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(b) to the adequacy of the main price or remuneration, as against the goods or services supplied in exchange.
(4) Where a term of a contract provides for the charging of a consumer and the circumstances in which that charge can be imposed need not arise during the term of the contract, then such price or remuneration shall not fall within the main price or remuneration for the purposes of paragraph (3).
(5) If, for the purposes of paragraph (3) there is doubt about what represents the main price or remuneration, the interpretation which is most favourable to the consumer shall prevail.".'.
Mr. Field: I shall try my luck with this new clause. Let me set out the stall behind the proposed change, which is not a probing clause but one for which I hope to have sufficient support so that, if the Government do not accept it, we can vote on it.
The current mantra, which one hears too much of, from Presidents, commentators and the media generally, is that we must move to a situation in which no bank is too big to be allowed to fail. I cannot understand that conversation. If we look at this country's experience, we find that Northern Rock was an honourable bank playing a very important role in its own region, but nobody in their right mind would think that it was of a size that would fit the formula that we hear in the cant being peddled about banking reform. It was a very small player, but the Government rightly thought that, small as it was, it was still too big to be allowed to fail because of the domino effect it would have had on other banks in our financial system and on our economy generally.
So although I do not share the commentators' views about where we have got banks, I share the banks' view of where they think they have got us. The banks know that they have got us over a barrel, but we have come up with nothing to control their activities. We know that when the time is ripe-certainly, when the banks judge it to be ripe-they will try to re-establish an equilibrium that is even more favourable to them than the current one. I fear that in that world, particularly given the Supreme Court's action recently, one move will be to disengage from offering free banking to people who bank with a bank or a building society and have their accounts in surplus. I therefore appeal to the House not to trust the banks' better judgment, or what they see as being in their own self-interest, but to protect, most importantly, our poorer constituents. Every bank and building society that trades in this area should provide one account for banking purposes and one for savings purposes on which there should be no charges provided they are in surplus. That is my case. I cast the bread on the water and shall see where it gets me.
Mr. Love: I wish to speak to new clause 15, and I make no apology for bringing it forward today. It covers important policy issues, and there is significant public concern about the Supreme Court's recent decision.
This new clause was fully ventilated in Committee and ably moved by the hon. Member for South-East Cornwall (Mr. Breed), so I shall not go over the issue, which is well known, other than to reaffirm that thousands of consumers have been affected by the decision on unauthorised overdraft charges, and to emphasise the mix of public surprise, shock and delayed anger at the
Court's decision, which was to reverse the previous decision of the Court of Appeal and lower courts. That is why there is considerable public concern.
I want to focus on the judgment that two members of the Supreme Court made, allied to the main finding in relation to overdraft charges. One of the judges was quoted as saying:
"Parliament may wish to confer a higher degree of consumer protection by re-visiting its previous decisions"
when drawing up legislation. New clause 15 is an attempt to achieve exactly that. It would respond to genuine concerns among the public and ensure fairness as we move forward after the great disappointment of the Supreme Court decision on existing charges. Many consumers and consumer organisations think that the best and simplest way to do that is to revisit the Unfair Terms in Consumer Contract Regulations 1999. The new clause reflects that, because it would ensure that these charges were clear and transparent, which is an important consideration given the history of the development of this issue. It is also proportionate, which is a critical consideration.
Some people will ask why the Department responsible-the Department for Business, Innovation and Skills-cannot simply issue amended regulations. However, as we heard in Committee, that is complicated by the consultation on a new European Union consumer rights directive, which has been going on for a considerable period, as is usual in such cases. The Minister said that slow progress was being made. However, given that, as was agreed across the Committee, there is little prospect of that mechanism coming into force very soon, it does not answer any of the public, or indeed parliamentary, concerns about the matter. The new clause is a sensible and pragmatic response to what happened at the Supreme Court.
In Committee, the Minister said that he is unsympathetic, at this stage, to following a legislative route and prefers a voluntary approach on the basis that that would be quicker and, perhaps even more important, more flexible in how it addressed not only the particular issue dealt with by the Supreme Court but other changes that may occur in the marketplace. Although I could have some sympathy with that argument, the history of this issue makes it difficult to believe that there is an easy or a quick solution.
The Minister says, rightly, that if voluntary measures fail to deliver, then Government action will follow. However, I question exactly what will happen in such circumstances. Throughout our discussions of this matter, as it has gone through the courts and before it reached legal proceedings, it has been absolutely clear that the two sides have completely failed to agree, and that greater polarisation has occurred as the debate has gone on. On the one side, consumer organisations and the public believe that these charges are totally unfair; on the other side, the banks suggest that this is normal practice to which they remain committed regardless of the public reaction. All that I can see arising from the voluntary mechanism is that we will get into a time-consuming discussion and end up, at best, with a fudge, and I suspect that neither side will be particularly happy with the outcome. The new clause offers a genuine prospect of delivering a quick and effective solution at a time when we have a window of opportunity. It would respond to the public mood and the expectation that change will follow the decision of the Supreme Court.
