Anything that the Minister feels able to say today would give an important steer to those who in due course will have to draft the product rules that the FCA will produce. I think the points that I have suggested merit such inclusion.

Lord Sassoon: My Lords, this amendment is concerned with the regulation of commercial debt management services. It explores the extent to which firms that

28 Nov 2012 : Column 231

supply debt management services on commercial terms, or on terms that otherwise might cause consumer detriment, can be subject to specific rules or sanctions.

I am sorry that the noble Lord, Lord Stevenson of Balmacara, cannot be here but I well understand his concerns about the commercial debt management sector. However, it is worth saying in his absence, because we have touched on these things with him before, that he does an excellent job as chairman of StepChange, the debt advice charity which also provides not-for-profit debt management services. I share many of his concerns as they are reflected in the presentation of the amendment by the noble Lord, Lord Tunnicliffe.

Unscrupulous practices in the sector can cause real harm to vulnerable consumers struggling with debt problems—precisely those who desperately need help. However, I do not agree that the FCA should take action against commercial debt management companies just because they are offering these services on a commercial basis. The Government believe that it is important that consumers have access to debt management services to help them manage their debts where this is the right solution for them. But the Government also hold firm to the principle that consumers should have the choice to pay for these services if they wish to. They also acknowledge that there is a risk that not-for-profit debt advice and debt management providers may not be able to satisfy all the demand in the market.

In that context, I would like to highlight the important role of the Money Advice Service in signposting consumers to high quality, free-to-client debt advice services and in taking a strong strategic role in working with other organisations that provide debt advice to ensure that the market works effectively to help consumers struggling with debts. In April this year, the Money Advice Service took responsibility for the funding and management of face-to-face debt advice projects from the Department for Business, Innovation and Skills, and thus ensured the continuation of an important service which is currently on target to help around 150,000 people with debt problems this year.

Money advice and debt advice are, of course, two sides of the same coin. Promotion of financial capability and better money management will prevent people from getting into problem debt, while high-quality debt advice will ensure that those who find themselves with unmanageable debt are able to access appropriate specialist debt advice. In addition to funding and managing face-to-face services, the Money Advice Service has an important role in working with other organisations that provide debt services, in order to improve the availability, quality and consistency of the service available. The expectation is therefore that the Money Advice Service will continue to work with stakeholders such as StepChange, Citizens Advice, the Money Advice Trust and others to improve the long-term quality and effectiveness of the advice available. This will result in a more consistent sector, where there is agreement on what constitutes a full and effective debt advice service. This is clearly a challenging role for the Money Advice Service to undertake, and effective dialogue with its stakeholders and proper accountability will be key. So I encourage stakeholders in the sector

28 Nov 2012 : Column 232

to work with the service and to engage with its debt advice forum and the consultation on its business plan in the new year.

I, and the Government, entirely support the intent behind the amendment to ensure that the commercial debt management sector is subject to stronger supervision, more robust requirements and more stringent sanctions than is currently the case. The transfer of debt management company regulation from the OFT to the FCA will mark a significant shift in approach and powers. The FCA’s consumer protection objective will give it a strong mandate to take effective action to ensure that vulnerable consumers are protected from rogue debt management firms. That enables it to take action in the area of fees, if it believes that that is necessary and appropriate. With that, I hope that the noble Lord has the reassurances he seeks and feels able to withdraw the amendment.

Lord Tunnicliffe: I thank the noble Lord, Lord Borrie, for his remarks. I, too, am very sorry that the noble Lord, Lord Stevenson of Balmacara, is not here; he is not only our expert on debt advice services but, apparently, our expert on the wreck of the “HMS Victory”, sunk in 1744, and he is participating in a debate in the Moses Room.

I hear what the Minister says. He goes quite a long way towards what we are seeking to achieve with the amendment. Ideally, we would like it in the Bill, but with his assurances I beg leave to withdraw the amendment.

Amendment 116ZA withdrawn.

Amendment 116ZB

Moved by Lord McFall of Alcluith

116ZB: After Clause 99, insert the following new Clause—

“Continuous Payment Authorities: debtor’s rights

(1) This section applies where a debtor has granted to a creditor a continuous payment authority for payment of any debt arising under a regulated agreement.

(2) Prior to the debtor granting the continuous payment authority, a creditor must give the debtor a statement of the debtor’s rights in relation to the continuous payment authority.

(3) A debtor may at any time cancel or vary a continuous payment authority.

