I thank my hon. Friend for his intervention. I think that the FCA, acting independently and looking at the evidence, is the right organisation to set the cap. I do not think that politicians setting the cap would be as productive; actually, it could be counter-productive.
I now turn to the cost-benefit analysis that the FCA will have to conduct, which I think will help reassure Members that it will approach the task in the proper way. The amendment specifically requires that the FCA must consult the Treasury before it publishes and consults on any draft rules. To reflect the importance of keeping the rules current and effective, the FCA must report, each year in its annual report, on any rules it makes under its capping powers.
Finally, it is worth spending a moment on the issue of defining payday lending in primary legislation. Putting a narrow definition in primary legislation could lead to unintended consequences. Lenders may just try to circumvent the definition. The amendment therefore allows the FCA to specify precisely which types of high-cost, short-term loans are captured when it makes its rules to effect the cap.
Amendment (a) to Lords amendment 155, which was tabled by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), relates to data sharing. I am grateful to her for raising that important issue and the Government fully agree that urgent action is necessary to tackle it. The whole system needs to improve to support responsible lending. Lenders must make proper assessments of an individual’s ability to repay before they lend, based on accurate, timely and comprehensive information on their outstanding loans.
The FCA plans to put strict requirements on firms to undertake affordability assessments to ensure that a borrower can afford to make sustainable repayments. The FCA is not stopping there. It has warned the industry that it must improve the way in which data sharing works, including how quickly lending data are made available. The chief executive of the FCA, Martin Wheatley, has made a commitment to me today in writing that if the industry fails to improve, the regulator
“will not hesitate to act”.
The Government wholeheartedly endorse the message to the industry that the FCA will act if it does not respond quickly enough. This matter is a priority for the FCA. It is committed to improving the way in which data are shared and lending decisions made.
I therefore believe that amendment (a), although well intended, is not necessary. I hope that on the basis of those reassurances, the hon. Member for Kilmarnock and Loudoun will not feel the need to press it.
The hon. Lady also tabled amendment (b) to Lords amendment 155, which relates to the timetable. The Government want the cap to be in place as soon as possible. That is why we are taking this opportunity to introduce legislation that requires the FCA to impose a cap on costs. The FCA will then be able to get on with implementation without delay. Let us be clear that the Lords amendment provides a statutory backstop date for implementation. The cap must be in place by 2 January 2015. If the FCA can deliver it sooner, it will. However, it must not rush and risk getting the wrong result for consumers.
3.30 pm
I will share with the House what Martin Wheatley told me today. I understand that he has published the letter on the FCA website. He wrote that
“it is very important that we are clear with you on the practical implications of any further shortening in the timetable, the principal one being that we believe it is impossible to have as strong a cap based on a shorter deadline. This cannot be the intended outcome from a consumer protection standpoint”.
I believe that the hon. Member for Kilmarnock and Loudoun has received a copy of that letter. I received it only just before I stood up to speak at the Dispatch Box.
I hope that Members from all parts of the House agree that a compromised outcome for consumers would not be the right result. The FCA’s current timetable for implementing the cap is ambitious, but deliverable. Crucially, it enables the FCA to draw on the findings of the Competition Commission’s current investigation of the market, which I referred to earlier. It is vital that the FCA can benefit from the Competition Commission’s insight into the market when designing the cap.
The FCA is already getting on with gathering the evidence and detailed analysis that it needs. It will consult in the spring on its draft proposals, at around the same time as the Competition Commission is due to publish its provisional findings. Consultation will take place over the summer and the FCA plans to make the rules in the autumn of next year. Again, that is likely to be at about the same time as the Competition Commission issues its final report. The cap will come into effect, at the latest, by the beginning of January 2015.