My Lords, before turning to Amendment 1 in detail, I would like to take a step back and set out why the Government do not believe that this Bill should be the vehicle for addressing issues in consumer credit and financial services more generally.
First, as noble Lords will be aware, the Government have introduced a major package of reforms to strengthen regulation of financial services markets. In the Financial Services Act 2012, we replaced the flawed system of financial regulation that we had inherited. We created the Prudential Regulation Authority to take the lead in ensuring that our banks and our insurers are safely and soundly run. We also set up the Financial Conduct Authority—FCA—as a consumer protection and market conduct regulator.
To ensure that the FCA has a clear and comprehensive remit covering all consumer financial services matters, we transferred the responsibility for regulating consumer credit from the OFT to the FCA. This means that the FCA’s statutory objectives, such as consumer protection, apply to the regulation of consumer credit. It also means that the FCA’s comprehensive and flexible rule-making powers can be used to help protect consumers from bad practices in the consumer credit market for the first time. For example, the payday lending rules introduced by the FCA have meant that the volume of payday loans has shrunk by 35% since the FCA took over regulatory responsibility in April 2014, demonstrating the strength of the regulatory regime. The Government therefore consider that the Consumer Rights Bill is not the place for making amendments to the law on consumer credit.
I turn to the detail of the amendment. Across government, we share concern about the risk to consumers from logbook loans, which were well described by the noble Lord, Lord Stevenson. The Government believe that people should be able to borrow and should have the tools to make an informed decision about which credit products are right for them but that consumers should be confident that they will be treated fairly when things go wrong. As I have said, responsibility for consumer credit regulation, which includes logbook lenders and the associated arrangements, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April. Consumers are far better protected under the stronger, well resourced FCA regime.
Like payday loans, the FCA defines logbook loans as “higher risk activities”, as has been said, so lenders face closer supervision. Logbook lenders are subject to a range of binding FCA rules, including requirements to provide precontractual explanation to borrowers of their rights before any agreement is signed. The Government have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. There is no limit on the fines it can levy and, crucially, it can force firms to provide redress to consumers.
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The FCA actively monitors the market. It has flexible rule-making powers, and if it finds further problems, it will not hesitate to take action. Indeed, the FCA has said that it is,
“putting logbook lenders on notice”,
and that its new rules give it,
“the power to tackle any firm found not putting customers’ interests first”.
Moreover, logbook lenders are in the first group of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and practices. Every firm will have to demonstrate compliance with the FCA’s rules and principles, including the very important requirement to treat customers fairly. I assure noble Lords that this authorisation process, beginning next month, will have a dramatic impact on the size of the industry.
In addition to this robust action from the FCA, the Law Commission has agreed to a request from Treasury Ministers to look at how best to reform the Bills of Sale Acts, as has been said. This legislation underpinning logbook loans is old, lengthy and incredibly complex, and affects businesses as well as consumers. Evidence suggests that around 20% of bills of sale are used by small businesses rather than individual consumers. As a result, the Government believe that the Law Commission is best placed to undertake a thorough assessment of how to bring this arcane—I think the noble Lord called it Victorian—legislation up to date. This project has been welcomed by Citizens Advice, and is now under way—it has started, so we are getting on with it. The Law Commission launched its call for evidence last month, which includes looking at the specific issues of how lenders take possession of vehicles and protections for third-party car purchasers, which we discussed in Committee.
The Government believe that this package of action will fundamentally strengthen protections for consumers using logbook loans. We have a combination of early action by the FCA and longer-term comprehensive reform. I therefore ask the noble Lord to withdraw his amendment.