(4) A cancellation or variation of a continuous payment authority must be signed by the debtor and bear the date of the signature.

(5) A bank is obliged to comply with immediate effect to a cancellation or variation of a continuous payment authority signed by the debtor.

(6) A debtor must inform the creditor within 24 hours of signing the cancellation or variation that the continuous payment authority has been cancelled or varied.

(7) In this section “continuous payment authority” means an instruction or mandate given by a debtor to a bank to pay a fixed or variable sum to a creditor.”

Lord McFall of Alcluith: This proposed new clause seeks to make the law on continuous payment authorities, sometimes referred to as CPAs, clearer and more weighted in favour of the debtor. As noble Lords know, these are harsh times for many working families

28 Nov 2012 : Column 233

under pressure from rising food and fuel costs and living in fear at the prospect of job loss and insecurity. They know only too well how difficult it is to stretch a wage from month to month, week to week, and even day to day. It is no wonder, then, that frequently these hard-pressed families and wage earners find that their money is simply not enough to stretch to all their needs from payday to payday, and that many of them have recourse to what are euphemistically called short-term lenders, more popularly known as payday lenders.

Consumer Focus research published in May this year showed that many banks’ customer service advisers were unclear about the rules concerning continuous payment authorities and could be giving customers incorrect advice as a result. A continuous payment authority is a type of regular, automatic payment arrangement set up by using a debit or credit card. It is like a direct debit. Under a CPA, consumers give a supplier or retailer permission to take payments on their cards. However, unlike direct debit, there is no written communication between the individual and the bank. Although CPAs are used by many businesses, including insurance companies, magazine companies and gyms, my concern is about how they are used by payday lenders. CPAs are sometimes known as recurring payments and are often used in the short term or payday loan market. Many payday loan companies use CPAs to retrieve loan payments from customers. This involves the debtor giving the company his or her card details and authorising the lender to take regular payments from the account.

Various reports suggest that customers are generally not aware of the right to withdraw from CPA schemes. For example, a report in the Guardian of 2 May this year stated:

“Consumer Focus raised particular concerns about continuous payments to payday lenders set up on the accounts of people with debt problems … cash-strapped consumers are having an even tougher time paying priority bills such as their rent, mortgage or heating costs due to some payday lenders ‘dipping’ into their account”.

The Consumer Focus research raised particular concerns about continuous payments to payday lenders set up on accounts of people who already have debt problems and recommended that clear and accurate information be provided to these customers from banks and loan companies, particularly regarding the right to cancel.

All that is fair enough and I know that the Department for Business, Innovation and Skills and the OFT have been doing work on this. Indeed, the Office of Fair Trading issued a warning to payday lenders on 20 November by opening formal investigations into several payday lenders over aggressive debt collection practices. It published a progress report last week as part of its compliance review of the payday lending sector and highlighted concerns about the adequacy of checks made by some lenders as to whether loans will be affordable for borrowers, the proportion of loans which are not repaid in time, the frequency with which some lenders roll over or refinance loans, the lack of forbearance shown by some lenders when borrowers get into financial difficulty, and debt collection practices. It also published revised debt collection guidance last week, focusing on continuous payment

28 Nov 2012 : Column 234

authorities. Under the heading “Deceptive and/or unfair methods”, paragraph 3.7 of the guidance states:

“Dealings with debtors and others are not to be deceitful and/or unfair”.

The OFT then gives examples of unfair or improper practices. I realised that the concept of misusing a continuous payment authority covers no fewer than five pages in the OFT report. Some of the examples made me fearful for the people who enter into these loans and give a CPA authority to their lender.

I shall give the House a number of examples of bad practice to be avoided, as mentioned in the OFT report. The report states:

“Using the CPA other than as set out in the credit agreement or without the informed consent of the debtor”.

It also refers to debiting a higher or lesser amount than agreed and debiting an account before or after the due date. The report also states:

“Using the CPA in a manner which is unreasonable or disproportionate or excessive in failing to have proper regard to the possibility that a debtor is in financial difficulties”.

The last example includes seeking payment before income or other funds may be reasonably expected to have reached an account, seeking payment where there is reason to believe that there are insufficient funds, or using the CPA after the debtor has informed the creditor that he or she is in financial difficulties and cannot afford to repay.

Further, the OFT identifies as a problem:

“Failing to document the CPA appropriately or to explain it adequately before entering into the credit agreement”.

