Mr.
Hoban: I beg to move amendment 78, in
clause 26, page 30, line 48, leave
out from beginning to end of line 2 on page 31 and
insert— ‘(4) Matters may not
be set out in a redress scheme order as a result of subsection (1)(d)
if a court would not grant such relief in the circumstances
specified.’.
The
Chairman: With this, it will be convenient to discuss
amendment 79, in clause 26, page 31, leave
out lines 3 to
5.
Mr.
Hoban: Amendments 78 and 79 are obviously
amendments to clause 26 and to measures set out on pages 30 and 31 of
the Bill.
Amendment 78
seeks to leave out subsection (4) of proposed new section 404A of the
Financial Services and Markets Act 2000. Amendment 79 seeks to remove
subsection (5) of that proposed new section.
Again, the
question is, what sort of remedies can the FSA grant in connection with
the losses that a consumer might suffer? Amendment 78 says that the
only remedies the FSA could consider are those that a court might grant
in comparable circumstances, so that there is a more robust basis to
what the FSA can do, rather than its simply doing what it considers to
be just in relation to the description of a case. That tighter
definition would give people more confidence about how these powers
will be used in practice.
Ian
Pearson: We want to ensure that the redress offered to
consumers is the most appropriate for them. Payment of compensation or
another remedy available
in court is not always the best outcome for the consumer or the firm. I
can give two examples of that from recent experience. First, in the
case of personal pensions, there may be tax reasons and consumer
protection reasons to require redress in the form of a top-up to the
personal pension, rather than as a cash payment. During the pensions
mis-selling of the 1990s, many consumers were wrongly advised to
transfer out of an employer’s occupational pension scheme into a
personal pension. The pensions review went beyond the legal redress
that would have been available to consumers. It required firms to
negotiate with the employer’s occupational pension scheme
trustees to reinstate the consumer into that scheme. That would put the
consumer back in the position they would have been in without the
mis-selling. If that was not possible, the firm was required to top up
the personal pension rather than pay compensation, thereby preserving
tax benefits. Alternatively, it could provide a guarantee to do so in
future if the customer’s pension experienced a shortfall on
retirement. Cash compensation was the last
option. Secondly,
in the case of the mis-sale of a single-premium payment protection
insurance policy, the legal remedy for misrepresentation would normally
be rescission of the contract. The premiums would be returned to the
consumer with interest and the policy would be cancelled. However, it
might not be in the interests of consumers to forfeit their protection.
It might be preferable to keep the insurance cover, which may now be
more expensive, or impossible, to obtain. The firm could be made to
convert the single premium policy into a regular premium policy, and
pay back the difference in cost. That approach might also cost firms
less. We
are trying to provide more effective forms of redress for consumers
than those available through the courts. Although I would expect the
FSA to be largely guided by the type of relief a court would grant, the
examples I have provided show why it is important to be able to depart
from them. Clause 26 provides that the FSA can do so where it is just,
having regard to the nature and extent of the loss or damage. We are
trying to ensure the best outcome for consumers and firms. I hope that
that explanation has been helpful, and that the hon. Gentleman will
withdraw his amendment.
Mr.
Hoban: The Minister makes a good explanation of the
circumstances in which the powers can be used. The steps that can be
taken to put consumers back in the right place are to be welcomed in
this situation. It would have created more certainty if the language in
subsection (4) had been a bit clearer. Part of people’s concern
about this issue is that they are not sure what it means in practice.
The Minister’s explanation has clarified the purpose behind
subsections (4) and (5). I do not know whether any further changes to
the drafting can be made to ensure that his explanation is more closely
reflected in the Bill. I beg to ask leave to withdraw the
amendment.
Amendment,
by leave, withdrawn.
Mr.
Hoban: I beg to move amendment 80, in
clause 26, page 31, leave out lines 21 and
22. Subsection
(9) of proposed new section 404A
states: “Nothing
in this section is to be taken as limiting the power conferred by
section 404.”.
Proposed new section
404A does not strike me as exhaustive, which means that the rules under
proposed new section 404 may make provision. Therefore,
subsection (9) seems slightly redundant. Perhaps the Minister can say
why it needs to be in the Bill.
