New Clause 9 — Bank and building society accounts of retail customers
Financial Services Bill
6:00 pm

Frank Field (Birkenhead, Labour)

I beg to move, That the clause be read a Second time.

Alan Haselhurst (Deputy Speaker)

With this it will be convenient to discuss new clause 15- Bank charges-

'(1) The Unfair Terms in Consumer Contract Regulations 1999 (S.I. 1999/2083) is amended as follows.

(2) After Regulation 6(1), insert-

"(1A) Paragraph 2 shall not apply to contracts for the supply of financial services.".

(3) After Regulation 6(2) insert-

"(3) In so far as it is in plain and intelligible language, the assessment of a term in a contract for financial services shall not relate-

(a) to the definition of the main subject matter of the contract, or

(b) to the adequacy of the main price or remuneration, as against the goods or services supplied in exchange.

(4) Where a term of a contract provides for the charging of a consumer and the circumstances in which that charge can be imposed need not arise during the term of the contract, then such price or remuneration shall not fall within the main price or remuneration for the purposes of paragraph (3).

(5) If, for the purposes of paragraph (3) there is doubt about what represents the main price or remuneration, the interpretation which is most favourable to the consumer shall prevail.".'.

Frank Field (Birkenhead, Labour)

I shall try my luck with this new clause. Let me set out the stall behind the proposed change, which is not a probing clause but one for which I hope to have sufficient support so that, if the Government do not accept it, we can vote on it.

The current mantra, which one hears too much of, from Presidents, commentators and the media generally, is that we must move to a situation in which no bank is too big to be allowed to fail. I cannot understand that conversation. If we look at this country's experience, we find that Northern Rock was an honourable bank playing a very important role in its own region, but nobody in their right mind would think that it was of a size that would fit the formula that we hear in the cant being peddled about banking reform. It was a very small player, but the Government rightly thought that, small as it was, it was still too big to be allowed to fail because of the domino effect it would have had on other banks in our financial system and on our economy generally.

So although I do not share the commentators' views about where we have got banks, I share the banks' view of where they think they have got us. The banks know that they have got us over a barrel, but we have come up with nothing to control their activities. We know that when the time is ripe-certainly, when the banks judge it to be ripe-they will try to re-establish an equilibrium that is even more favourable to them than the current one. I fear that in that world, particularly given the Supreme Court's action recently, one move will be to disengage from offering free banking to people who bank with a bank or a building society and have their accounts in surplus. I therefore appeal to the House not to trust the banks' better judgment, or what they see as being in their own self-interest, but to protect, most importantly, our poorer constituents. Every bank and building society that trades in this area should provide one account for banking purposes and one for savings purposes on which there should be no charges provided they are in surplus. That is my case. I cast the bread on the water and shall see where it gets me.

Andrew Love (Edmonton, Labour)

I wish to speak to new clause 15, and I make no apology for bringing it forward today. It covers important policy issues, and there is significant public concern about the Supreme Court's recent decision.

This new clause was fully ventilated in Committee and ably moved by Mr. Breed, so I shall not go over the issue, which is well known, other than to reaffirm that thousands of consumers have been affected by the decision on unauthorised overdraft charges, and to emphasise the mix of public surprise, shock and delayed anger at the Court's decision, which was to reverse the previous decision of the Court of Appeal and lower courts. That is why there is considerable public concern.

I want to focus on the judgment that two members of the Supreme Court made, allied to the main finding in relation to overdraft charges. One of the judges was quoted as saying:

"Parliament may wish to confer a higher degree of consumer protection by re-visiting its previous decisions"

when drawing up legislation. New clause 15 is an attempt to achieve exactly that. It would respond to genuine concerns among the public and ensure fairness as we move forward after the great disappointment of the Supreme Court decision on existing charges. Many consumers and consumer organisations think that the best and simplest way to do that is to revisit the Unfair Terms in Consumer Contract Regulations 1999. The new clause reflects that, because it would ensure that these charges were clear and transparent, which is an important consideration given the history of the development of this issue. It is also proportionate, which is a critical consideration.

Some people will ask why the Department responsible-the Department for Business, Innovation and Skills-cannot simply issue amended regulations. However, as we heard in Committee, that is complicated by the consultation on a new European Union consumer rights directive, which has been going on for a considerable period, as is usual in such cases. The Minister said that slow progress was being made. However, given that, as was agreed across the Committee, there is little prospect of that mechanism coming into force very soon, it does not answer any of the public, or indeed parliamentary, concerns about the matter. The new clause is a sensible and pragmatic response to what happened at the Supreme Court.