Sometimes a credit agreement is not complete because relevant terms are missing; or it is written in unclear, unintelligible language; or it is confusing, unfair and misleading. The OFT guidance expects the agreement to identify that the CPA can be cancelled by the debtor or that alternative repayment options may be available.

It is all very well to issue guidance and I sincerely hope that guidance will be followed. However, my reading of this report convinces me that much more than guidance is required in this case. Such blatantly unfair treatment of consumers should not be restricted to a matter of guidance. This proposed new clause ensures that debtors are informed about their rights and that only the debtor may cancel or vary a CPA. Furthermore, the debtor’s bank is obliged to comply with the debtor’s instructions. We ought to legislate to protect debtors in straitened times.

We abolished imprisonment for debt in the Debtors Act 1860. However, debt itself can create a prison and the misuse of power by creditors can be as hard a punishment as being jailed for debt. I hope the Government will accept this amendment, realising that the balance of power between debtor and creditor must be redressed in favour of the customer. I beg to move.

5.45 pm

Lord Stevenson of Balmacara: My Lords, I support the excellent amendment moved by my noble friend Lord McFall of Alcluith. He ended with a rhetorical flourish about the way in which debt imprisons many people. I want to support him in that, because he

28 Nov 2012 : Column 235

made the point very well. He also explained in some detail the recent OFT guidance note which, as he says, is all very well and then he made some important points about timing and language and about the fact that the basic relationship between those who have debts and those who take out a CPA in order to resolve them is, in fact, wrong.

I would like to add a couple of points. It is interesting that the last Financial Ombudsman Service annual review picked up on this issue. It says:

“During the year, we also began to see a rise in the number of complaints involving short-term finance—often called ‘payday loans’. We had previously received relatively few complaints about this type of lending—59 cases in 2010/211, rising to 296 in 2011/2012. In many of the cases we saw during the year, the complaints involved the way in which the lender had operated the payment authority given to them by the consumer”.

I checked back with the FOS earlier today and I gather there has been a considerable rise in the number of payday lending complaints brought to the ombudsman so far this year; they are now running at about 50 new cases a month. This amendment ensures that debtors are informed about their rights; that only the debtor may cancel or vary a CPA and, furthermore, that the debtor’s bank is obliged to comply with the debtor’s instructions. We support the amendment.

Lord Newby: My Lords, this amendment puts on the face of the Bill a number of requirements on firms and consumers in relation to the use of the continuous payment authority. I am grateful to the noble Lord, Lord McFall, for raising the issue. It brings us back, of course, to the very important issue of payday loans, which we were discussing earlier this afternoon. Abuse of the CPA is one of the most concerning practices of payday lenders. It does not mean that the CPA is universally the wrong method to use; it can help consumers administer their financial affairs with the minimum of fuss. However, there is clearly a problem.

As the noble Lord, Lord McFall, said, CPA is a recurring payment mechanism involving a debit or credit card; it allows a firm to take regular payments from a customer’s bank account without having to seek express authorisation for each payment. The OFT, as he set out in some detail, has highlighted its concerns in this area, particularly concerns that payday lenders are not explaining CPAs to consumers adequately and are using them in ways which do not take account of the possibility that the borrower is in financial difficulty and unable to repay. It is also concerned that lenders are, in effect, using CPA to securitise the loan and so may not make adequate checks on affordability. There is also evidence that some lenders mislead consumers about their right to cancel a CPA or put obstacles in the way of cancelling.

As the noble Lord explained, last week the OFT published revised guidance with the aim of ensuring that firms with a consumer credit licence do not misuse CPAs. The guidance makes it clear that the OFT expects lenders’ use of CPAs to be reasonable and proportionate, and that lenders must have regard to a borrower’s financial position when exercising a CPA. If a firm breaches this guidance and the OFT believes that this compromises the firm’s fitness to

28 Nov 2012 : Column 236

hold a credit licence, it can take enforcement action. The Bill gives the OFT the power to suspend consumer credit licences with immediate effect. Therefore, to that extent, there is a new power here which can be used to address the problem. We believe it is right that the OFT is taking action on this now and the Government welcome the new guidance.

However, like the noble Lord, I think that regulatory powers to address the abuse of CPAs and to ensure that consumers are protected need to be strengthened. The FSA has already made binding rules covering the use of CPAs by firms that it regulates. Once the regulation of consumer credit moves to the FCA in 2014, it will be able to extend those rules to payday lenders, which will be a major step-change in regulation of the payday loans market. I am pleased to inform the noble Lord that the FSA has confirmed its intention to carry across OFT standards on the use of CPAs when the transfer takes place to ensure that these consumer protections remain.