Ian
Pearson: If I heard the hon. Gentleman correctly, he has
answered his own question. Proposed new section 404A is not
intended to be exhaustive, so we need subsection (9) to make the point
that we are not limiting the powers to make rules. There may be other
circumstances that are not covered in the provisions, which are, as he
says, illustrative. We therefore require subsection (9) for exactly the
reason he gave in his question.
Mr.
Hoban: Subsection (1) says that proposed new section 404
“may make provision”, so it is clear from the outset that
it is not prescriptive or exhaustive. The language suggests that the
rules can include certain matters; it certainly does not say that the
current matters are the only ones that can be included, so subsection
(9) seems redundant. It is clear that section 404A is permissive and
does not set a limit on what can be done, but if the Minister feels
that subsection (9) is necessary, I will not divide the Committee. I
beg to ask leave to withdraw the amendment.
Amendment,
by leave, withdrawn.
Mr.
Hoban: I beg to move amendment 82, in
clause 26, page 31, leave out lines 32 to
38 and insert— ‘(2) If a
consumer considers that a relevant firm has failed to make an accurate
determination in accordance with a consumer redress
scheme, the consumer may, in respect of that determination or failure,
make a complaint under the ombudsman
scheme.’. This
goes back to proposed new section 404B, which concerns complaints to
the ombudsman. Subsection (2)(a) tells us that a consumer
who
“is not
satisfied with a determination...under a redress
scheme” can
complain to the ombudsman’s service, but it is not clear what is
meant by “is not satisfied”. This is not the most tightly
drafted clause in the Bill. I am not sure what the usual definition is
of “is not satisfied”. However, subsection (2)(b) is much
clearer in referring to a situation in which the consumer believes that
the relevant firm has not made
“a determination
in accordance with
the...scheme.” The
amendment would place much clearer limits on the circumstances in which
a consumer can make a complaint to the ombudsman by saying that they
can do so only where they believe that the
“firm has failed
to make an accurate determination in accordance
with” the
scheme rules. So we are not necessarily talking just about the
calculation of a loss or of the amount to be paid to the consumer. The
amendment would cover circumstances in which the firm has decided that
the consumer falls outside the scheme. The wording of subsection (2)(a)
is a bit loose and flabby and could do with tidying
up.
Ian
Pearson: I am interested in the hon. Gentleman’s
view that this part of the Bill is in need of a little tidying up. I am
not sure that that is the case, and there is a
problem with the amendment, which would limit the circumstances in which
a consumer can complain to the ombudsman to cases where
“a consumer
considers that a...firm has failed to make an accurate
determination in accordance with
a...scheme.” It
does not cover a situation in which a firm has failed to make any
determination, in breach of the scheme rules, which is something the
Bill does allow for. The amendment would therefore remove a valuable
protection for consumers, which is why it is defective. However, I will
look at the Bill’s wording to see whether it needs tidying up,
although it not currently my view that it
does.
Mr.
Hoban: Will the Minister tell us what he thinks is meant
by “is not satisfied”?
Ian
Pearson: My understanding is that it is fairly standard
legal terminology. Section 404B gives the FSA the authority to
introduce a scheme. We are not trying to limit a consumer’s
right to complain to the Financial Ombudsman Service, but the service
will have to look at complaints in the light of the scheme rules.
Therefore, provided that the firm has complied with the rules, the
complaint will not be upheld. That should cover the hon.
Gentleman’s point. Again, I do not think the amendment would
achieve what he intends. It would remove a valuable protection from
consumers, so I hope he will withdraw
it. 10
am
Mr.
Hoban: I am still not clear in my mind about the meaning
of the expression “is not satisfied”. Perhaps I can
provide my own definition, by pointing out that I am not satisfied with
the Minister’s definition of it. That might take us part of the
way there. It is not very clear, to my mind, and it is not clear to a
number of people who have considered the Bill from a legal perspective
and raised concerns with me. I welcome the Minister’s
reassurance that he will re-examine the point, and on that basis I beg
to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn.
Mr.
Hoban: I do not propose to move amendment 83, because it
reflects an amendment that I tabled in relation to collective
proceedings, and I expect the Minister’s response will be
exactly the same as previously. His response to amendment 84
may well also reflect his response to an earlier amendment that I
tabled on
relief.