In Committee, the Minister said that he is unsympathetic, at this stage, to following a legislative route and prefers a voluntary approach on the basis that that would be quicker and, perhaps even more important, more flexible in how it addressed not only the particular issue dealt with by the Supreme Court but other changes that may occur in the marketplace. Although I could have some sympathy with that argument, the history of this issue makes it difficult to believe that there is an easy or a quick solution.

The Minister says, rightly, that if voluntary measures fail to deliver, then Government action will follow. However, I question exactly what will happen in such circumstances. Throughout our discussions of this matter, as it has gone through the courts and before it reached legal proceedings, it has been absolutely clear that the two sides have completely failed to agree, and that greater polarisation has occurred as the debate has gone on. On the one side, consumer organisations and the public believe that these charges are totally unfair; on the other side, the banks suggest that this is normal practice to which they remain committed regardless of the public reaction. All that I can see arising from the voluntary mechanism is that we will get into a time-consuming discussion and end up, at best, with a fudge, and I suspect that neither side will be particularly happy with the outcome. The new clause offers a genuine prospect of delivering a quick and effective solution at a time when we have a window of opportunity. It would respond to the public mood and the expectation that change will follow the decision of the Supreme Court.

In Committee, there was a lot of discussion about whether the wording of the new clause was appropriate. The Minister suggested, as he often does, and often correctly, that perhaps those who originated it had not thought through all its implications, and questioned whether there might be some unintended consequences. I was more surprised that he went on to complain that it was so widely drawn that it almost amounted to price regulation; I suspect that that might have been an overreaction. I accept, however, that he put forward a variety of reasons to justify his conclusion that the new clause should not be pursued. He talked in general terms about not intervening in competitive markets and about how competition benefits consumers. We had a long and fruitful discussion, led by Mr. Tyrie, about the idea that we should make financial markets more competitive. I sign up to that. However, much of our discussion of this issue relates to whether market failure is occurring and whether, in those circumstances, regulation is necessary.

I want to return to the issue of unauthorised overdrafts. As we heard in Committee, one of the surprising things in a so-called competitive market is that the charges that the banks impose for unauthorised overdrafts are remarkably similar, so it is pointless for someone to go from one bank to another because they will be treated in pretty much the same way. Someone on a modest income will be charged a very large amount of money for their overdraft compared with what they have in the bank. It is difficult to see how the existing situation benefits consumers. I am therefore unmoved by the argument that competition will deal with the issue.

The Minister suggested that the new clause would have a sweeping impact across the whole financial services sector. However, I remind the House that its terms would restrict the OFT to addressing only the ancillary terms of any contract-it would not have the right to question the so-called value-for-money equation or the price mechanism within those contracts. We must also recognise that the OFT would have to act only when the terms were unfair, and show clearly that in its view they were unfair, before action was taken. I accept that, as the Minister says, the new clause would widen the coverage considerably by taking in large numbers of financial services contracts. However, I submit-I understand that the Minister would want to consult others-that, with the restrictions that I have described, it would provide real protection for consumers in their financial services contracts.

I listened very carefully to the discussion in Committee, and I was not entirely convinced that the new clause before us then would not have provided answers to the decision of the Supreme Court, the concern and anger of consumers and the public and the need for prompt and directed Government action. New clause 15 would do all those things, and I commend it to the Minister and the House.

Andrew Tyrie (Chichester, Conservative)

Unlike the previous new clause tabled by Mr. Field, I have sympathy with the intent behind new clause 9. I believe that customers should be made aware of the charges that they are really paying. That also has a considerable bearing on new clause 15, tabled by Mr. Love.

I strongly agree with the hon. Gentleman that we should not be in a position in which people do not really know what they are being charged for such a crucial service as banking, or indeed any service. I also agreed with him when he said-murmurs of approval from a sedentary position by Rob Marris could be picked up on the microphone system-that we have, if not market failure, market distortion in this respect. That needs to be addressed. It is caused by a lack of information in the market; people do not know what their bank will take off them as their relationship with their bank develops. Even if they do know that when they first receive their terms and conditions, they certainly do not each time the bank sends them new terms and conditions, which they do as frequently as once every six months and certainly once a year.

I am wary of the specific approach taken by the right hon. Member for Birkenhead in new clause 9, because it amounts to direct price regulation. Normally, although not always, that leads to higher costs and less competition in the long run, and therefore consumers lose out. There are countless examples of that having happened in markets. The absolutely crucial task that we need to accomplish-by "we" I mean both Parliament and regulators-is to arrive at a point at which consumers can choose which bank to be with on the basis of the costs that they will really incur in having the service made available to them.

