Financial Services Bill

My Lords, I apologise to my noble friend for missing most of his opening speech, but he will be gratified to know that the two or three minutes that I heard convinced me that I need to support this Bill. I also need to declare an interest as chair of Consumer Focus. I will not have that post for much longer but my speech will unashamedly be on behalf of the consumer. Missing from this debate has been a recognition among my colleagues—with their vast experience of the City, the banking system and regulation—of the utter distrust and dismay that has affected large numbers of our citizens in relation to the banking system and how it has behaved in recent years. As customers of banks we have seen our once respected high street banks revealed as gamblers with our money. As taxpayers we have seen the Government bail out the whole system with no very obvious return to the consumer, deposit holder and those seeking loans from the banks. We have seen state-owned banks and a change in the structure of the banking system lead to a reduction in the availability of credit, as well as an increase in the price of credit for small businesses, at a time when the official rates of interest are at an all-time low. Meanwhile, consumer groups such as mine, the competition authorities and others have revealed the misdemeanours of banks in relation to overcharging for overdrafts, bamboozling customers over the real cost of credit cards, requiring non-effective protection insurance of unsuspecting customers and so on. In all those areas, ordinary individual consumers and small businesses are pretty much bereft of any serious means of redress that they can normally afford. In all that, the regulators have failed. The FSA has failed not only as a macro-prudential regulator, but also as a protector of the consumer interest. Last year, Consumer Focus drew up a report of all economic regulators. The FSA turned out to be one of the least well grounded in terms of consumer experience, one of the least transparent in information to consumers and one of the least demanding of the regulated industries in relation to the provision of meaningful information to consumers. I know that there is a view in the City and the financial commentariat—a few moments ago, it was expressed in this House by the noble Lord, Lord Stewartby, who is not currently in his place—that one of the reasons for the FSA’s failure was that it has concentrated far too much on consumer protection. That is misguided. I do not exactly argue the opposite, but I believe that the FSA has failed consumers just as much as it has failed the banking system. If we are looking at changing the powers and the role of the FSA, we have to address both parts. Whatever the name on the door of the organisation, our regulatory system has to address both problems. In broad terms I support the Bill and the provision that it makes for more effective processes and for redress for consumers collectively. I support the changes in the role and enforcement powers of the FSA and the provisions for enhanced consumer education for financial capability. The Bill also deals with abuses, such as the bewildering array of charges for store and credit cards. I congratulate my noble friend on the bulk of the provisions in this Bill, although I have some misgivings, to which I will turn in a moment. What concerns me about bits of this debate so far—I am aware of the debate outside this Chamber, too, although this view was also expressed by the noble Lord, Lord Henley—is that there is a move, supported by the CBI, to dilute virtually out of existence the provisions in the Bill that provide for collective redress. I will not repeat the arguments made by my noble and learned friend Lord Goldsmith on the need for provision for collective redress and the desirability of having some form of opt-out redress in this system. He also dealt effectively with the argument that this will get us into an American-style class action bandwagon for lawyers. I have not the same interest to declare as my noble and learned friend Lord Goldsmith in relation to bonanzas for lawyers, but there is no comparison between the situation provided for in this Bill for collective redress and that which prevails in the United States. We operate a different system and there are safeguards in this Bill to ensure that there is not abuse of the system. What is proposed is much needed because, although the sufferers from abuse in the financial sector and many other sectors are often relatively small-scale in the scheme of things, a large number of people are affected. An opt-out system is the only way in which that problem will be seriously addressed. Indeed, in other jurisdictions, such an operation already exists—in the Scandinavian countries, in the Netherlands and in Portugal—and we do not see a large-scale, American-style range of litigation, because the very existence of that provision makes providers behave better in the first place. On the role of the FSA, I support the creation of the proposed consumer financial education body, but I have some reservations about it. My concern is on two levels. Work has been done in the FSA—the Money Made Clear programme is particularly impressive—but we have to recognise that, despite the poor record of much of the financial sector on consumer service and consumer protection, some areas can be made more effective by a more effective organisation in this area. Also, taking what has perhaps been the most effective part of the FSA’s empire in relation to consumer protection out of the FSA may make the remainder of the FSA concentrate less on consumer protection, consumer enhancement and consumer information than it currently does. That danger is enhanced by