Ian
Pearson: Yes, it
does.
Mr.
Hoban: The Minister says from a sedentary position that it
does, and given that we have had the debate once already I do not
propose to detain the Committee with another run around the tracks, so
I shall not move amendment 84.
Clause 26
ordered to stand part of the
Bill. Clauses
35 and 36 ordered to stand part of the Bill.
Schedule 2
agreed
to. Clauses
37 to 39 ordered to stand part of the
Bill.
New Clause
2Identification
of additional powers needed to fulfil responsibilities for financial
stability ‘The Treasury must
lay a report setting out the powers that the Financial Services
Authority and the Bank of England need to fulfil their responsibilities
for financial stability under the relevant legislation within one year
of the commencement of this Act.’.—(Mr.
Hoban.) Brought
up, and read the First
time. Question
put, That the clause be read a Second
time. The
Committee divided: Ayes 4, Noes
7.
Division
No.
4] Question
accordingly negatived.
New Clause
3Securing
consumer protection ‘(1) The
Financial Services and Markets Act 2000 is amended as
follows. (2) After section 5,
insert the following new
section— “5A
Securing consumer
protection (1) This section
applies where the Authority becomes aware that any feature or
combination of features of a financial services market, product,
service, or provider in the United Kingdom is or appears to be
significantly harming the interests of
consumers. (2) The Authority
must take such action as it considers reasonable and practicable to
remedy, mitigate or prevent any detrimental effects on consumers
resulting from or relating to the feature or features of a financial
services market, product or
provider. (3) The Authority
must ensure that action taken under subsection (2) shall have regard to
the need to achieve as comprehensive solution as is reasonable and
practicable. (4) Action under
subsection (2) may include action by the Authority itself and
recommendations on the taking of action by others where the Authority
can not by itself meet the requirements of subsection
(3). (5) For the purpose of
subsection (1) the Authority becomes aware in the event of any of the
following— (a) its own
research, reviews, monitoring, supervision or enforcement
work; (b) on a referral by the
scheme operator of the ombudsman scheme or the Office of Fair Trading;
or (c) Following acceptance of
a request from a designated consumer body made under subsection
(6). (6) A designated consumer
body may by presenting evidence of apparent or likely significant harm
to the interests of consumers request that the Authority takes action
under this section. (7) The
Authority shall within 90 days of a request under subsection (6)
publish a response
stating— (a) whether it
accepts or rejects the need for action;
and (b) the reasons for its
decision.
(8) For the purpose of section (5)(c)
“designated consumer body”
includes— (a) a body
designated by the Secretary of State by order under section 11 of the
Enterprise Act 2002; (b) the
financial services consumer panel;
or (c) the consumer financial
education body. (9) The
Authority shall prepare and publish a report within one year of any of
the events set out in subsection (5) setting out the action it intends
to take and the reasons for its
decisions. (10) In this section
reference to a financial services market, product or provider refers to
regulated activities as defined by Section
22.”’.—(Mr.
Love.) Brought
up, and read the First
time. Mr.
Andrew Love (Edmonton) (Lab/Co-op): I beg to move, That
the clause be read a Second
time. As
always, Mr. Benton, it is a pleasure to serve under your
chairmanship. New clause 3 responds to concerns that the Financial
Services Authority has not always dealt with consumer problems
effectively or in a timely fashion. The new clause would ensure that
the FSA becomes much more of a consumer champion, as I think we would
all like it to be.
The concern
arises because, in reality, the FSA is very producer-oriented. Its
funding comes from the financial services industry, and that is
unlikely to change. It is staffed mainly by people who have worked in
the industry for many years. To be honest, many people, particularly in
consumer advocacy bodies, think that the FSA’s links to such
bodies and to consumers is far too weak. The new clause is an attempt
to strengthen the consumer focus and redraw the balance between
producer and consumer interests within the
FSA. The
new clause sets out clearly that the FSA’s enhanced role in
protecting consumers should not be just about redress, as it is at the
moment. The FSA must be able to spot growing or potential problems and
halt their spread, and it should prioritise prevention and mitigation
as well as redress. The new clause reflects those important issues.