In a nutshell, what is required is that the banks should provide customers with a regular itemised estimate of the total charges and interest payments on their account. The sum should include interest forgone on current account surpluses and on deposits, defined as the difference between any interest earned and base rates. That amount would be very low or zero at the moment, because base rates are low, but those are very unusual circumstances as we recover from the crisis. The sum given should also, of course, include any transaction charges, regular account charges or other charges that are customarily levied. If we ensured that, we would go a long way towards supplying customers with the information they need to choose between various banks.

Let us compare the situation for a moment with what has happened in the insurance market. Some 30 or 40 years ago, people had a relationship with one broker or company and rarely thought of changing each year. These days, they go to a search engine and look up which insurance company will give them the best deal. For a small fee, or sometimes nothing at all, they obtain the information required to get the best possible insurance deal. There is no logical reason why such a service cannot be provided for a market such as reail banking, to enable people to have full transparency on bank charges. However, it requires banks to be forced to supply the necessary information.

I set out such a proposal in a short publication for the Centre for Policy Studies a few years ago. It was taken up by the Office of Fair Trading, which was already on the case, or at least thinking carefully about going in a similar direction. The central problem that we had, which is pertinent to the new clauses, was that financial services legislation and other regulatory arrangements for the conduct of retail bank business do not provide clear leadership on the matter. We are left with a legacy of self-regulation and a bit of a mess where the responsibility falls between three stools. We need leadership from the Financial Services Authority. We need it to be in the lead and responsible for maximising competition in the sector, which is why, although I will not labour the point, it is crucial that financial services legislation should have at its heart an objective to maintain competition. If it had that, the FSA would work closely with the OFT to secure what was required.

It is very important to get across to all those who have bank accounts-virtually all of us these days, or at least a very high proportion-that there is no such thing as "free banking", which is a misleading term that can only have any currency because people do not know what they are really charged. While we leave the market as distorted as it is, without the information required to enable people to know that, we will continue to have scandals or unacceptable practices of the type that we have encountered in the case of overdraft facilities.

Frank Field (Birkenhead, Labour)

rose-

Andrew Tyrie (Chichester, Conservative)

I was about to conclude, but I give way to the right hon. Gentleman.

Frank Field (Birkenhead, Labour)

I am even more pleased that the hon. Gentleman has given way if he was about to conclude. I agree totally with him about the importance of information, and that there is no such thing as a free bank account, because banks redistribute resources and charges to present to customers accounts that are free of any charges in a technical sense. However, does he agree that a free bank account in the sense that we are now using is most important to people on the lowest income, who have the least money? They are increasingly forced to use the banking system to undertake many activities that they would previously have covered with cash.

Andrew Tyrie (Chichester, Conservative)

It is important that we ensure that banks do not end up cross-subsidising the more affluent account holders by levying disguised high relative charges on the less well-off. However, I am not an advocate of a system of bank charges that will conceal the true cost from customers. I fear that providing people with a free bank account would have that effect and send completely the wrong message to account holders. If we believe in principle that people need to have free accounts-I am not advocating that, as I have not thought it through carefully enough-it would be better to offer to pay the cost of them directly. If we insist that people have accounts in order to receive benefits, the taxpayer should logically bear that cost, at least in principle. There may be many technical and other reasons why that cannot be done, but logically that should be the position.

There is a further reason for going for transparency rather than regulation. Although I have not worked out how the banks will do it, I am confident that they will take advantage of any regulation, and the additional complexity that that imposes on a pricing system, to find other ways in which to levy disproportionate charges on their clients.

Indeed, the current lack of transparency encourages the banks to produce misleading products. They are often called free banking or free credit products and they litter the letter boxes of millions of people, but they are not free and they carry stings in the tail. They give customers the misleading impression that all banks are the same and that it is therefore not worth moving banks. That is harmful in itself-it should be much easier to move accounts between banks. For all those reasons, we must move to greater transparency.

Although I cannot support new clause 9 or new clause 15, I hope that the message that the debate sends will reach the regulators and that they will press harder to achieve transparency. I hope that if we are shortly sitting on the other side of the Chamber, we will return to what is really required to ensure that banking customers can find out how much they are being charged so that we can have some more competition in the banking market.

Colin Breed (South East Cornwall, Liberal Democrat)

Again, we have had a useful exchange and I do not want to prolong matters unduly.

I have some sympathy for new clause 9, but bank charges have been a bone of contention for far longer than the past couple of years or so. As a former bank manager many years ago, I can remember charging people two guineas-that shows how long ago it was-and sometimes five guineas. There was massive cross-subsidy-there always has been. Some poor soul would pay the five guineas, whereas the debt of someone who had worked their account enormously and had a large potential probate in the executor and trustee company was offset, and he would not be charged in case he took his business somewhere else.

