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7 Apr 2010 : Column 1523

Clause 18 : Collective proceedings orders

Debate on whether Clause 18 should stand part of the Bill.

Lord Myners: As mentioned previously, we have agreed to remove certain clauses from the Bill at this stage. This grouping seeks to remove Clauses 18 to 25-namely, those that deal with the new class action procedure or collective proceedings. I urge noble Lords to support the removal of these clauses from the Bill.

Lord Whitty: My Lords, I wish to register my complete dismay at this whole swathe of the Bill being deleted in this arbitrary way by agreement between the Front Benches. As we move into an election phase, politicians of all parties will be going up and down the country meeting individuals and businesses who feel very badly let down by the banking system in particular. It will be difficult to explain why, of all elements of this Bill, the one that sought to redress the balance between consumers and the banking system should have been picked out for deletion by the Conservative Party and why the Government succumbed so easily to that proposition.

I declare an interest as chair of Consumer Focus. With all due respect to the noble Lord, Lord Hodgson, this subsumes customers, clients, depositors, borrowers and so on in the financial system. This part of the Bill would have been a very popular and effective way of restoring the balance between the financial sector, which has so let down this country, and a lot of individuals and businesses. Seeing it deleted from the Bill in this way is a source of deep regret to me, as it will be, I think, for many people up and down the land.

6.30 pm

Baroness Noakes: My Lords, I completely understand the unhappiness of the noble Lord, Lord Whitty, with the deletion. Perhaps I may take a minute to explain the position of my party. At Second Reading, my noble friend Lord Henley set out our concerns with Clauses 18 to 25. They do not enshrine the principle that court proceedings should be a last, not a first, resort. We felt that important safeguards were missing from the clause and we were concerned at the degree of secondary legislation necessary to implement that. Secondary legislation, as the noble Lord, Lord Whitty, knows, has a minimal involvement of either House of Parliament.

We also thought that it was unclear how the various remedies available to consumers in different parts of the Bill, and other Bills, would fit together. When we discussed that with bodies which represented those who would be on the receiving end of collective actions, our concerns were increased rather than reduced. We had tabled nearly 40 amendments in order to debate some of the issues, but we recognised very early on that, despite the very enthusiastic support from consumer groups-I certainly saw that from the groups which the noble Lord, Lord Whitty, represents and others-that the time is not right for this rather piecemeal approach to the remedies available for consumers in this one area.

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However the election turns out, we do not regard that as the end of the story on collective proceedings. We fully support further work on collective actions for consumers, but we believe that that should be on a holistic basis across the whole range of consumer redress and not simply on financial services. We also believe that we need to entrench firmly the principle that the courts are the last, not the first, resort in any final result. I thought it was worth explaining our position.

Lord Oakeshott of Seagrove Bay: My Lords, earlier we had quite a discussion and expressed concern about the carve-up that has taken place in this wash-up. That was as a result of agreement between the Conservative and Labour Front Benches, and it was not, as we pointed out, just the Liberal Democrat Benches or the Cross Benches that were not involved, but also the Back Benches. The noble Lord, Lord Whitty, has very properly made his concern clear now.

We are also concerned that all this section has been lost. As the noble Baroness says, we accept that it is complicated. I speak from my own experience of being asked for advice on things like the split-capital investment trust scandal. That was a shocking scandal, which, years ago, the FSA did not get to grips with properly. Clearly, one sometimes sees firms of solicitors which perhaps do not have the best interests of customers at heart and I have certainly said, "The odds do not look very good in this case". That is fairly topical. Only the other week, I had a letter from someone who had lost money in one of the former building societies which had been nationalised, asking whether he should join in the class action. Clearly, it is quite a complex situation, but we believe that consumers should have the right to seek redress and that it should be made easier. We are sympathetic with the general points made by the noble Lord, Lord Whitty, and we are sorry that all these clauses have been lost.

Clause 18 agreed.

Clauses 19 to 25 disagreed.

Clause 26 : Consumer redress schemes

Amendment 285

Moved by Lord Myners

285: Clause 26, page 32, line 41, at end insert-

"404CA Applications to Tribunal to quash rules or provision of rules

(1) Any person may apply to the Tribunal for a review of any rules made under section 404.