the inclusion of Clause 6, which removes the objectives from the FSA for improving financial understanding. Is it my noble friend’s intention that the FSA will no longer have any responsibility in this field? Surely this needs to run through its regulatory and supervisory interventions in any case, even though there may be a separate body delivering the education programme. It is even more incongruous that that responsibility should be taken away, because the FSA is still responsible, under Schedule 1A, for setting up the new body. In the long run, the new body should probably be entirely separate from the FSA, but that is not what the Bill says. It is also important for more general purposes that the FSA should retain some responsibility in this field. We know that there are alternative plans around for restructuring the boundaries of regulatory activity in this area and that the Opposition—the noble Baroness, Lady Hogg, mentioned it today—would, if elected, probably abolish the FSA entirely, move micro-prudential regulation to the Bank and have a separate consumer protection agency. I could be persuaded of that, but it would, on the face of it, leave the consumer dimension of this out of the responsibilities of the main regulator, which would, under those circumstances, be the Bank of England. I want to mention two other aspects. The first is consistency across the consumer field, both within the financial sector and more broadly. There are parts, particularly the credit dimension of financial services, which are non-mainstream—those that affect the poorest elements of our society—and there is a mishmash of regulation in that area at the moment. This applies in part to the relatively benign activities of credit unions, which the noble Lord, Lord Bew, mentioned in a Northern Irish context, but also to the less benign activities on home loans, pay-day credit, pawnbrokers and pre-payment systems, right through to illegal activities by loan sharks. This is a sector on which more and more people are dependent for credit; as credit becomes more difficult to obtain in the mainstream sector, more people are being pushed into this sector. I hope that the Bill’s provisions, including the redress provisions, will extend to them. I also think that these provisions should extend, or be capable of being extended, more widely. I mentioned in my declaration of interest that I shall soon cease to be chair of Consumer Focus. This is because, in another part of Whitehall, as the noble Lord, Lord Henley, mentioned, the BIS department is creating a consumer advocate, whose job will subsume the job that I currently do as chair of Consumer Focus. I would like to see the consumer advocate have a role in the financial services area, but it is not clear whether that will happen. Moreover, I would like to see the collective redress provisions extendable into areas other than the financial services. I think that, at this stage of the Bill and this stage of the parliamentary process, the only way I could hope to get that would be through a relatively simple clause that would provide for an affirmative resolution to extend the provisions into other areas. I do not expect the Minister to come up with full-scale provisions in this area, but I should like to see what I have suggested reflected in the Government’s intention to enhance consumer powers and the redress that consumers can obtain. My final points relate to the structure of the banking sector. The Minister may recall that, when we suspended the competition laws in relation to Lloyds-HBOS a few months ago, and when he dealt with the Banking Act in 2009, I made a couple of suggestions. One was that those retail banks with a significant part of the market should reflect the consumer interest within their own structures, much along the lines mentioned by my noble friend Lord Sawyer. My other suggestion was that, at some time, when this crisis at least looks as though it is over, we should have a proper competition inquiry into the structure of banks. We have ended up in this country with an oligopolistic situation in mainstream banking, much of which is partly owned by the Government. I do not know what the ideal structure of banks would be. I do not know whether the proposition of the noble Lord, Lord Lawson, on Glass-Steagall is operational in these current, modern circumstances. I do not know whether it is right that some banks are too big to fail and too big to be broken up. However, I know that the current situation is probably leading to less choice, less flexibility, more people excluded from access to financial services and the domination of our financial and banking structure by relatively few companies. We need a competition inquiry into that. It is not necessarily the case, of course, that more banks will necessarily mean more choice—we could end up with more banks and fewer branches, fewer products and fewer choices for individuals—but at least we should have a proper, thorough investigation into that. I suggest a Competition Commission inquiry into the whole area. My final point is on the governance of banks. When I raised this with the Minister previously, he referred me, as he may recall, to the then impending Walker report. While I agree with some of the provisions suggested by the Walker report, I do not think that it goes far enough. The people who govern the banks failed us dramatically. The people whom the shareholders put in there on their behalf failed them and they failed the wider society. The current governance of banks is not sufficiently different. Banks are different from other public companies and we ought to recognise that in the law that covers their governance. Until we do, we run the risk of making the same mistakes again.