There has always been some mysticism about charges-much of it was done by holding a wet finger in the air. When computerisation was introduced, we had all the information about the accounts-the number of cheques, credits and so on-but at the end of the day, the system used to be based on how much we felt we could charge because we wanted to retain the business. I believe that there was far greater competition-genuine competition-then than there is today, and banks genuinely tried to secure new business.

I therefore understand the sentiments behind new clause 9, and that back in those good old days-if they ever were good old days-bank accounts were not essential, but something that people wanted. Owning a bank account was not a requirement for living one's life, whereas it is today. People cannot really do anything without a bank account and it has become a much greater necessity for those who perhaps 20 or 30 years ago would not have contemplated having one. They did not need one-perhaps they could go to the post office or even a trustee savings banks or pay in cash. However, today, a bank account is necessary.

My fear about the way in which the new clause is drafted is that, as a former banker, I could provide someone with such an account, but it would unfortunately not be accompanied by a cheque book; the holder would not be able to use a cheque card; there would be no arrangements for direct debits or standing orders; it would probably require a minimum credit balance of £100, but the holder would not have to do anything with it. It would yield minimum interest and, although the holder might not be charged for holding it, they might be charged for setting it up. The likelihood of anyone's holding one is therefore nil. We would have to be very detailed and prescriptive about the operation of such a bank account. It would therefore be almost a recipe for price regulation, which one would nail to the wall, and everyone would have to follow it. That would destroy the whole concept of competition.

Yet I believe that there needs to be a basic bank account for people with low balances-those who have their wages paid in, and almost all the money goes out again during the month. They need a bank account, otherwise they cannot get paid. We need to find a way in which to implement if not a free account, a low cost account for those people.

There has never been free banking-there is no such thing as a free lunch. However, since the Supreme Court decision, my fear is that the concept of people not being charged-which is not quite the same thing as free banking-will diminish and that many more charges will be levied on accounts.

Andrew Tyrie (Chichester, Conservative)

Does the hon. Gentleman agree that the key piece of information is not only the charge that will be levied, but the difference between the interest earned on base rates and the interest paid on that account to the customer? Until the customer has that information, he will always in a position whereby he can be taken to the cleaners' by his bank as it varies that rate of interest.

Colin Breed (South East Cornwall, Liberal Democrat)

I agree. In a sense it has been allowed to happen because, for many decades, there was a feeling that the relationship between the account holder and the bank was one of good faith; an inherent feeling that the bank would be fair and act in good faith on the customer's behalf-perhaps even give them some good advice occasionally-and would not take people to the cleaners' every time they transgressed. When banks did the latter, it came as a great shock.

I suspect that many Members of Parliament have been approached by account holders who complained because they had miscalculated the day on which they would get their salary and drawn a cheque, thereby overdrawing their accounts by £10, £15 or £20. They then found that for that £20 transgression, they were fined £30 and another £20 for the letter informing them of that. In a day or three or four, a transgression of £20 had become £100, which was directly debited from an account. People were not advised that it would be debited; it was done automatically-the money was gone. By the time the letter arrived, the account holder was substantially more overdrawn than they ever anticipated, mainly because of the charges.

That compounding of the problem led to the complaints about charges on top of charges. The banks suddenly found that they could make all sorts of other charges for unauthorised things. Even two or three years ago, I know of someone who complained to a bank after banking with it for 25 years, and was told, "Very sorry, we don't want you banking with us any more. Would you kindly arrange to close your account in three weeks?" It was amazing. All the person had done was complain, and the bank had written a letter saying, "Hard luck if you don't like it. If you don't close your account, we'll close it for you." Banks' behaviour reached the height of arrogance, and people collectively said, "Enough is enough."

It suddenly became clear that such behaviour was happening everywhere, and the complaints meant that some people were refunded-sometimes after going to the bank and thumping the desk, sometimes with the help of hon. Members. Then the refunding stopped because the complaints were so numerous that it was felt that the matter had to go to court. Many people waited for the verdict, but the case lasted for a long time. At first, the court's decision appeared to be in the complainants' favour, but now we know that it was not.

Many people feel that they have been cheated not only once, but twice. They feel cheated because they paid enormously high charges for unauthorised overdrafts-there is a difference between charging people legitimately for the work entailed and penalising them for unauthorised actions-and cheated again because the court ultimately decided for the banks, which were in pretty bad favour anyway.

We have got to a situation in which such good faith as there may have been has been totally dissipated-the public relations for the banks has been a disaster-and we must now get back to a transparent and obvious means of charging.

Rob Marris (Wolverhampton South West, Labour)

May I give the hon. Gentleman a small, personal example of how far trust has broken down? My mother has had an account with Lloyds bank for 80 years, and she is considering moving.