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In Committee, there was a lot of discussion about whether the wording of the new clause was appropriate. The Minister suggested, as he often does, and often correctly, that perhaps those who originated it had not thought through all its implications, and questioned whether there might be some unintended consequences. I was more surprised that he went on to complain that it was so widely drawn that it almost amounted to price regulation; I suspect that that might have been an overreaction. I accept, however, that he put forward a variety of reasons to justify his conclusion that the new clause should not be pursued. He talked in general terms about not intervening in competitive markets and about how competition benefits consumers. We had a long and fruitful discussion, led by the hon. Member for Chichester (Mr. Tyrie), about the idea that we should make financial markets more competitive. I sign up to that. However, much of our discussion of this issue relates to whether market failure is occurring and whether, in those circumstances, regulation is necessary.
I want to return to the issue of unauthorised overdrafts. As we heard in Committee, one of the surprising things in a so-called competitive market is that the charges that the banks impose for unauthorised overdrafts are remarkably similar, so it is pointless for someone to go from one bank to another because they will be treated in pretty much the same way. Someone on a modest income will be charged a very large amount of money for their overdraft compared with what they have in the bank. It is difficult to see how the existing situation benefits consumers. I am therefore unmoved by the argument that competition will deal with the issue.
The Minister suggested that the new clause would have a sweeping impact across the whole financial services sector. However, I remind the House that its terms would restrict the OFT to addressing only the ancillary terms of any contract-it would not have the right to question the so-called value-for-money equation or the price mechanism within those contracts. We must also recognise that the OFT would have to act only when the terms were unfair, and show clearly that in its view they were unfair, before action was taken. I accept that, as the Minister says, the new clause would widen the coverage considerably by taking in large numbers of financial services contracts. However, I submit-I understand that the Minister would want to consult others-that, with the restrictions that I have described, it would provide real protection for consumers in their financial services contracts.
I listened very carefully to the discussion in Committee, and I was not entirely convinced that the new clause before us then would not have provided answers to the decision of the Supreme Court, the concern and anger of consumers and the public and the need for prompt and directed Government action. New clause 15 would do all those things, and I commend it to the Minister and the House.
Mr. Tyrie: Unlike the previous new clause tabled by the right hon. Member for Birkenhead (Mr. Field), I have sympathy with the intent behind new clause 9. I believe that customers should be made aware of the charges that they are really paying. That also has a considerable bearing on new clause 15, tabled by the hon. Member for Edmonton (Mr. Love).
I strongly agree with the hon. Gentleman that we should not be in a position in which people do not really know what they are being charged for such a crucial service as banking, or indeed any service. I also agreed with him when he said-murmurs of approval from a sedentary position by the hon. Member for Wolverhampton, South-West (Rob Marris) could be picked up on the microphone system-that we have, if not market failure, market distortion in this respect. That needs to be addressed. It is caused by a lack of information in the market; people do not know what their bank will take off them as their relationship with their bank develops. Even if they do know that when they first receive their terms and conditions, they certainly do not each time the bank sends them new terms and conditions, which they do as frequently as once every six months and certainly once a year.
I am wary of the specific approach taken by the right hon. Member for Birkenhead in new clause 9, because it amounts to direct price regulation. Normally, although not always, that leads to higher costs and less competition in the long run, and therefore consumers lose out. There are countless examples of that having happened in markets. The absolutely crucial task that we need to accomplish-by "we" I mean both Parliament and regulators-is to arrive at a point at which consumers can choose which bank to be with on the basis of the costs that they will really incur in having the service made available to them.
In a nutshell, what is required is that the banks should provide customers with a regular itemised estimate of the total charges and interest payments on their account. The sum should include interest forgone on current account surpluses and on deposits, defined as the difference between any interest earned and base rates. That amount would be very low or zero at the moment, because base rates are low, but those are very unusual circumstances as we recover from the crisis. The sum given should also, of course, include any transaction charges, regular account charges or other charges that are customarily levied. If we ensured that, we would go a long way towards supplying customers with the information they need to choose between various banks.
Let us compare the situation for a moment with what has happened in the insurance market. Some 30 or 40 years ago, people had a relationship with one broker or company and rarely thought of changing each year. These days, they go to a search engine and look up which insurance company will give them the best deal. For a small fee, or sometimes nothing at all, they obtain the information required to get the best possible insurance deal. There is no logical reason why such a service cannot be provided for a market such as reail banking, to enable people to have full transparency on bank charges. However, it requires banks to be forced to supply the necessary information.
