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6.57 pm
The Economic Secretary to the Treasury (Ms Patricia Hewitt): I congratulate my hon. Friend the Member for Waveney (Mr. Blizzard) on securing this debate on an extremely important subject. I only regret that there are no Members on the Opposition Benches to debate this issue with us. I thank my hon. Friend for visiting me this afternoon, together with Suffolk county council trading standards officers, to ensure that I have the full picture on the extremely useful survey that they carried out.
As my hon. Friend said, taking out a mortgage and buying a house is one of the biggest financial transactions that most of us ever get involved in. The growing complexity of mortgages means inevitably that there is greater scope for misunderstanding, perhaps for mis-selling and for consumers to get a raw deal. We are determined to ensure that consumers get the protection that they need and deserve in that extraordinarily important financial transaction.
It may help if I summarise the factual position as it stands. There are some 10.5 million mortgages outstanding at the moment. The number of complaints that
are made in relation to mortgages are, I am happy to say, small compared with that figure. In 1995, there were 50,000 complaints--about 0.5 per cent. of the total number of outstanding mortgages. Nor is it true to say as some do--I am glad that my hon. Friend did not fall into this trap--that mortgages are wholly unregulated. First of all, more mortgages were brought within the scope of the Consumer Credit Act 1974 when the upper limit was increased to £25,000. All mortgages are subject to the Unfair Terms in Consumer Contracts Regulations 1994, irrespective of the amounts involved. The Office of Fair Trading is considering redemption penalties in relation to compliance with those regulations--
It being Seven o'clock, the motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Jamieson.]
Ms Hewitt:
As my hon. Friend said, many of the complaints about mortgages, like many of those which came to light from the Suffolk county council exercise, relate to endowments that are being sold alongside mortgages, which are of course already regulated by the Financial Services Authority. Because that investment business is already regulated, the majority of intermediaries, who are also advising on mortgages and selling mortgage products, must be authorised by the FSA. So, there is already some protection, both from the FSA and in other parts of the law, for consumers who are buying mortgages and products relating to them.
Clearly, such protection is not enough. That is why the Council of Mortgage Lenders decided to introduce its code of practice. As my hon. Friend has acknowledged, we are monitoring extremely closely the performance of that code and looking to the Council of Mortgage Lenders to ensure that the provisions are properly enforced by both lenders and intermediaries. As he also acknowledged, it must be right to give that code a fair trial. It has only been in operation for lenders since July 1997 and for intermediaries since April 1998. However, it is essential that we have good information on whether the code is working before we reach a decision about the draft Financial Services and Markets Bill and the scope of its authority.
I join my hon. Friend in congratulating Suffolk county council trading standards officers on the mystery shopping exercise that they recently conducted. It was an admirable piece of research, and I am extremely grateful to the officers not only for conducting it but for making available to the Council of Mortgage Lenders and, indeed, the Treasury the transcripts of the 31 interviews which were undertaken during it.
My hon. Friend is right to say that that the results of that mystery shopping exercise are disturbing, because they suggest that all the brokers who were visited were, in some respect or another, failing to comply with the provisions of the code. I have no doubt that the Council of Mortgage Lenders and the MCRI will take the findings extremely seriously--we shall certainly do so. Indeed, detailed transcripts of the six cases in which the trading standards officers concluded that there was evidence to suggest that brokers were in danger of mis-selling endowments along with mortgages have already been referred to the FSA. I understand that the FSA is investigating that matter, as, indeed, the MCRI is investigating the general picture that emerged from all 31 brokers who were visited.
There are of course differing views on whether mortgages should be brought fully within the scope of the FSA. I shall monitor extremely closely and carefully the operation of the code, as my predecessor undertook to do. I will expect to hear from consumer groups and, as my hon. Friend has said, from other trading standards officers, as well as from the Council of Mortgage Lenders, brokers, intermediaries and lenders themselves. I will also expect the Council of Mortgage Lenders to come forward if it believes that there is evidence that its members and the intermediaries are delivering what the code requires. The onus of proof, in other words, will be on the Council of Mortgage Lenders. It will need to show me what steps it has taken to ensure that the results that were revealed in the exercise, and may have been replicated in others, will not be found in future.
When we were elected, we inherited a thoroughly unsatisfactory system of financial services regulation. There were nine different regulators, with different ombudsmen and complaints and compensation systems to match. It is not surprising that, as we saw with the personal pensions mis-selling scandal, real threats to the interests of consumers had been allowed to arise in the gaps between the different regulators. Therefore, we announced in May 1997 that we would put financial services regulation on a statutory footing and create a single regulator. We have already begun that process through the Bank of England Act 1998, by transferring banking supervision for the Bank of England to the FSA, thus establishing the authority which has, through a variety of contracts and memorandums of understanding, taken over and absorbed the regulatory functions that previously existed in a variety of other places.
We are now moving forward with the draft Financial Services and Markets Bill to put the FSA on to a proper statutory basis and give it the powers to make and enforce the rules that are required in the increasingly complex and fast-changing financial services industry. We are also putting in place processes that will protect natural justice and the rights of those who are authorised to sell products as well as the rights of consumers. I am happy to say that the joint committee that is undertaking pre-legislative scrutiny of the Bill is making extremely good progress. We expect it to report on 29 April. Mortgages is one of the issues to which the joint committee has paid attention.
Later this year, I will conclude the review of the code of practice on mortgage lending. I certainly hope to have the fruits of the other mystery shopping exercises that trading standards officers in various other parts of the country plan to undertake. I welcome their interest in the matter and their willingness to put time and resources into giving us evidence about whether consumers are getting the protection that they need and deserve from the code.
I will make a decision later this year about whether the scope of the Bill should include all mortgage selling. The Bill provides for mortgages to be brought within its scope and the scope of the powers of the FSA.
Mr. Flynn:
My hon. Friend will appreciate the sense of deja vu that many of us have. There were no complaints in the late 1980s from those who had been mis-sold personal pensions, but the fact that no complaints were registered did not mean that nothing wrong was going on. Can my hon. Friend give us an undertaking that, when
Ms Hewitt:
I will certainly publish the evidence upon which I base my decision whether to include mortgages within the scope of the Bill. As I have already said, much of the evidence that will be made available to me in that process of monitoring will in any case be published by those who undertake it. Of course I will happily do as my hon. Friend requests.
It is important that we establish a modern system of financial services regulation and that we balance the costs and benefits of regulation. Obviously, there are costs involved in regulation. Clearly, if we decide to bring mortgages fully within the scope of the draft Financial Services and Markets Bill and the FSA, the additional costs of regulation will fall on intermediaries and on
lenders, but, in reality, those costs will ultimately fall on consumers. If we bring mortgages within the scope of the Bill, we shall need to be satisfied that the benefits to consumers outweigh the additional costs that regulation will impose on consumers and providers.
I shall return to that matter--as, I am sure, will my hon. Friends--later this year, when we have a better picture and more evidence as to how the code is working and we know whether we can rely on more effective enforcement of the code or need statutory regulation to deliver the objective that we all share--effective protection of consumers.
Once again, I thank my hon. Friend for his concern and interest in this matter. I thank him for drawing the attention of the House to the extremely important survey undertaken by Suffolk's trading standards officers.
Question put and agreed to.
Adjourned accordingly at eleven minutes past Seven o'clock.
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