Colin Breed (South East Cornwall, Liberal Democrat)

I have been banking with what is now HSBC since 1964. It is easy for me to say that it has been good to me because I worked for it for a long time, but I know many who feel the same as the hon. Gentleman's mother. They feel not only let down, but much worse. The relationship of understanding, good faith and everything else has completely and utterly gone. As I said, people feel cheated. They have paid out money that they should not have paid out. The fact that it was simply taken from them is also a problem. Back in the so-called good old days, we used to advise people that we were going to charge their accounts on a certain date. If they were terribly upset, they could at least come in to the bank before it happened. Now, people are told after their accounts are charged, which is the wrong way round. Some got refunds, but many did not.

Obviously, I support new clause 15, which was tabled by Mr. Love, because it mirrors a proposal I made in Committee. I have reflected on what the Minister said in Committee. Of course, in some respects, he is right that new clause 15 is slightly more widely drawn, but that is not a bad thing, because it would send exactly the right message. It would mean that unfair charges are not sanctioned whatever they are levied by, be it a bank, insurance company or anything else. If charges are inherently unfair, they should not be sanctioned, and if the measure is widely drawn and captures products other than just bank accounts, that is all well and good. I see no reason whatever why we should allow unfair charges.

It seems that the OFT has put the white flag up, which means that unless something is done in the House, things are not going to change. As I said in Committee, I suspect that even if we passed new clause 15, it would be unlikely to be retrospective, which I think is sad, because people feel hurt and upset. The banks have got some real fence-mending to do. They must do an awful lot more for those people who feel they have abused their position in charging unfairly-extortionate amounts in some cases. The banks must review that, but we cannot make them do so. New clause 15 would at least put the situation back to what we all understood it was, and to what would appear fair to most reasonable people, which is right.

I would like to support some aspects of new clause 9, tabled by Mr. Field, who is temporarily not in the Chamber, but unfortunately, it would be completely circumvented by the banks. If they were asked to do what the clause asks them to do, they would circumvent it, so it would be a complete waste of time. However, as the banks are providing a service which is more of a utility now-having a bank account is a necessity in the daily lives of many who would not normally have had one-we must have a clearly understood, basic bank account, perhaps involving a minimum number of cheques or direct debits or whatever, so that people know that as long as they stay within a certain regime, they will not be charged. The account will not be free, but people will not be charged. There is a necessity for that. The terms and conditions of so many accounts these days run to three or four tightly printed pages, which is unnecessary, and we need them to be clear. We could have a much more basic tariff and a clear description of what an account will provide and what charges people would be expected to pay.

Finally, the real problem has been unauthorised overdrafts. People will ask, "Why should people who properly look after their accounts, make certain that they do not create an unauthorised overdraft and operate their account perfectly satisfactorily, be penalised or pay charges to cover people who do not have a sense of discipline in the operation of their accounts?" I have some sympathy for that. The banks need to be clear what they are going to charge, but customers must recognise that they have a responsibility for ensuring that their account stays within the tariff or agreement, and that should they go outside that, they leave themselves open to charges.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

The debates on new clause 9 and new clause 15, which was tabled by Mr. Love, have been thoughtful. I do not wish to speak for too long, because much that needs to be said about the proposals has been said.

There is a superficial appeal to new clause 9, and to guaranteeing that there will be a free bank account for those who keep their account in credit and those who have a savings account that is in credit. However, the reality is that such accounts would not be free-there is a cost, as Mr. Breed has indicated, and the question is who will bear it. In recent years, the cost has been borne by people who have been charged for having an unauthorised overdraft, perhaps with a significant penalty attached, but banks have also sought to build their margins on the sale of other products. All that happened because people use services in relation to their bank accounts that incur costs, which must be met from somewhere.

There is a need to be open and for people to recognise that there are many ways to skin a cat-an account may appear to be free, but the bank will earn income from the account holder to cover the cost from other sources. For example, the interest that a person earns when their current account is in credit might be collected and retained by the bank-the interest that most people get on credit balances is fairly small, even when interest rates are higher than they are now.

The challenge that we face is ensuring that there is transparency about the cost of people's bank accounts-my hon. Friend Mr. Tyrie made some important points on that. If we are much clearer about the cost of bank accounts, we will move closer to genuine competition between banks for current accounts. In that case, people would move away from the false perception that their account is free and begin to look at what charges they might incur if, for example, they were to move their account from Lloyds to HSBC. That is a helpful position. We want increased competition in the banking market, as we said in proposals published in July last year. However, we recognise that for there to be competition, people need to be prepared to switch suppliers. The barriers to switching suppliers need to be reduced, and people need to know just how much they are paying in charges. If the right hon. Member for Birkenhead had tabled an amendment that would have increased transparency, I might have been tempted to support it, but I cannot support new clause 9, despite its superficial appeal.

