To be totally honest, I do not know the answer to that question, but I will write to the hon. Lady to clarify that point.
Similarly, the levy will duplicate the Government’s existing support for credit unions. The Government are already investing £38 million to support the sustainable growth of credit unions to help them meet borrowers’ needs, as highlighted by the hon. Member for East Hampshire (Damian Hinds). Through that expansion, credit unions could save people on low incomes up to £1 billion in interest repayments, compared with going to a payday lender.
The Government therefore firmly believe that consumer choice and protection will be substantially strengthened by the new FCA regime and the ongoing Government support for credit unions. For the first time, payday lenders and other consumer credit firms will start paying their fair share towards funding free debt advice through the Money Advice Service, so the Government are already dealing with many of the issues that have been raised today.
Turning to debt management companies, the Government share the concerns about the potential for detriment to occur to consumers who take out debt management plans. There has been increasing media attention and people are becoming increasingly aware of the problems affecting some consumers. I also recognise the importance of protecting that particularly vulnerable group of consumers. The Government’s focus is on comprehensively reforming regulation in this sector. Responsibility for regulating debt management firms, as with all other consumer credit firms, has been transferred from the OFT to the FCA. As with customers of payday lenders, those participating in debt management plans will be far better protected under the new FCA regime.
The FCA has stated publicly that debt management firms must start putting consumers first and that it is unacceptable that people who are struggling to make ends meet are being talked into unsuitable plans. The Government have made sure that the FCA has robust powers to protect consumers who use debt management firms. The FCA is proactively monitoring the market and has a broad range of enforcement tools that it can use to punish breaches of the rules. There is no limit on the fines it can levy. Crucially, it can force firms to pay redress to consumers. The FCA will thoroughly assess every debt management firm’s fitness to trade as part of the authorisation process—the same process that applies to payday lenders.
Given the risk to consumers, the FCA has said that debt management firms will be in the first phase of credit firms that are required to be fully authorised. Its rules make it clear that the fees charged for debt management plans should not undermine the customer’s
ability to make significant repayments to their lenders throughout the duration of the debt management plan. Concerns have been raised, including by the hon. Member for Walthamstow, about the huge proportion of somebody’s payment that, in some cases, goes to the debt management firm rather than the creditors. That is a matter of significant concern.
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As a result, the FCA set out in its guidance that debt management firms should not allocate more than half the money received from customers in debt management plans to meeting the fees and charges from month 1 of the plan, and that once the initial fee for the arrangement of the plan has been paid, the proportion should reduce. Because the practice of front-loading fees can make debt problems worse before they get better, the FCA’s policy is designed to ensure that significant repayments must always go towards outstanding debts with creditors right from the very start of the debt management plan, so that progress is being made in paying off the debts. The FCA will be actively scrutinising the market, and it has flexible rule-making powers so that it can take action if it finds that consumers are suffering due to poor services or products. Like payday lenders, debt management firms are required to signpost customers towards free, independent debt advice. The FCA has put in place binding prudential rules for debt management firms that hold over £1 million of client money to help to protect customers if things go wrong. The Government believe that the new FCA regime will help to deliver a diverse and reputable debt management market that is able to meet a range of consumers’ needs when they are struggling with debts.
Although, as I have said, I am deeply concerned about some of the evidence we have seen of consumer detriment caused by some of the fee-charging providers of debt management plans, I do not think we should unduly restrict consumers’ choice of debt management plan providers and products. As several hon. Members have said, there are some excellent providers of free advice run by charities. I have some in my constituency, and I am sure that we find them across the whole country. Fee-charging debt management plan providers who are operating with consumers’ interests at heart and in full compliance with the regulations can help to provide a wider range of solutions and products for consumers. Some consumers may prefer to use fee-charging providers in dealing with their debts. Removing such providers from the market would reduce the options for and availability of debt management solutions for consumers who find themselves in financial difficulties, and that is not something the Government want to do.
The issue of credit brokers has been raised. Brokers who comply with the rules can play a role in a sustainable consumer credit market in helping consumers to access credit by connecting them with lenders. To be fair, brokers incur costs whether or not a consumer enters into a credit agreement with them. Prohibiting firms from charging fees could therefore push them towards a commission-driven business model, potentially creating conflicts of interest and leading to a less transparent fee structure that would be worse for consumers. The FCA rules require credit brokers to disclose their status and any fees that are payable before the consumer enters into the brokerage contract. The FCA has made it clear
that disclosure must also cover the consumer’s right to a refund if no credit agreement is entered into within six months following an introduction. That relates to the case raised by the hon. Member for Makerfield (Yvonne Fovargue). The FCA has made a range of other conduct rules that apply to credit brokers. Brokers are required to comply with the high-level principle, which is general across the FCA credit services rules, of treating customers fairly. As I have said, it has a broad range of enforcement tools it can use, including fines and forcing firms to pay redress.
On new clause 11, let me be clear that the Government completely share Members’ concern about the risk of consumer detriment in the consumer credit market. There is clear evidence that there may be problems. The rules that were put in place by the FCA from 1 April this year were made with the stated aims of ensuring that firms lend only to borrowers who can afford it, and increasing borrowers’ awareness of the costs and risks of borrowing unaffordably and of ways to get help if they have financial difficulties.