(2) The Tribunal may-

(a) dismiss the application; or

(b) make an order (a "quashing order") quashing any rules made under section 404 or any provision of those rules.

(3) An application may be made only if permission to make it has first been obtained from the Tribunal.

(4) The Tribunal may grant permission to make an application only if it considers that the applicant has a sufficient interest in the matter to which the application relates.

(5) The general rule is that, in determining an application, the Tribunal is to apply the principles applicable on an application for judicial review.

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(6) If (or so far as) an application relates to an example set out in the rules as a result of section 404A(1)(b), the Tribunal may determine whether the example constitutes a failure to comply with the requirement in question.

(7) If (or so far as) an application relates to a matter set out in the rules as a result of section 404A(1)(c), the Tribunal may determine whether the matter should be taken into account as mentioned in that provision.

(8) In the case of an application within subsection (6) or (7), the Tribunal's jurisdiction under that subsection is in addition to its jurisdiction under subsection (5).

(9) A quashing order may be enforced as if it were an order made, on an application for judicial review, by the High Court or, in Scotland, the Court of Session.

(10) The Tribunal may award damages to the applicant if-

(a) the application includes a claim for damages arising from any matter to which the application relates; and

(b) the Tribunal is satisfied that an award would have been made by the High Court or, in Scotland, the Court of Session if the claim had been made in an action begun in that court by the applicant when making the application.

(11) An award of damages under subsection (10) may be enforced as if it were an award made by the High Court or, in Scotland, the Court of Session.

(12) In the case of any proceedings under this section, the judge presiding at the proceedings must be-

(a) a judge of the High Court or the Court of Appeal or a judge of the Court of Session; or

(b) such other person as may be agreed from time to time by-

(i) the Lord Chief Justice, the Lord President or the Lord Chief Justice of Northern Ireland (as the case may be); and

(ii) the Senior President of Tribunals.

(13) Section 133 does not apply in the case of an application under this section, but-

(a) Tribunal Procedure Rules may make provision for the suspension of rules made under section 404 or of any provision of those rules, pending determination of the application; and

(b) in the case of an application within subsection (6) or (7), the Tribunal may consider any evidence relating to the application's subject-matter, whether or not it was available at the time the rules were made.

(14) If-

(a) the Tribunal refuses to grant permission to make an application under this section, and

(b) on an appeal by the applicant, the Court of Appeal grants the permission,

the Court of Appeal may go on to decide the application under this section."

Lord Myners: The Government have carefully considered points made in another place and by the industry about the ability to review rules made by the FSA establishing a consumer redress scheme. The Government have accepted that the Bill should expressly set out a means of challenging rules, rather than requiring parties to rely solely on the judicial review process. Amendment 285, therefore, provides that any person may apply to the Upper Tribunal-the successor to the Financial Services and Markets Tribunal-for a review of the rules made by the FSA under Section 404. The new clause provides for the review to be carried out by the Upper Tribunal.

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Although the new clause generally makes provision for the tribunal to apply usual judicial review principles, in two specific cases it provides for the tribunal to review provisions of the rules on their merits. First, the tribunal will be able to determine whether examples given by the FSA of things that are to be regarded as a failure to comply should in fact be regarded as such a failure. Secondly, the tribunal will also be able to review on their merits matters which the FSA has required firms to take into account or steps that the FSA has required firms to take for determining whether they have failed to comply with the relevant requirement and, if they have failed to comply, whether that failure has caused loss or damage to customers. Furthermore, in the light of industry concerns about the use of the power, we have also agreed to change the commencement of this clause so that it must be commenced by order rather than automatically on Royal Assent. Amendment 332C, therefore makes this change. I beg to move.

Baroness Noakes: My Lords, Clause 26 radically changes the existing FSMA powers for consumer redress and gives the FSA sweeping powers with virtually no oversight or protection for those who could be brought within its ambit. The justification for the abandonment of parliamentary oversight has never been satisfactorily explained.

