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Paul Farrelly (Newcastle-under-Lyme) (Lab): I apologise for missing the start of the debate.
I welcome the extension of the ombudsman's jurisdiction to hear complaints against the holders of consumer credit licences and many of their nefarious, oppressive and exploitative practices—I do not intend to mince my words, Mr. Benton. The ombudsman will not be a panacea, but it will provide an alternative forum for consumers and another fount of bad publicity for bad behaviour. Regulatory competition might spur people on to improve their act. I do not include the Minister in that statement; he has done a great job in piloting the Bill. In particular, however, I do include the Office of Fair Trading. Let me tell my hon. Friend why I say that, and why I called for better enforcement during our discussions on Tuesday. I shall also tell him why I support additional powers and the involvement of the financial services ombudsman.
In various guises—as a business adviser, journalist and financial editor—I have had 20 years' experience of dealing with the OFT. Year after year, I have seen Sky television run rings around competition regulators. The only recent notable high-profile success by the OFT that I can remember was its busting up—wait for it—a price-fixing ring for replica football shirts. From the press, I now note that it is the Serious Fraud Office, not the OFT, that is pursuing alleged cartels of multinational drugs companies that are involved in the altogether more serious issue of fixing the prices of medicines.
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Earlier this week I referred to credit card companies and banks, all of them household names, routinely levying unjustifiable penalty charges of £20 or £25 for late payment of bills, sometimes when they are late only by a matter of days. Indeed, one or two such charges might be enough to buy a replica football shirt—I have not bought one recently. Which?—the former Consumers Association—recently estimated that banks and card companies were raking in £400 million a year in the UK alone from that type of practice. We shall probably never know exactly how much they are raking in. Last autumn, companies were very guarded in their answers to the Select Committee on Treasury, which is investigating the issue for the second time. We shall have to wait until early February for the Select Committee's conclusions, but it is a fair bet that they will no less scathing than they were when the issue was first examined in 2003. I shall be interested to read the Committee's conclusions on the OFT's performance to date.
The OFT started to examine penalty charges in 2004, after publication of the Select Committee's first damning conclusions. The OFT has now written to eight major credit card providers as part of that ''investigation''. The director-general of Fair Trading, Sir John Vickers, wrote to the Committee in October. His letter stated:
''We found that different card issuers use different accounting policies and bases for charging, some of which, in our preliminary analysis, are of questionable validity under the regulations on unfair terms in consumer contracts.''
In January 2005, in response to enquiries from The Guardian, the OFT said that it was still investigating the issue. Today, in response to enquiries from my office, the OFT said, again, that it was still investigating. It had contacted the eight companies, but it could not comment any further. It could not say how long the investigation would last, nor when a report might be drawn up or any announcement made.
Like other hon. Members, I appreciate the need for time and confidentiality to undertake serious inquiries such as this one. However, these well-known practices have dragged on for years. Only yesterday, Seymour Fortescue, the chief executive of the Banking Code Standards Board, condemned the charges as being indefensible. Have we seen, however, any conclusions or action from the OFT?
In 2004, one of the credit card companies, the US-based MBNA, told its shareholders that it might have to reduce late-payment charges in the UK, and that that might affect its profits. That was more to do with stringent reporting requirements in the USA, where they know a thing or two about cracking down on unfair trading practices, than the prospect of any imminent action by the OFT.
I understand the need to take proper legal advice, particularly when confronted by batteries of highly paid City lawyers and barristers from the banks on the other side. However, there is plenty of good free legal advice, and that has been the case since the 1974 Act. With regard to that issue, I draw the attention of Committee members to an article in The Guardian in August 2004 by the eminent barrister Richard Colbey.
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Sadly, the mealy-mouthed response of the OFT to me and my office today, which is typical of 20 years of dealing with it, gives me little confidence that there will be a swift and decisive resolution to this issue. I hope that the Minister will, following this debate, really put the boot in. I certainly welcome the new powers for the OFT, but what is really needed is more will power and backbone from the regulators. The OFT is a statutory regulator, but in many respects it resembles a self-regulatory regime—not so much light touch as soft touch.
We all remember, before 1997, how well the old Securities and Investment Board, as part of the City's self-regulation, kept the perpetrators of pensions mis-selling firmly under wraps, until this Government got in, and my right hon. Friend the Member for Airdrie and Shotts (Mrs. Helen Liddell) forced the board to do a U-turn on naming and shaming, and we all know what an effect that had.
