. Consumers will therefore now be able to benefit from earlier disclosure, and the FSA will retain its existing consumer protection tools, including the ability to vary a firm’s permission if its continuing behaviour poses a threat. Therefore, while I sympathise with my noble friend’s concerns, I believe that they are already met. The noble Lord, Lord James of Blackheath, raised an issue that he described as a “dirty trick” relating to settlement processes. These are issues on which I will familiarise myself. I doubt whether they are likely to be embraced within the Financial Services Bill before the Committee this evening, but I will pursue the matter. The noble Lord, Lord James, will no doubt be aware that the Office of Fair Trading has said that it is looking at issues relating to investment banking and banking with a view to considering whether it wants to launch a more formal review. It is precisely the sort of argument that has been laid before the Committee by the noble Lord, Lord James, that excites a continuing belief that the banking industry needs to be subject to careful scrutiny because its behaviours in the past have so often run counter to treating customers fairly. That is clearly unacceptable to all sides of the Committee. With those closing comments, I beg my noble friend to withdraw his amendment.
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Lord Mackay of ClashfernIn relation to the agreement reached with the credit card industry about the appropriation of payments, will the agreem…
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Lord Mackay of ClashfernConservative
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In relation to the agreement reached with the credit card industry about the appropriation of payments, will the agreement affect existing credit card agreements, or is it an agreement only to change the rules for the future in relation to new agreements?
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Lord MynersI can express with a fairly high degree confidence that it relates to existing agreements. There is a large stock of cr…
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Lord MynersCrossbench
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I can express with a fairly high degree confidence that it relates to existing agreements. There is a large stock of credit and store cards in existence and while it would be a step forward to have new procedures for the flow of new cards, many of these agreements and cards have been in place for many years and I imagine that it would affect all agreements. Even as I stand here, my confidence that it affects all agreements has increased dramatically, and I will not now need to write to the noble and learned Lord, Lord Mackay of Clashfern, confirming that fact.
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Lord WhittyI am gratified by the breadth of support for my first amendment. In normal circumstances, I would expect the next move…
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Lord WhittyLabour
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I am gratified by the breadth of support for my first amendment. In normal circumstances, I would expect the next move to be for the Committee to adopt it by acclaim. However, I understand where we are. I am grateful to the Minister for indicating the action that has already been taken both voluntarily within the industry and by looking at the codes, and I hope that that will succeed. I will therefore be happy to withdraw Amendment 301 on the understanding that, whoever is in power, if it does not work, we will come back to the issue. On Amendment 330A, I accept that government Amendment 205 probably goes further than it appears to do at first sight. However, it does not quite deal with the FSA being able to name the company before it reaches the decision point, if it feels it is in the consumer interest to do so. I shall obviously not press that tonight, but it may be something that future Governments will have to look at to put the FSA on the same basis as other regulators. I beg leave to withdraw Amendment 301.