As the hon. Members for Edmonton and for South-East Cornwall have suggested, we have been around the track on new clause 15 before. The Supreme Court's decision on the case brought by the OFT against some representative banks left us in an uncertain position. It did not really resolve the question whether the charges were unfair. There were three routes available to the OFT-to pursue another court case on some different grounds, as suggested in the judgment; to change statute, which the new clause would provide an opportunity to do; and to reach a voluntary agreement with the banks about the future level of bank charges, which appears to be the one that the OFT has opted for.

No one should be in any doubt that if the voluntary agreement does not work, legislation is an available route. I am not as sceptical as the hon. Member for Edmonton about the prospect of voluntary agreement on this issue-perhaps I am by nature an optimist, or perhaps he is more pessimistic or cynical. It is interesting to note that in the run-up to the Supreme Court judgment at least one bank started to shift its position on bank charges and proposed some lower charges for unauthorised overdrafts, and it also differentiated between cases in which someone had received a service-if a cheque presented had been honoured-and those in which the bank rejected a cheque, which incurred a lower fee because no service had been received. That suggests that the banks may be interested in reaching a voluntary agreement, and we should maintain the pressure on them.

Andrew Love (Edmonton, Labour)

I agree with the hon. Gentleman that there is interest on both sides in reaching agreement. My point is that the two sides are so far apart and their interpretations are so different-and the commercial interests are so palpable-that reaching agreement may prove more difficult.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

That is a reasonable view to take. The OFT and the banks will discuss the matter, and both sides need to recognise the pressure to reach a settlement. It is in the interests of banks and consumers to reach that point and to avoid the continuation of the uncertainty that we have seen in the past few years.

John Pugh (Southport, Liberal Democrat)

The advantage of a voluntary code of conduct is that it allows for an appeal to the banking ombudsman. In general, banks pay attention to that authority, so it would take matters a little further on.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

Several people who complained about their charges referred the matter to the Financial Ombudsman Service, but the problem with the judgment reached by the Supreme Court is that the many complaints outstanding with the ombudsman and the county court system were left in limbo. The expectation, or the hope, was that if the OFT had won the case, it would have provided a framework for resolving the backlog of cases.

Andrew Tyrie (Chichester, Conservative)

One concern, which may lead us to conclude that voluntary regulation would not be effective, is that if the market were functioning well, the most competitive banks would have worked out the numbers and would be telling the public that they were more cost-competitive than other banks that might appear to be charging less but that are in fact charging x plus y. The market is not transparent enough, and the incentive on the banks is not strong enough to provide it.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

My hon. Friend is right. This is part of the problem that relates to the point that I made on new clause 9. Until there is greater awareness in the market of the charges being imposed by banks and it is easier for customers to swap between banks, it is likely that the charging structure will remain uncompetitive. As part of enhancing competition in the banking market, we need more transparency and more competition. In our White Paper, "From crisis to confidence: plan for sound banking", we talk about some of the mechanisms that we could use to increase transparency and consider some of the initiatives taken in the US, where mortgage companies are required to produce information on charges in a standardised form that can be uploaded into a website to enable people to compare mortgage providers. A similar remedy might be appropriate in this market.

More work needs to be done in this area. A better functioning market would be an aid to reaching a voluntary agreement, but we should make it clear to participants that legislative solutions are a possibility if they do not make progress. We have also proposed that responsibility for consumer credit should shift from the OFT to a new consumer protection agency, which would bring the regulation of bank accounts within one home-at the moment, there is a split depending on whether an account is in credit or overdrawn. Our reforms would make it easier to bring the control of bank accounts within the remit of one body rather than two, which might make it easier to resolve this issue. Work is needed on both how to achieve a satisfactory resolution of the issue of unfair overdraft charges and how to increase transparency in the market and obtain a better deal for consumers.

Ian Pearson (Economic Secretary, HM Treasury; Dudley South, Labour)

New clauses 9 and 15 both touch on aspects of the charges payable by consumers for operating personal current accounts and savings accounts, and indeed for financial services contracts in general. We have had a useful debate with some good comments, especially on the issue of transparency.

New clause 9 would require banks and building societies to offer at least one personal current account and one savings account free of charge for holding the account. New clause 15 would amend the Unfair Terms in Consumer Contracts Regulations 1999, which would allow for the assessment of the fairness of certain charges in financial services contracts. As has been mentioned, we discussed that point in Committee.

As regards free accounts, I understand the desire to preserve the current model of so-called free banking, which suits many customers well. But I question the merits of mandating by putting into legislation "free banking" practices that are already widely available in the market. I am also concerned by the good governance aspect-we should not lightly act to compel any firm to provide free services that may not cover its costs.