I set out such a proposal in a short publication for the Centre for Policy Studies a few years ago. It was taken up by the Office of Fair Trading, which was already on the case, or at least thinking carefully about going in a similar direction. The central problem that we had, which is pertinent to the new clauses, was that financial services legislation and other regulatory arrangements for the conduct of retail bank business do not provide clear leadership on the matter. We are left with a legacy of self-regulation and a bit of a mess where the responsibility falls between three stools. We need leadership from the
Financial Services Authority. We need it to be in the lead and responsible for maximising competition in the sector, which is why, although I will not labour the point, it is crucial that financial services legislation should have at its heart an objective to maintain competition. If it had that, the FSA would work closely with the OFT to secure what was required.
It is very important to get across to all those who have bank accounts-virtually all of us these days, or at least a very high proportion-that there is no such thing as "free banking", which is a misleading term that can only have any currency because people do not know what they are really charged. While we leave the market as distorted as it is, without the information required to enable people to know that, we will continue to have scandals or unacceptable practices of the type that we have encountered in the case of overdraft facilities.
Mr. Tyrie: I was about to conclude, but I give way to the right hon. Gentleman.
Mr. Field: I am even more pleased that the hon. Gentleman has given way if he was about to conclude. I agree totally with him about the importance of information, and that there is no such thing as a free bank account, because banks redistribute resources and charges to present to customers accounts that are free of any charges in a technical sense. However, does he agree that a free bank account in the sense that we are now using is most important to people on the lowest income, who have the least money? They are increasingly forced to use the banking system to undertake many activities that they would previously have covered with cash.
Mr. Tyrie: It is important that we ensure that banks do not end up cross-subsidising the more affluent account holders by levying disguised high relative charges on the less well-off. However, I am not an advocate of a system of bank charges that will conceal the true cost from customers. I fear that providing people with a free bank account would have that effect and send completely the wrong message to account holders. If we believe in principle that people need to have free accounts-I am not advocating that, as I have not thought it through carefully enough-it would be better to offer to pay the cost of them directly. If we insist that people have accounts in order to receive benefits, the taxpayer should logically bear that cost, at least in principle. There may be many technical and other reasons why that cannot be done, but logically that should be the position.
There is a further reason for going for transparency rather than regulation. Although I have not worked out how the banks will do it, I am confident that they will take advantage of any regulation, and the additional complexity that that imposes on a pricing system, to find other ways in which to levy disproportionate charges on their clients.
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Indeed, the current lack of transparency encourages the banks to produce misleading products. They are often called free banking or free credit products and
they litter the letter boxes of millions of people, but they are not free and they carry stings in the tail. They give customers the misleading impression that all banks are the same and that it is therefore not worth moving banks. That is harmful in itself-it should be much easier to move accounts between banks. For all those reasons, we must move to greater transparency.
Although I cannot support new clause 9 or new clause 15, I hope that the message that the debate sends will reach the regulators and that they will press harder to achieve transparency. I hope that if we are shortly sitting on the other side of the Chamber, we will return to what is really required to ensure that banking customers can find out how much they are being charged so that we can have some more competition in the banking market.
Mr. Breed: Again, we have had a useful exchange and I do not want to prolong matters unduly.
I have some sympathy for new clause 9, but bank charges have been a bone of contention for far longer than the past couple of years or so. As a former bank manager many years ago, I can remember charging people two guineas-that shows how long ago it was-and sometimes five guineas. There was massive cross-subsidy-there always has been. Some poor soul would pay the five guineas, whereas the debt of someone who had worked their account enormously and had a large potential probate in the executor and trustee company was offset, and he would not be charged in case he took his business somewhere else.
There has always been some mysticism about charges-much of it was done by holding a wet finger in the air. When computerisation was introduced, we had all the information about the accounts-the number of cheques, credits and so on-but at the end of the day, the system used to be based on how much we felt we could charge because we wanted to retain the business. I believe that there was far greater competition-genuine competition-then than there is today, and banks genuinely tried to secure new business.
I therefore understand the sentiments behind new clause 9, and that back in those good old days-if they ever were good old days-bank accounts were not essential, but something that people wanted. Owning a bank account was not a requirement for living one's life, whereas it is today. People cannot really do anything without a bank account and it has become a much greater necessity for those who perhaps 20 or 30 years ago would not have contemplated having one. They did not need one-perhaps they could go to the post office or even a trustee savings banks or pay in cash. However, today, a bank account is necessary.
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