The Government did not carry out a detailed consultation on these changes before the Bill was published and that accounts for a certain degree of shock in the financial services sector when it saw what was proposed. There was considerable concern about the lack of an appeal or challenge process built into the new arrangements, other than judicial review, which deals with substance and not merits and, therefore, is seen as inadequate. We had tabled around 50 amendments to Clause 26 so that the various concerns were debated and, in particular, those concerned the appeal mechanism. We regret that we are not able to debate them fully in the context of this Bill.

Government Amendment 285 introduces an appeal mechanism involving the tribunal, but it is largely conducted on judicial review grounds and, hence, represents no substantive advance over judicial review proper-at least, that is the view of those who are affected by it. If that judicial review lookalike was all that was on the table, we would have had difficulty with Clause 26 remaining part of the Bill.

Government Amendment 332C, which removes the immediate commencement of the clause so that the Government must make a positive decision to bring it into effect, ameliorates that position. We see that as allowing an incoming Government, of whatever hue, to decide on the basis of consultation and further deliberation whether Clause 26 can be safely implemented on the basis of the clause plus the amendment just proposed by the Minister, or whether it will require a further amendment. I am inclined towards the latter view, but we shall see how that turns out.

Amendment 285 agreed.

Clause 26, as amended, agreed.

Clause 27 agreed.

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Amendment 301

Moved by Lord Whitty

301: After Clause 27, insert the following new Clause-

"Restrictions on appropriation of payments

(1) The Consumer Credit Act 1974 ("the CCA 1974") is amended as follows.

(2) After section 81(2) insert-

"(3) Where a debtor or hirer is liable to make payments in respect of a regulated agreement where more than one interest rate applies, on making a payment in respect of the agreement which is not sufficient to discharge the total amount then due under the agreement, the sums so paid by him shall be appropriated towards the satisfaction of the amounts outstanding in the order of those which bear the highest rate of interest.

(4) A consumer credit business who does not act in accord with section 81(3) commits an offence."

(3) In Schedule 1 (prosecution and punishment of offences), after the entry relating to section 80(2) insert-

"81(4) Breach of restrictions on provisions of credit limit increase.

(a) Summarily.

(b) On indictment.

The statutory maximum. A fine."

(4) An offence under section 81(4) of the CCA 1974 is to be treated for the purposes of Part 3 of the Regulatory Enforcement and Sanctions Act 2008 (civil sanctions) as contained in the CCA 1974 immediately before the day on which that Act of 2008 was passed."

Lord Whitty: My Lords, as my last intervention indicated, I regret the removal of substantial parts of this Bill, which would have favoured consumers. I am hoping that similar unanimity between the Front Benches will at least agree that we should restore some small elements of greater protection for consumers in the three amendments in this group. They deal with two different issues. The first one deals with the rate of interest on credit cards, which was covered by a consultation, conducted recently by BIS, in which the Government indicated their intention to do exactly what Amendment 301 proposes.

At the moment, if you have a credit card due to be paid off monthly and you do not pay off the full amount at the end of the month, the debts that are removed are those with the lowest rate of interest-in other words, the highest rate of interest remains due in subsequent months and thereafter. The new clause is intended to reverse that and to require that where such a situation applies, the card holder will benefit from the amount with the highest interest rate being regarded as that being repaid on the outstanding balance.

The Government have been sympathetic to that in the past, and I hope that the House will therefore be sympathetic to the amendment. If my noble friend cannot agree to it in the Bill, at least perhaps he-and, perhaps, opposition spokespeople-could indicate support for it appearing in secondary legislation or a lending code, as the present situation is certainly a serious abuse of consumers.

The other two amendments relate to a wider issue, which is the way in which the FSA conducts its regulation. Most regulators, when they are investigating a company, put its name into the public arena. They indicate that there are issues with the company, so customers are at least warned that a company is being looked at, until

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the end of the investigation. That is not the case for the FSA. In fact, the FSA is required not so to do. Those two amendments would partially alter that. It would not be a full-scale naming and shaming exercise. Only where the FSA's judgment was that it was in the interests of its consumer protection objective would the name of an investigated company be in the public arena. There would therefore be a pretty substantial hurdle before that happened.