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Lord MarlesfordI shall speak also to Amendments 303, 304 and 305. These amendments insert new clauses that come quite neatly after the…
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Lord MarlesfordConservative
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I shall speak also to Amendments 303, 304 and 305. These amendments insert new clauses that come quite neatly after the amendment tabled by the noble Lord, Lord Whitty, because they are concerned with improving the safety of the credit card system. Before I refer briefly to what they say—I think they are quite clearly set out in the Marshalled List—I should say why I think they are necessary. They are necessary because they will deal with the future only because the present is so unsound and dicey. I have raised the question of credit card debt on a number of occasions, and the Minister has been kind enough to write to me a number of times. His latest letter is dated 1 April, and in it he confirms the high level of outstanding debt on credit cards in the United Kingdom. According to Bank of England figures, there is a debt of some £61.5 billion on which interest is being paid. The interest charged on credit card debt varies greatly—this is relevant to what the noble Lord, Lord Whitty, was saying—between about 12.5 per cent and 35 per cent. The Bank of England’s estimate of the average rate of interest on credit card debt is slightly under 18 per cent. That means that the existing stock of credit card debt is incurring interest at the rate of approximately £900 million a month, which is an enormous sum. We must ask how sound is that debt because most of it is on the banks’ balance sheets. A certain proportion of it—some £9 billion last year—was securitised. I use that word deliberately because the Minister said it was incorrect, but I have checked, and it is a correct use of the term because the banks have handed over that amount of debt to debt collectors and that is effectively—I have checked carefully with a very distinguished source—a form of securitisation. However, that is, in a sense, beside the point. The point is that there is a great deal of outstanding debt in banks in the United Kingdom, certainly some £50 billion. The credit card debt was securitised, or handed over to the debt collecting companies, at a rate of between 10p and 20p in the pound. Therefore, if that is the value of credit card debt, there is a very large, potentially toxic, supply of debt in our banking system, which could be very serious. I had hoped that the Minister would be able to tell me how much that has been written down to, but although he has written me a helpful letter, it does not reveal what it has been written down to, which clearly varies from one bank to another, which is the problem. I am not sure whether the FSA, which he consulted, has a handle on this. The fact is that in any one year at present, only about £200 million a month is being added to borrowings—this is partly because there has been a turndown in the use of credit cards—but that is only about £2.4 billion a year, and therefore an increase of some £8 billion of credit card debts during 2009 indicates that some £6 billion was added mainly in the form of unpaid interest. Again, that indicates the fragility of the level of credit card debt. There is an accident waiting to happen.
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Baroness NoakesMy Lords, my noble friend is aware that his amendments will not be accepted this evening and I am grateful to him for r…
Speaker
Baroness NoakesConservative
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My Lords, my noble friend is aware that his amendments will not be accepted this evening and I am grateful to him for recognising that. I should also say that, as drafted, his amendments appear to contain a spending commitment and, on that basis, I could not support them. However, I pay tribute to my noble friend, who has consistently raised his concerns about the availability of credit cards, high interest rates and the possibility of bad debt lurking behind the credit card statistics. He did not disappoint us today with his overview of those matters. I shall encourage him to return to these issues with renewed vigour after the election, when I hope that he will find a party in power that will take them seriously.
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Lord Oakeshott of Seagrove BayThe noble Lord makes good points about the dangers of credit card debt. In many cases, credit cards are toxic. They suc…
Speaker
Lord Oakeshott of Seagrove BayNon-affiliated
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The noble Lord makes good points about the dangers of credit card debt. In many cases, credit cards are toxic. They suck people into debt that they cannot afford. That debt is by its very nature unsecured. The rates of interest are high and have been edged steadily higher over the past year to 18 months by all the banks, not least the banks that we have rescued and in which we have majority or substantial shareholdings. I was horrified a few years ago when my children were at university and at one stage it seemed that, with almost every post, offers of credit cards were made to them. That was a gross form of mis-selling. We think that the noble Lord makes good points, even though the exact detail of what he suggests should be done needs further work. However, I pay tribute to the way in which he has highlighted these dangers.
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Lord James of BlackheathMy Lords, I support my noble friend Lord Marlesford, whose concerns I share, but I have a few comments of expansion and…
Speaker
Lord James of BlackheathConservative
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My Lords, I support my noble friend Lord Marlesford, whose concerns I share, but I have a few comments of expansion and anxiety. This is a huge problem. There is a big correlation, which I think that we have missed, between these amendments and the amendments tabled by the noble Lord, Lord Whitty. The credit card companies have been deliberate in where they have applied the highest interest and where they have found the most profitable areas to manage. People were using one credit card to draw down cash to pay off their liability on another card. Therefore, the companies introduced a penal rate of interest on the cash drawdown value of their cards. A simple means of controlling this to prevent it from getting worse would be to introduce legislation to stop credit cards being used as a cash drawdown facility, which is where the toxic element begins to take off seriously. My second concern relates to the due diligence that my noble friend Lord Marlesford mentioned. One point that is missed is that the companies often do not bother to do due diligence because they have done a tie-in deal with a body such as the Royal Society for the Protection of Birds. If you happen to be what I believe is called a twitcher, you get a credit card. I cannot see what being a twitcher possibly does to your credit rating to make you desirable to a credit card company. These things should be stopped. The tie-in is where the toxic element grows. The noble Lord, Lord Oakeshott, is entirely right about the toxic element. I end with a big warning. There is a huge risk that, in seeking a cure and trying to clear up the credit card system, we bring about a catastrophe that would go right to the core of the banking system and create a new mega-disaster for the banks, because they are the owners and backers of these cards. Incidentally, I have it on pretty good authority that the portion that was securitised was limited to those who had failed to pay even the minimum payment for three months in a row, so perhaps 10p in the pound was a very generous offer.