Although the FSA has wide powers to set rules, enforce its decisions
and deal with consumer detriment, it does not have a duty to agree a
time frame for action or to provide a comprehensive solution to
problems that emerge. Although the FSA has, in essence, a consumer
protection objective, it often does not deal with specific problems
that emerge in the market, and there is nothing specific or explicit in
the Financial Services and Markets Act 2000 to trigger the objective,
so there is no real guarantee that the production of evidence of
problems in the marketplace to the FSA will ensure that an
investigation takes place.
Many would
say that the FSA has been robust in the action that it has taken and is
defending consumer interests, but that has not always been the case.
The new clause would ensure that we never go back to some of the
problems that emerged in former years. For example, the saga of payment
protection insurance has been a scandal in the financial services
market for a considerable period. In 2005, the FSA carried out a
review. After the review, although evidence was produced by a number of
bodies, including Citizens Advice, the FSA gathered evidence of its
own.
A
super-complaint was launched with the Office of Fair Trading, but even
after a year of intense activity, very little had changed.
Subsequently, the FSA has
changed the rules, banned certain products in the marketplace and
strengthened complaints handling in the insurance market. However, no
one would say that we have finally resolved all the problems relating
to payment protection
insurance. I
can also take the case of mortgage arrears. That was brought to the
FSA’s attention by, again, a number of consumer-oriented bodies.
It took the FSA two years to produce what is an excellent report in the
“Mortgage Market Review”, but we still have outstanding
problems of charges. Concerns are still expressed widely in the
marketplace. We do not seem to have got to the heart of all the
problems in the mortgage
market. Although
the FSA is doing much better than it did previously, there is the
lingering concern that we may return to the era of light-touch
regulation. That would not be in the interests of consumers. New clause
3 is designed to provide protection for the consumer that could
withstand any change in the environment in which the FSA operates. The
new clause would enhance consumer protection in two ways. It would
ensure that problems were dealt with appropriately, quickly and
effectively, and it would do that by ensuring that there was a
comprehensive solution to the problems brought before the FSA. In the
words of the new clause, it is
designed “to
remedy, mitigate or
prevent” consumer
detriment. That is a very important aspect of the new clause. It would
do that in a number of ways, but within a certain time frame, because
the new clause states that the FSA must act within one year of becoming
aware of the particular problems in the
marketplace. The
new clause sets out the circumstances in which the duty would be
triggered. It would be triggered when the FSA was made aware of an
issue. Making it aware could happen in three different ways: something
could emerge from the FSA’s own research; bodies such as the OFT
or the ombudsman could draw their research to the FSA’s
attention; or a designated consumer body could also bring a matter to
the FSA’s attention, and we would need to decide which were the
designated consumer bodies. Under the new clause, the FSA could not
delay dealing with an issue until its next review in that particular
part of the marketplace. That has happened in the past and the new
clause is designed to change that. The FSA would have to respond
directly and promptly when evidence was brought to its
attention. I
will not go into the wording of the new clause. It is long and
detailed, and I expect that my hon. Friend the Minister will have
something to say about the wording, but it is drawn specifically from
the Enterprise Act 2002. Let me give an example. When I talk about a
designated consumer body triggering action, that is very similar to the
super-complaint procedure in section 11 of the 2002
Act. As
with the 2002 Act, there would be various protections against frivolous
or vexatious complaints. We understand that there is a lot of anguish
among individual consumers and various consumer bodies. However, we
need to protect the integrity of the FSA, and that would be done under
the new clause, because the FSA would not be compelled to act in every
single case. That would be especially evident in relation to individual
complaints. It would normally require groups of consumers or sub-groups
of consumers to trigger such an investigation.
They would have to make a reasoned case, which would have to include
evidence of detriment. That detriment or consumer harm would have to
be, in the words of the new clause, “significant”, and
the action required to be taken by the FSA arising from the triggering
of an investigation would be limited to “reasonable and
practicable”. Protections for the FSA are included, but in
essence the new clause would strengthen its consumer protection
objective, ensuring that it must act in a robust and timely way when
evidence of consumer detriment is brought to its attention in the way
specified in the new clause. 10.15
am
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