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New clause 9 would only ban charges for holding an account. It would create opportunities for circumvention, because it would create uncertainty about the scope for ancillary services and charges associated with the account. Again, many banks and building societies charge for such services as additional statements, stopping payments, using cards and cash machines overseas or issuing a
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banker's draft. Such charges may come under challenge if new clause 9 were adopted, thereby potentially creating a lot of unintended consequences.

What I want to say, I suppose, is, "Let's be realistic." If some charges are ruled out, new ways of raising revenue will be found. It is conceivable that a charge could be imposed for making a withdrawal or, as happens in business banking, making a cash deposit, or for other types of transactions. Banks and building societies are there to make a profit; they should not be expected to offer a loss-making service. However, it is in the public interest that we should pursue them to ensure that they do their bit to help low-income and vulnerable households, which has indeed been the broad thrust of Government policy.

I recognise that there are transparency issues with charging for personal accounts-we have had a helpful debate on that-which is why the OFT has been investigating the state of the market for personal current accounts. It published interim reports in July 2008 and October 2009, and it is working with the banks to address the complexity and lack of transparency that it has identified. Those points relate principally to unclear charge structures and disproportionate charges in some circumstances. The Government believe that that is the right way to tackle problems in the market, although it is also right that hon. Members should highlight the issue of transparency.

Let me turn to new clause 15, which would amend the Unfair Terms in Consumer Contracts Regulations 1999 and would allow for the assessment of the fairness of certain charges in financial services contracts. However, the fairness assessment would be limited, being confined to circumstances in which fees are potentially payable but would not necessarily arise; in other words, it would be limited to contingent charges. I fully understand the reasoning behind how my hon. Friend the Member for Edmonton (Mr. Love) has structured new clause 15. It would address charges for bouncing a cheque, for example, where a bank customer may or may not exceed an overdraft limit.

New clause 15 would extend contingent charges across the entire financial services sector-we had a debate about that in Committee-and would go well beyond bank lending to include savings and investments, insurance, debit and credit cards, pensions, payment services and other types of consumer financial services. I understand the point made by the hon. Member for South-East Cornwall (Mr. Breed)-that we should not sanction unfair charges, no matter where they occur-but would simply say that the broad structure of new clause 15 has not been fully thought through, in terms of the overall costs and benefits.

I understand that one of the key points behind new clause 15, which stands in the name of my hon. Friend the Member for Edmonton, is to address bank overdraft charges, which were subject to the recent test case by the OFT. He knows that the Supreme Court ruled in that case that the OFT cannot assess whether bank charges for unauthorised overdrafts and unpaid items are unfair under the Unfair Terms in Consumer Contracts Regulations 1999, on the grounds of the adequacy of price as against the service provided.

Mr. Love: Does my hon. Friend agree that one of the problems that has bedevilled this discussion is that the Supreme Court only got a technical knock-out over
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the OFT? It did not determine the fairness of the situation; rather, it determined that the OFT could not make a judgment on that, which, to go by the public response, is making life much more difficult.

Ian Pearson: I might put it slightly differently. I certainly understand the concerns of consumers who have been affected by the Supreme Court judgment-they do not feel that they have got the remedy to which they felt entitled-which is why the Government have announced that we will take action to work with the OFT, consumer groups and the banks to seek to agree a fairer, simpler and more transparent system of bank charges in future. We have not ruled out further measures if a voluntary approach does not produce results.

We believe that a voluntary solution has many advantages. It can quickly adapt to changes in the marketplace. As my hon. Friend knows, any regulatory solution will need to be carefully thought through and will take more time. We must maintain price competition and avoid unintended consequences if firms compensate for any revenue reduction by developing new types of charges. However, there is a determination on the part of the Government that we should seek progress through the voluntary route.

On the broader point about the regulation of contingent charges across all financial services sectors, as I have indicated, I do not think that the case has been made. It has always been the policy of successive Governments to rely on competition to make prices fair and to intervene only where there is a demonstrable market failure that cannot be fixed by other means.

Mr. Breed rose-

Ian Pearson: I will happily give way to the hon. Gentleman, because I disagree with his suggestion that when it comes to taking action in this area the OFT has-I think that I am quoting him-put up the white flag. I strongly deny that. The OFT is on the case. It is not fair to say what he has said, but I will give way if he wants to try to justify it further.

Mr. Breed: I am delighted to hear that and look forward to hearing what the OFT has to say to demonstrate that it is going into battle again. On competition, part of the problem is that at the moment the competition, such as it is, is between three or four rather similar institutions. We want a much better and more competitive market, with some new entrants and totally different sorts of providers. At the moment, HSBC, Barclays, RBS and Lloyds are all similarly huge, monolithic organisations, with similar charging structures and similar services. If we had a much more competitive market, with new entrants such as Tesco and everybody else, that would help the competition argument, with which I agree, that the Minister is propounding.