Andrew Tyrie (Chichester, Conservative)

I was surprised that the Minister said that free banking suits many customers well. Is not the truth that there is no such thing as free banking? Those people who think that they are getting free banking are getting nothing of the sort and are not being served very well. The real gainers from free banking are, of course, the banks themselves.

Ian Pearson (Economic Secretary, HM Treasury; Dudley South, Labour)

I agree, in the sense that the term "free banking" is something of a misnomer, which is why I have referred to "so-called free banking".

There are currently 17 basic bank accounts available from the major banking providers. They are popular with low-income households, because there is no cost for everyday transactions, and they are all accessible at post office counters. I am proud of the fact that this Labour Government have made a great deal of progress in assisting low-income households and the financially excluded. The work that we have done on basic bank accounts is a major step forward.

I am concerned that forcing banks and building societies to offer so-called free services more generally could create a lot of unintended consequences and potentially have anti-competitive effects. If we restrict the ability to impose charges, incumbent firms will tend to generate revenue through lower interest rates or extra-cost voluntary options that were previously free. They might also restrict associated services and other mechanisms, which would cause consumer detriment. There may be elements of cross-subsidy in the current banking system, but most customers basically pay for the service in one way or another-I agree with Mr. Tyrie on this point-such as through interest forgone or charges for ancillary services. Some pay currently through withdrawal penalties, overdraft charges, charges for bouncing a payment and so on.

New clause 9 would only ban charges for holding an account. It would create opportunities for circumvention, because it would create uncertainty about the scope for ancillary services and charges associated with the account. Again, many banks and building societies charge for such services as additional statements, stopping payments, using cards and cash machines overseas or issuing a banker's draft. Such charges may come under challenge if new clause 9 were adopted, thereby potentially creating a lot of unintended consequences.

What I want to say, I suppose, is, "Let's be realistic." If some charges are ruled out, new ways of raising revenue will be found. It is conceivable that a charge could be imposed for making a withdrawal or, as happens in business banking, making a cash deposit, or for other types of transactions. Banks and building societies are there to make a profit; they should not be expected to offer a loss-making service. However, it is in the public interest that we should pursue them to ensure that they do their bit to help low-income and vulnerable households, which has indeed been the broad thrust of Government policy.

I recognise that there are transparency issues with charging for personal accounts-we have had a helpful debate on that-which is why the OFT has been investigating the state of the market for personal current accounts. It published interim reports in July 2008 and October 2009, and it is working with the banks to address the complexity and lack of transparency that it has identified. Those points relate principally to unclear charge structures and disproportionate charges in some circumstances. The Government believe that that is the right way to tackle problems in the market, although it is also right that hon. Members should highlight the issue of transparency.

Let me turn to new clause 15, which would amend the Unfair Terms in Consumer Contracts Regulations 1999 and would allow for the assessment of the fairness of certain charges in financial services contracts. However, the fairness assessment would be limited, being confined to circumstances in which fees are potentially payable but would not necessarily arise; in other words, it would be limited to contingent charges. I fully understand the reasoning behind how my hon. Friend Mr. Love has structured new clause 15. It would address charges for bouncing a cheque, for example, where a bank customer may or may not exceed an overdraft limit.

New clause 15 would extend contingent charges across the entire financial services sector-we had a debate about that in Committee-and would go well beyond bank lending to include savings and investments, insurance, debit and credit cards, pensions, payment services and other types of consumer financial services. I understand the point made by Mr. Breed-that we should not sanction unfair charges, no matter where they occur-but would simply say that the broad structure of new clause 15 has not been fully thought through, in terms of the overall costs and benefits.

I understand that one of the key points behind new clause 15, which stands in the name of my hon. Friend the Member for Edmonton, is to address bank overdraft charges, which were subject to the recent test case by the OFT. He knows that the Supreme Court ruled in that case that the OFT cannot assess whether bank charges for unauthorised overdrafts and unpaid items are unfair under the Unfair Terms in Consumer Contracts Regulations 1999, on the grounds of the adequacy of price as against the service provided.

Andrew Love (Edmonton, Labour)

Does my hon. Friend agree that one of the problems that has bedevilled this discussion is that the Supreme Court only got a technical knock-out over the OFT? It did not determine the fairness of the situation; rather, it determined that the OFT could not make a judgment on that, which, to go by the public response, is making life much more difficult.

