My Lords, the Government have granted the Financial Conduct Authority a product intervention power to protect consumers. This power allows the regulator to mandate, restrict or ban certain features of a financial product, restrict a product’s sale to certain groups of consumers or ban a product outright. This power will extend to consumer finance products when the Financial Conduct Authority takes on responsibility for regulating consumer credit next April.
My Lords, that announcement is very welcome, although the delay to next April is one that I do not particularly welcome. Does the Minister recall that the FSA under its watch allowed PPI to happen, costing the banks that mis-sold it well over £1 billion and allowed CPP to sell credit card identity insurance, costing millions of pounds? Although this new body is set up, is it not worrying that the Consumer Panel has yet to meet? Can we have an assurance that practitioners of retail financial services will be on that panel, not least because the retail distribution review is now in force and there will be increasing numbers—millions of our citizens—investing in financial products without taking third party advice?
My Lords, I am sure that the FCA is well aware of the need to have a Consumer Panel that is as broadly based as possible. It is important to recognise that the FCA now has significant new powers: the product intervention power, the ability to ban products and powers to disclose details of warning notices, for example, as well as a power to take formal action against misleading financial promotions and disclose the fact that it has done so. It has more teeth, and all the evidence so far shows that it intends to use them.
My Lords, the case of a man who defaulted on a payday loan of £120 and ended up owing £1,800 was raised by Chris Evans MP, my successor in the other place. The payday loan company in question made 330 attempts to take money from his bank account and charged him £5 on each occasion. They further demanded £178 in interest charges. Some of the tactics employed by the payday loan companies would shame the mafia. Is it not time that we treated them like the mafia, as criminals?
My Lords, last week the Financial Conduct Authority published its first attempt to deal with the problem that the noble Lord raises. It is proposing that it should be possible only to roll over a loan twice and that if a consumer has a CPA with a loan shark—sorry, if it is a loan shark, it probably does not have any CPA—or an entirely reputable company, the number of payments that will be able to be taken under such an authority will be reduced to two. This will therefore deal pretty comprehensively with the specific type of issue raised by the noble Lord.
My Lords, I have seen the suggestions put forward by the FCA on payday loans in an attempt to protect consumers. May I respectfully say that whoever drafted them is a little naïve? Needless to say, those devious people alluded to here will work around them in a few moments. Does the Minister recognise that the only way to solve the issue is to cap the exorbitant interest rates charged and, more importantly, impose strict advertising guidelines where the advertisers are forced to devote as much prominence to warnings as they do to the sales pitch? By that, I do not mean some micro-printing in jargon that is not understood by the average consumer.
My Lords, the FCA has made proposals on advertising, which the noble Lord may have seen. As for a cap on interest chargeable, the view at the moment is that the FCA does not believe that that is the most effective way of capping the total charge made. I am sure the noble Lord will have seen the Which? report in recent days, showing that borrowers from high street banks are sometimes paying as high, if not higher, effective rates of interest on their loans because of other charges. The key thing is to have a cap on the total cost of credit, rather than simply go for a cap on the rate, which payday loan operators certainly can get around by imposing a whole raft of other charges surrounding the conditions of the loans.
Perhaps I may raise a point that I have raised on previous occasions. That is to say that the debtor is not entirely without protection in our law. As the Minister will know, a judge of the High Court, or indeed a circuit judge, always has the power in dealing with these matters to ask himself the question whether the creditor has acted unfairly or whether there are conditions in the contract that are unfair. If he finds that to be the case, he can do one of two things: he can either rewrite the contract completely or he can refuse all redress to the creditor.
I am sure that that is the case, but we want to try to ensure that contracts do not have those unsatisfactory features in the first place and that, if they are unsatisfactory, either they are banned, which the FCA will be able to do, or the rules will be set in such a way that they do not become widespread in the first place.
My Lords, the Opposition are of course pleased to endorse changes to the law that are being effected by the Government at present, although we still doubt whether they are going far enough. However, is there any evidence that changes in the law are effecting the necessary change in culture in the City and elsewhere to ensure that higher standards prevail and that the grievous abuses of the past will not continue?
My Lords, two things have to happen. First, we have to make sure that the regulatory and legal framework is fit for purpose so that people do not adopt unacceptable methods of behaviour in the first place, and if they do, they can be caught and dealt with properly. Secondly, there is a big issue around the culture in the City, which the Parliamentary Commission on Banking Standards discussed at great length and which your Lordships’ House has discussed. The two have to go hand in hand. The pressure that this House and Parliament can put on the banking sector regarding culture should not be underestimated. Debates here are taken seriously by the banks. We need to keep pressure on them whenever we have dealings with them. This must be underpinned by law and by better regulation, but we need both.