However, I do not agree that these requirements should be set out in statute, as the noble Lord’s amendment proposes, rather than in FCA rules. Overreliance on statute is exactly the problem that we have faced in the current regulatory regime, which relies on powers set out in the Consumer Credit Act and has resulted in an inflexible regulatory regime which cannot respond quickly to all the developments in the market and risks leaving consumers exposed to detrimental practices. Addressing this through rules will allow the FCA to impose requirements to address issues relating to the misuse of CPAs that might emerge in the future.

I hope that the noble Lord is able to take some comfort from the commitments made by the Government earlier in this debate on introducing new explicit powers for the FCA and giving the FCA a strong mandate to step in to tackle detriment caused by firms in the payday loans sector. I hope he is also assured that the FCA will have a strong and flexible toolkit at its disposal to ensure that CPAs are not abused by payday lenders. In the light of those comments, I hope that the noble Lord feels able to withdraw his amendment.

Lord Mackay of Clashfern: Before the noble Lord sits down, I should like to ask two questions. First, is there anything in the nature of a direct debit guarantee for the CPA system? Secondly, is it only people with credit licences who go in for being recipients of these payments?

Lord Newby: My Lords, I do not believe that there is a guarantee. I think that the vast bulk of people who use this system will fall into the category that the noble and learned Lord asked about. However, I will check and will write to him if there is any further information that I can give him to explain those points more fully.

Lord McFall of Alcluith: My Lords, CPAs are different from direct debits, as I made clear. Given the legislative complacency in the consumer credit field, I am very unhappy with the notion of guidance. I think that we sent out a message from the Lords today on an earlier amendment, and it was good to have cross-party consensus on that. There are glaring injustices and it is very

28 Nov 2012 : Column 237

important that we reinforce that message in the House today. I should therefore like to test the opinion of the House.

5.53 pm

Division on Amendment 116ZB

Contents 175; Not-Contents 229.

Amendment 116ZB disagreed.

Division No.  2


Adams of Craigielea, B.

Adonis, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Bach, L.

Bakewell, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Bew, L.

Billingham, B.

Bilston, L.

Boothroyd, B.

Borrie, L.

Bradley, L.

Brooke of Alverthorpe, L.

Brookman, L.

Brooks of Tremorfa, L.

Browne of Belmont, L.

Browne of Ladyton, L.

Campbell-Savours, L.

Carter of Coles, L.

Christopher, L.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

Cohen of Pimlico, B.

Collins of Highbury, L.

Corston, B.

Crawley, B.

Cunningham of Felling, L.

Davies of Coity, L.

Davies of Oldham, L.

Davies of Stamford, L.

Desai, L.

Donaghy, B.

Donoughue, L.

Dubs, L.

Eames, L.

Eatwell, L.

Elder, L.

Elystan-Morgan, L.

Evans of Parkside, L.

Evans of Temple Guiting, L.

Evans of Watford, L.

Falkland, V.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Ford, B.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Gale, B.

Gibson of Market Rasen, B.

Giddens, L.

Glasman, L.

Golding, B.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grantchester, L.

Grenfell, L.

Grey-Thompson, B.

Griffiths of Burry Port, L.

Grocott, L.

Hanworth, V.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haworth, L.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollis of Heigham, B.

Howarth of Newport, L.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Chesterton, L.

Hunt of Kings Heath, L.

Irvine of Lairg, L.

Jay of Paddington, B.

Jones, L.

Jones of Whitchurch, B.

Judd, L.

Kennedy of Southwark, L.

Kilclooney, L.

King of Bow, B.

King of West Bromwich, L.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Knight of Weymouth, L.

Lea of Crondall, L.

Liddell of Coatdyke, B.

Liddle, L.

Low of Dalston, L.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Mallalieu, B.

Martin of Springburn, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

Mitchell, L.

Monks, L.

28 Nov 2012 : Column 238

Moonie, L.

Morris of Aberavon, L.

Morris of Handsworth, L.

Morris of Yardley, B.

O'Neill of Clackmannan, L.

Ouseley, L.

Parekh, L.

Patel of Blackburn, L.

Pendry, L.

Plant of Highfield, L.

Prescott, L.

Prosser, B.

Quin, B.

Radice, L.

Rees of Ludlow, L.

Reid of Cardowan, L.

Rendell of Babergh, B.