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19:00
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Lord MynersMy Lords, one of the great strengths of the House is the expertise that Members bring to issues either by virtue of the…
Speaker
Lord MynersCrossbench
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My Lords, one of the great strengths of the House is the expertise that Members bring to issues either by virtue of their past or parallel careers, or because they become doggedly interested in a subject and persistent in their search for understanding. That certainly applies to the noble Lord, Lord Marlesford, in respect of credit cards. I think that we can rest assured that, as the noble Baroness said, this matter will not be left to drop by the noble Lord, whom I expect with a high degree of confidence to see seated in his usual place on the Benches opposite after the general election and continuing to press these matters. Indeed, I expect to see the noble Lord, Lord James of Blackheath, similarly in his customary place. The amendments tabled by the noble Lord, Lord Marlesford, would set up a central register of credit card holders and introduce restrictions on access to and use of credit cards, with particular provisions relating to those under the age of 21. The Government sympathise with the noble Lord’s concerns about the minority of people who become seriously indebted through credit cards. But this is not the experience of most customers of this product. Data provided to the BIS review show that the vast majority of consumers pay back their credit card borrowing within a reasonable period. Only 3 per cent make the minimum payment for 12 consecutive months. However, we very much recognise the concern that credit cards should not be used for long-term borrowing and that there has been considerable consumer appetite for a change in the terms on which credit cards are offered. That is why we announced on 15 March the agreement that we have reached with the credit and store card issuers to introduce a number of new rights for card holders designed to prevent and reduce overindebtedness. These new rights were secured in an agreement between the Government and the credit and store card companies negotiated in the light of feedback from thousands of customers to a government consultation on credit cards. This will mean that the most expensive debt is paid off more quickly. New cards will encourage better repayment practice by having a higher minimum payment, a ban on credit limit and rate increases for people at risk of financial difficulty and a right to 60 days to reject interest rate increases. The key changes will be introduced by the industry this year and given statutory force as soon as possible. Amendments 302 and 303 would place the Government under a duty to create a central register of credit card holders and require credit card issuers to check the register before issuing a card. But it is difficult to see what a statutory register would add to the information that is readily accessible by lenders. The three main credit reference agencies already hold data about consumers’ credit commitments, including mortgages, overdrafts and loans, as well as credit cards. All credit card companies already consult CRA data before advancing any new credit. This would already give them a picture of the number of cards that the consumer has, and the limits and balances on each of those cards. Moreover, credit card lenders are improving the data that they share in order to identify customers at risk of financial difficulties who should not have credit extended to them. They are committed to sharing behavioural data, including whether someone is making only the minimum payment or whether they withdraw cash, both of which are regarded by the industry as indicators of risk. The consumer credit directive, which comes into effect shortly, will make checking a borrower's creditworthiness a statutory requirement and a new OFT irresponsible lending guidance note issued on 31 March will create new requirements to check that credit is affordable for the consumer. Amendment 304 would introduce severe restrictions on the use of new credit cards which would totally undermine the flexibility and value of credit card products, converting them in effect to a series of short-term personal loans. It would undermine the existing business model for card lending and would completely kill the product. We believe that new OFT requirements, coupled with the approach we have taken in the agreement with the credit card issuers, represent a more proportionate response. While much hazard is associated with credit cards, I think most of us are aware that a credit card is a very simple and effective way of making payment and most of us would struggle if we did not have use of that piece of plastic in our wallets to make regular settlements. We should be careful not to damn something which for the vast majority of the population has had considerable utility and which they greatly value. The OFT's new irresponsible lending guidance requires a credit card company, for example, to have regard to the borrower's ability to pay off the maximum amount of credit available over a reasonable period of time. The guidance specifies that, in the case of credit cards, the borrower should be able to repay the credit on a timeline at least akin to that used for other forms of unsecured lending, such as fixed-sum personal loans, made for an amount equivalent to the credit limit. The fact that a borrower may be able to “service a debt” over many years simply by making minimum repayments does not, in the OFT's view, equate to being able to pay off a debt in a reasonable period of time. On 15 March we announced an agreement with the credit card industry to introduce a number of new rights designed to prevent or reduce overindebtedness. One specific element of the new agreement with the credit card companies is that they will increase minimum payments for new accounts to help prevent a build up of excessive debts and will send letters to consumers at risk warning about the consequences of making very low repayments. The new clause introduced by Amendment 305 would impose a duty to verify whether a person under 21 at date of application already holds a credit card and prevent issue unless the issuer considers that there are special circumstances making the issue appropriate and to record the special circumstances in the proposed register. Effectively, it identifies under-21s as being at much higher risk than other credit card users, but this is not necessarily the case.