The first amendment would allow the FSA to disclose any information that it finds in the course of its supervisory work, provided that it is in the interests of the consumer protection objective to disclose it. The second relates specifically to the point where the FSA issues a warning notice. At that point, almost all regulators put the name of the firm concerned into the public arena. The firm will already have gone through substantial investigation by that point.

I hope that the Government will be prepared to consider and accept those amendments, which go some way to ensuring that the public understand in detail how the FSA is conducting its regulatory function. I beg to move.

Lord Oakeshott of Seagrove Bay: The noble Lord, Lord Whitty, asked opposition parties to indicate whether they supported his amendments in principle. I do not know whether the noble Baroness, Lady Noakes, will speak, but I am happy to make clear from these Benches that we support them. Appropriation of payments may sound technical, but it is actually a rather nasty, dirty little secret for too many banks and credit card companies, which are only too happy quickly to take the money from the account where it costs the customer most. I pay particular tribute to the Nationwide, which does not do that and has taken a lead on that, and to other banks which do the same. We support the noble Lord's amendments.

Baroness Noakes: My Lords, as the noble Lord's amendment did not form part of what we expected to pass into the Bill today, I do not come with a specific assurance to give him, but let me say that he makes a very good case. It has been widely known for a long time that consumers are not well treated by the allocation processes. Not everyone can afford to pay off their balance monthly, and those people do not understand how it works. Although I cannot give the noble Lord a specific assurance, we are very sympathetic to some way being found to deal with that. Perhaps a code is the best way to start, with legislation following if necessary.

On the noble Lord's other two amendments, the Minister's amendment to Clause 17 in part deals with the increased disclosure that the noble Lord seeks. We supported what the Minister produced, and I do not think that it is necessary to go quite as far as the noble Lord suggests.

6.45 pm

Lord James of Blackheath: I am happy to support the new clause moved by the noble Lord, Lord Whitty, in all its major respects, but with the rider that I regret very much that the opportunity has been missed to

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clear up another of what the noble Lord, Lord Oakeshott, called dirty little banking secrets. One has escaped the net. Nothing is being done to bring about better control of settlement figures by banks on early settlement of loans, where there is a profound problem of long-standing duration arising from the versatility or variety of the formulae by which banks calculate their settlement and-this is where the dirty trick is-the fact that they attribute a disproportionately high quantity of everything paid to them in the early stages to having been an interest payment so that they can claim at the end of the day that there is no interest left to repay, but only capital, because the interest has been paid upfront. That is a usurious sin and should have been eliminated long ago by either the Consumer Credit Act 1974 or by something else since. In supporting the amendments tabled by the noble Lord, Lord Whitty, I make a plea for any future Government to give urgent attention to correcting that appalling state of affairs.

Lord Myners: My Lords, it will come as no surprise to the House that my noble friend Lord Whitty has made such a powerful and trenchant contribution at this point of our debate. My noble friend's commitment, vigour and energy on consumer issues is well known to the House and much respected by those who work with him in Consumer Focus and others who take an intense interest in protecting the affairs of consumers and customers.

I hope that my noble friend took considerable encouragement from the sentiments expressed by the noble Baroness, Lady Noakes, as endorsed by the noble Lord, Lord Oakeshott. There are undoubtedly issues here deserving of continuing attention, and I am sure that they will receive that attention from the next Government. Many of the issues that he has raised might best be addressed through some form of code or agreement with the banking industry, rather than being prescribed in law. I will certainly follow up with the chief executives of our major banks the points he has made in today's debate.

I share my noble friend's concerns in this area. The Government were equally troubled by the practice of credit card companies of allocating partial payments to the cheapest debt first, thus prolonging the period over which borrowers must pay interest on the more expensive part of their loans. This practice is counterintuitive and not well understood by consumers, many of whom were unaware that that was what would happen when they made a payment. That very issue was reviewed by the Government in our recent consultation on the regulation of credit and store cards. As a result, lenders have acknowledged that the current situation regarding the allocation of payments needs to change.

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