Ian Pearson (Economic Secretary, HM Treasury; Dudley South, Labour)

I might put it slightly differently. I certainly understand the concerns of consumers who have been affected by the Supreme Court judgment-they do not feel that they have got the remedy to which they felt entitled-which is why the Government have announced that we will take action to work with the OFT, consumer groups and the banks to seek to agree a fairer, simpler and more transparent system of bank charges in future. We have not ruled out further measures if a voluntary approach does not produce results.

We believe that a voluntary solution has many advantages. It can quickly adapt to changes in the marketplace. As my hon. Friend knows, any regulatory solution will need to be carefully thought through and will take more time. We must maintain price competition and avoid unintended consequences if firms compensate for any revenue reduction by developing new types of charges. However, there is a determination on the part of the Government that we should seek progress through the voluntary route.

On the broader point about the regulation of contingent charges across all financial services sectors, as I have indicated, I do not think that the case has been made. It has always been the policy of successive Governments to rely on competition to make prices fair and to intervene only where there is a demonstrable market failure that cannot be fixed by other means.

Colin Breed (South East Cornwall, Liberal Democrat)

rose-

Ian Pearson (Economic Secretary, HM Treasury; Dudley South, Labour)

I will happily give way to the hon. Gentleman, because I disagree with his suggestion that when it comes to taking action in this area the OFT has-I think that I am quoting him-put up the white flag. I strongly deny that. The OFT is on the case. It is not fair to say what he has said, but I will give way if he wants to try to justify it further.

Colin Breed (South East Cornwall, Liberal Democrat)

I am delighted to hear that and look forward to hearing what the OFT has to say to demonstrate that it is going into battle again. On competition, part of the problem is that at the moment the competition, such as it is, is between three or four rather similar institutions. We want a much better and more competitive market, with some new entrants and totally different sorts of providers. At the moment, HSBC, Barclays, RBS and Lloyds are all similarly huge, monolithic organisations, with similar charging structures and similar services. If we had a much more competitive market, with new entrants such as Tesco and everybody else, that would help the competition argument, with which I agree, that the Minister is propounding.

Ian Pearson (Economic Secretary, HM Treasury; Dudley South, Labour)

I take the hon. Gentleman's point. We want competition in the banking sector. He is right to point out that although we have had some large, powerful players, in some instances and in certain product offerings there has not been as much competition as the Government would have liked. The OFT has obviously been looking at that, and it will continue to want to examine it closely.

John Pugh (Southport, Liberal Democrat)

The Minister talks about the knock-on effects of changing the charges, but this is not a debate about whether we have charges or not; it is a debate about the structure of the charges. Do the Government have a view on what that structure should look like?

Ian Pearson (Economic Secretary, HM Treasury; Dudley South, Labour)

I am trying to make more than one point here. One of my points is that there still needs to be more transparency in personal accounts. I have also said that so-called free banking could result in additional charges being made elsewhere, and that companies would respond to that. There are differences of opinion between banks on how charges should be structured, but there are also many similarities, as the hon. Member for South-East Cornwall has suggested.

I was trying to make the point that we need to think through some of these proposals in more detail, particularly in regard to the action taken in the wake of the Supreme Court case. As I have said to my hon. Friend the Member for Edmonton, we see merit in a voluntary approach and, at the moment, we are persuaded that that is the best way in which to take these matters forward speedily. In Committee, he mentioned the proposals for a consumer rights directive that are being discussed in Europe. He will also be aware of the Government White Paper, "A Better Deal for Consumers", in which we said that we want to simplify and rationalise UK consumer rights legislation when implementing that directive.

It will be a matter for the next Parliament, and whoever is in government, to look at this issue and decide the best way in which to navigate through it. We cannot wait for ever and a day for a voluntary approach to succeed, and we cannot wait too long if the consumer rights directive is not going to see the light of day for a considerable period of time, but it will be up to the next Parliament to make those decisions. I fundamentally believe that there is no significant difference between the political parties on this matter. We all want to see the consumer getting a fair deal, and, through these discussions, we need to find the most effective, practical way of delivering that.

In the light of the reassurances that I have been able to give to my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Edmonton, I hope that my right hon. Friend will seek leave to withdraw his new clause. The Government are mindful of the points that they have made, and these are live issues that will continue to be discussed.

Frank Field (Birkenhead, Labour)

At the outset of the debate, I was hoping that someone would help me to divide the House on this question, and for a moment, I thought that the hon. Member for Chichester was going to do so. However, his early resolution was followed by a retreat from that position. I thought that he had perhaps been teasing me, until he caught me behind your Chair, Mr. Deputy Speaker, and suggested that, given the agreement about what the next moves ought to be, the sensible course of action would be to withdraw the new clause and for us all to meet and to see whether we can pursue these objectives quickly enough to have a proposal ready for debate in another place. Given the constructive discussion that I had behind your Chair, Mr. Deputy Speaker, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.