Ian Pearson: I take the hon. Gentleman's point. We want competition in the banking sector. He is right to point out that although we have had some large, powerful players, in some instances and in certain product offerings there has not been as much competition as the Government would have liked. The OFT has obviously been looking at that, and it will continue to want to examine it closely.

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Dr. Pugh: The Minister talks about the knock-on effects of changing the charges, but this is not a debate about whether we have charges or not; it is a debate about the structure of the charges. Do the Government have a view on what that structure should look like?

Ian Pearson: I am trying to make more than one point here. One of my points is that there still needs to be more transparency in personal accounts. I have also said that so-called free banking could result in additional charges being made elsewhere, and that companies would respond to that. There are differences of opinion between banks on how charges should be structured, but there are also many similarities, as the hon. Member for South-East Cornwall has suggested.

I was trying to make the point that we need to think through some of these proposals in more detail, particularly in regard to the action taken in the wake of the Supreme Court case. As I have said to my hon. Friend the Member for Edmonton, we see merit in a voluntary approach and, at the moment, we are persuaded that that is the best way in which to take these matters forward speedily. In Committee, he mentioned the proposals for a consumer rights directive that are being discussed in Europe. He will also be aware of the Government White Paper, "A Better Deal for Consumers", in which we said that we want to simplify and rationalise UK consumer rights legislation when implementing that directive.

It will be a matter for the next Parliament, and whoever is in government, to look at this issue and decide the best way in which to navigate through it. We cannot wait for ever and a day for a voluntary approach to succeed, and we cannot wait too long if the consumer rights directive is not going to see the light of day for a considerable period of time, but it will be up to the next Parliament to make those decisions. I fundamentally believe that there is no significant difference between the political parties on this matter. We all want to see the consumer getting a fair deal, and, through these discussions, we need to find the most effective, practical way of delivering that.

In the light of the reassurances that I have been able to give to my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Edmonton, I hope that my right hon. Friend will seek leave to withdraw his new clause. The Government are mindful of the points that they have made, and these are live issues that will continue to be discussed.

Mr. Frank Field: At the outset of the debate, I was hoping that someone would help me to divide the House on this question, and for a moment, I thought that the hon. Member for Chichester was going to do so. However, his early resolution was followed by a retreat from that position. I thought that he had perhaps been teasing me, until he caught me behind your Chair, Mr. Deputy Speaker, and suggested that, given the agreement about what the next moves ought to be, the sensible course of action would be to withdraw the new clause and for us all to meet and to see whether we can pursue these objectives quickly enough to have a proposal ready for debate in another place. Given the constructive discussion that I had behind your Chair, Mr. Deputy Speaker, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

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New Clause 10

Financial Services Authority regulation of Northern Ireland credit unions

Brought up, and read the First time.

Mark Durkan (Foyle) (SDLP): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss amendment 2, in clause 38, page 50, line 43, at end insert-

Mark Durkan: New clause 10 would extend FSA regulation to credit unions in Northern Ireland. The Bill is a convenient and appropriate legislative vehicle to fulfil a growing demand being made on behalf of the credit unions in Northern Ireland and their many members. That demand has been proposed by the Irish League of Credit Unions, the Ulster Federation of Credit Unions and others. This matter has also been the subject of an extensive inquiry by the Committee for Enterprise, Trade and Investment in the Northern Ireland Assembly, which I chaired at the time of the inquiry. The Committee's report, which was unanimously adopted by the Assembly, called for the extension of FSA regulation to credit unions in Northern Ireland.

7.15 pm

I want to stress that that demand exists not because people have detected problems with the way in which our credit unions are treating their customers, or because there are concerns about their soundness; rather, it is because of the recognition that, although they are strong in terms of their numbers and their savings base, the range of services that they can offer is highly limited compared with their counterparts in Great Britain.

Credit unions in Northern Ireland can offer their members only three services: share accounts, loans and life assurance. Credit unions in Great Britain can offer not only those services but current accounts, internet and phone banking, standing orders for payments such as wages, mortgages, debit cards, direct debits, bill payments, junior savings accounts and child trust funds, as well as home, travel, health and car insurance. All those services are available from credit unions in Great Britain, but not from those in Northern Ireland, even though they are much bigger and stronger.

Credit unions in Northern Ireland have about 400,000 members. The Consumer Council for Northern Ireland estimates that 26 per cent. of the population there belong to a credit union, of which there are 170 in Northern Ireland. In November, the Assembly heard that there were £775 million-worth of savings in the credit unions, and that the loans from credit unions to members totalled £516 million.