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Lord Oakeshott of Seagrove BayPerhaps the noble Lord might like to apply for a Liberal Democrat credit card, as I have here. It is an excellent produ…
Speaker
Lord Oakeshott of Seagrove BayNon-affiliated
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Perhaps the noble Lord might like to apply for a Liberal Democrat credit card, as I have here. It is an excellent product.
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19:15
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Lord MynersThe noble Lord, Lord Oakeshott, referred to the fact that his children were being inundated with offers of credit cards…
Speaker
Lord MynersCrossbench
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The noble Lord, Lord Oakeshott, referred to the fact that his children were being inundated with offers of credit cards. My own children are being inundated with offers to support the local Liberal candidate in the constituency in which they live in south-west London, which just goes to show that we should regard anything which comes through the letterbox with some caution and scepticism. However, I would ask the noble Lord to withdraw his amendment. I praise his attention to and focus on this issue and do so in the knowledge that he will come back to it if he is not happy as the story unfolds, regardless of which side of the House he may be joining the debate from.
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Lord MarlesfordI am most grateful to the noble Lord for his very full answer, which I shall study carefully. I beg leave to withdraw t…
Speaker
Lord MarlesfordConservative
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I am most grateful to the noble Lord for his very full answer, which I shall study carefully. I beg leave to withdraw the amendment.
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Lord MynersClause 29 inserts new sections into the FSMA Act 2000 to allow the FSCS to act on behalf of another scheme or authority…
Speaker
Lord MynersCrossbench
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Clause 29 inserts new sections into the FSMA Act 2000 to allow the FSCS to act on behalf of another scheme or authority, including a foreign compensation scheme. The purpose of the measure is to ensure that compensation can always be made quickly and effectively to claimants in cases where the FSCS is not responsible for paying the compensation itself. A crucial requirement is of course that acting for another scheme should not impose additional costs on the FSCS and its levy payers. Clause 29 therefore includes a number of provisions to ensure that the FSCS will take on minimal financial risk. These include provisions that allow the FSCS to decline to act for another scheme if it is not satisfied that additional costs would be reimbursed or that it would not receive the assistance it needs from the other scheme. Government Amendment 311 is a minor technical change to put beyond doubt that these provisions will not apply to the FSCS if it is asked to act on an ad hoc basis for the Treasury or another government department, and therefore ensures that the FSCS would not have any more exposure in such cases than if it was acting on behalf of a foreign scheme. I beg to move.
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19:15
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Lord MynersAs I explained earlier the Government, following discussions with the Opposition via the usual channels, have agreed to…
Speaker
Lord MynersCrossbench
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As I explained earlier the Government, following discussions with the Opposition via the usual channels, have agreed to remove a number of clauses from the Bill. Amendments 332A to 334 make necessary consequential amendments to these removals. The amendments simply delete from the Bill some references to the clauses that have been removed. I beg to move.
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19:15
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EnactedFinancial Services Act 2010