That is the sort of spine that I want the OFT to have. It is the sort of spine the financial services ombudsman will have in dealing with consumer credit issues, and I hope that some regulatory competition from the ombudsman will do the OFT and consumers the power of good.
Mr. Liddell-Grainger: I wish to ask the Minister for clarification on three areas. First, who will be the gatekeeper to the ombudsman? Will it be Members of Parliament, or will people be able to approach the ombudsman directly? Part of the issue concerns compulsory jurisdiction. It would be helpful if we knew how people will be able to approach the ombudsman.
Secondly, may we have some clarification on subsection (5)? It says:
''The approval of the Treasury is required for an order under subsection (2)(e).''
Subsection (2)(e) reads:
''at the time of the act or omission that type of business was specified and an order made by the Secretary of State''.
Is the Secretary of State then subservient to the Treasury, or will the Treasury be dictating rules on how an individual can bring a complaint to the ombudsman? I am not sure that I quite understand what either provision is intended to achieve. If the Treasury cannot deal with the matter, it seems to go back to the Secretary of State. If that is the case and there is a disagreement between both, the problem then arises that there is no one to make the decision. Would the Treasury and the Secretary of State then go to the ombudsman? I hope that the Minister agrees that that would be ridiculous.
Thirdly, under subsection (2)(f), if the complaint cannot be dealt with under the compulsory jurisdiction, what mechanism will deal with it? Will the complaint be automatically returned to the ombudsman, or does that provision relate to the period before the ombudsman becomes involved? If so, would the individual take the complaint, or would that be done through the Minister's office or by some other mechanism of which I am not aware?
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Mr. Sutcliffe: It is proper to spend a little time on this clause, because it introduces a new consumer redress system and is using the financial services ombudsman as the vehicle to do that. I will try to return to the specific issues raised by my hon. Friends the Members for Northampton, North (Ms Keeble), and for Newcastle-under-Lyme (Paul Farrelly) and the hon. Member for Bridgwater (Mr. Liddell-Grainger). Setting out the purpose and detail of the clause may help hon. Members in their appreciation of what we are trying to achieve.
The clause introduces a compulsory alternative dispute resolution scheme to hear complaints about consumer credit matters. Consultation showed that consumer and industry groups strongly supported the introduction of an ADR system for consumer credit. In most cases, consumers have no other option than to go to the courts to seek redress against unfairness. That often proves daunting and expensive for consumers and industry. Most credit provided by banks and building societies is already covered by ADR, and some trade associations run their own ADR schemes. However, access for consumers to ADR is not universal, and business can, in many cases, opt out.
ADR will provide wider and easier access to an efficient and cheap process of dispute resolution for both consumers and industry. It means that most consumers no longer have to be worried about going to court to challenge unfairness and will allow agreements to be settled quickly and simply. Consumers will have a better chance of obtaining fair redress against unfair practices, and it will encourage fair standards throughout the industry.
Ultimately, these changes will increase consumer confidence in the market, which in turn benefits the industry. As has been said, the ADR will be provided by the financial ombudsman service. The FOS was chosen as the ADR provider for consumer credit matters because it already deals with financial sector services generally. Under the Financial Services and Markets Act 2000, the FOS provides ADR for two existing jurisdictions: the voluntary jurisdiction and the compulsory jurisdiction; this clause adds a third—the consumer credit jurisdiction.
Around 80 per cent. of people who responded to the consultation said that they would like the FOS to provide ADR under the Consumer Credit Act 1974. The FOS's experience and expertise, which has been recognised by members, will ensure a smooth transition to the newer ADR scheme more than any other provider.
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Clause 59 describes the conditions that must be satisfied for a complaint to be dealt with by the FOS. It also states how different activities will be made subject to the consumer credit jurisdiction. The Secretary of State for Trade and Industry will introduce types of credit businesses into the consumer credit jurisdiction by means of an order. It will be agreed with Her Majesty's Treasury Ministers and will set out one or more of the types of business in the new licence categories. These are: consumer credit
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business; consumer hire business; credit brokerage; debt adjusting; debt counselling; debt collecting; debt administration; credit information.
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