The credit unions therefore play a significant role in our community. To enable them to play a bigger and better role in the lives of their members, and to make a
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much bigger contribution to financial inclusion in Northern Ireland, however, they need to be able to offer a wider range of services. The passport to that is FSA regulation. That is essentially what was established in the inquiry undertaken by the Committee for Enterprise, Trade and Investment. I want to assure the House that that inquiry was extensive. It did not happen quickly; it took evidence on a number of different tiers and it established a strong consensus. That consensus was adopted not only by the Assembly but by the Northern Ireland Executive and by the relevant Department-the Department of Enterprise, Trade and Investment.

Mr. Hoban: The hon. Gentleman makes a very good case for Northern Ireland's credit unions being brought within the remit of the FSA for the purpose of regulation. What assessment did the Committee that he chaired make of the cost of extending the FSA's regulatory remit to those credit unions?

Mark Durkan: We looked at that on two counts. The Committee took evidence from the FSA and the Association of British Credit Unions on their experience in Britain, as well as from credit unions in Northern Ireland. We found that the FSA was more than happy and ready to move to regulating the credit unions in Northern Ireland. The ABCU said that the two different tiers of regulation that the FSA offered to credit unions in Great Britain were regarded as proportionate and comfortable, in terms of the rate of intervention and of the costs levied. The credit unions in Northern Ireland were certainly encouraged by that, and the Committee was encouraged by the evidence that we heard.

Of course, if we moved to having the FSA regulate credit unions in Northern Ireland, the credit union movement there would hope that that would involve a reasonable regional accent, profile or presence. The credit unions have enjoyed a good and close working relationship with the Department of Enterprise, Trade and Investment over the years and they want to build on that.

New clause 10 would, in essence, remove the exemption in the Financial Services and Markets Act 2000 that means that the FSA's regulatory writ does not apply to credit unions in Northern Ireland and thereby provide the means in primary legislation to allow for FSA regulation. We recognise that the precise issues involved will take further negotiation and liaison, including with the currently devolved Department, for a number of reasons. The first is that the best way of moving forward would probably be for the registration of credit unions to remain as a function of the devolved Department-the credit unions want that, because they wish to retain that sort of relationship with the devolved Administration-but for regulation to fall clearly under the responsibility of the FSA. Obviously, there would need to be a proper memorandum of understanding as to exactly how that interface might work, in order to ensure a smooth junction.

The second reason is that issues will arise in relation to all the relevant secondary legislation that applies to credit union regulation. We will need to ensure that that is suitably updated and translated to take account of the legal requirements of Northern Ireland too. Thus, along with new clause 10, I have tabled amendment 2, which provides for the commencement of these provisions six months after the Bill is passed and becomes an Act. Before the Minister makes this argument, may I say that
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I accept that six months might be a bit of a tight time scale for addressing some of those issues? However, I accept that the argument might be made for a wee bit more of a hard shoulder to drive on only in respect of amendment 2. On the substantive issue of amending primary legislation to allow for credit unions in Northern Ireland to be regulated by the FSA, I ask the House to adopt new clause 10 now. Credit unions in Northern Ireland have been seeking this change for some time.

The Economic Secretary is a former Northern Ireland Office Minister, and I wish to pay tribute to him for the work that he did then. He succeeded me as a Minister in a couple of the very many briefs that he was juggling at that time in Northern Ireland and on some of them he was wise enough to follow my advice-on others he disappointed me, but he did so for reasons that he articulated very well at the time. He may recall that at that time credit unions were starting to lobby on this matter and that we had a meeting with his then colleague, who is now the Minister with responsibility for the third sector-that shows how long this has been going on. The matter subsequently became, in this phase of devolution, the subject of an Assembly hearing, in which there was unanimity. Of course, the papers that the Treasury produced on the future of financial services regulation last July included one on the legislative framework for credit unions and industrial and provident societies in Northern Ireland, in which it fully endorsed what the Assembly's Committee and the Assembly as a whole had recommended.

It would, thus, be strange indeed if we were to have to go back to tell the credit union members in Northern Ireland that although everybody-all the political parties in Northern Ireland, the Assembly, the Minister, the Executive and the Treasury-agrees that the measure is needed, the House of Commons still cannot use this obvious legislative vehicle to remedy the gap. Members of the House may be aware that the Treasury Committee visited Northern Ireland recently to examine the problems of the Presbyterian Mutual Society. Obviously, those are very different from the issues that credit union members want addressed, but this matter did arise in the context of those hearings, because the Committee heard about the twilight zone that has existed in respect of where the FSA does and does not regulate, and who knows what and who shows what in relation to those activities.

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