Rooker, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scotland of Asthal, B.

Sherlock, B.

Simon, V.

Skidelsky, L.

Smith of Basildon, B.

Smith of Finsbury, L.

Smith of Gilmorehill, B.

Snape, L.

Soley, L.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Stone of Blackheath, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Temple-Morris, L.

Thornton, B.

Tomlinson, L.

Touhig, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Walpole, L.

Warner, L.

Watson of Invergowrie, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Williams of Elvel, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.


Addington, L.

Ahmad of Wimbledon, L.

Alderdice, L.

Allan of Hallam, L.

Anelay of St Johns, B. [Teller]

Armstrong of Ilminster, L.

Ashcroft, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Avebury, L.

Barker, B.

Bates, L.

Benjamin, B.

Berridge, B.

Best, L.

Bichard, L.

Black of Brentwood, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Bottomley of Nettlestone, B.

Bowness, L.

Brabazon of Tara, L.

Bradshaw, L.

Bridgeman, V.

Brittan of Spennithorne, L.

Browning, B.

Burnett, L.

Buscombe, B.

Byford, B.

Caithness, E.

Cameron of Dillington, L.

Campbell of Alloway, L.

Carlile of Berriew, L.

Cathcart, E.

Cavendish of Furness, L.

Chadlington, L.

Chidgey, L.

Colwyn, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Craigavon, V.

Crathorne, L.

Crickhowell, L.

Dannatt, L.

De Mauley, L.

Dholakia, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Dykes, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Eden of Winton, L.

Edmiston, L.

Empey, L.

Falkner of Margravine, B.

Faulks, L.

Feldman, L.

Feldman of Elstree, L.

Fellowes of West Stafford, L.

Fink, L.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Fraser of Carmyllie, L.

Freeman, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

German, L.

Glasgow, E.

Glenarthur, L.

Goodlad, L.

Goschen, V.

Greaves, L.

Greenway, L.

Griffiths of Fforestfach, L.

Hamilton of Epsom, L.

Hamwee, B.

Hanham, B.

Hannay of Chiswick, L.

Harris of Peckham, L.

Henley, L.

28 Nov 2012 : Column 239

Heyhoe Flint, B.

Hill of Oareford, L.

Hodgson of Astley Abbotts, L.

Howard of Lympne, L.

Howard of Rising, L.

Howe, E.

Howe of Aberavon, L.

Hurd of Westwell, L.

Hussein-Ece, B.

Inglewood, L.

James of Blackheath, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jones of Cheltenham, L.

Jopling, L.

King of Bridgwater, L.

Kirkham, L.

Kirkwood of Kirkhope, L.

Knight of Collingtree, B.

Kramer, B.

Laird, L.

Lamont of Lerwick, L.

Lang of Monkton, L.

Lawson of Blaby, L.

Leach of Fairford, L.

Lee of Trafford, L.

Lester of Herne Hill, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Linklater of Butterstone, B.

Liverpool, E.

Loomba, L.

Lothian, M.

Luke, L.

Lytton, E.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

Mackay of Clashfern, L.

McNally, L.

Maddock, B.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Mancroft, L.

Mar and Kellie, E.

Marks of Henley-on-Thames, L.

Marland, L.

Marlesford, L.

Mayhew of Twysden, L.

Meacher, B.

Miller of Chilthorne Domer, B.

Montgomery of Alamein, V.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Neuberger, B.

Neville-Jones, B.

Newby, L. [Teller]

Newlove, B.

Northbrook, L.

Northover, B.

Norton of Louth, L.

O'Cathain, B.

Palmer of Childs Hill, L.

Pannick, L.

Parkinson, L.

Parminter, B.

Patten, L.

Perry of Southwark, B.

Phillips of Sudbury, L.

Popat, L.

Rana, L.

Randerson, B.

Rawlings, B.

Redesdale, L.

Renfrew of Kaimsthorn, L.

Rennard, L.

Risby, L.

Roberts of Conwy, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Rogan, L.

Roper, L.

Rotherwick, L.

Rowe-Beddoe, L.

Ryder of Wensum, L.

Sandwich, E.

Sassoon, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharkey, L.

Sharp of Guildford, B.

Sharples, B.

Shaw of Northstead, L.

Shephard of Northwold, B.

Shrewsbury, E.

Shutt of Greetland, L.

Skelmersdale, L.

Smith of Clifton, L.

Spicer, L.

Stedman-Scott, B.

Steel of Aikwood, L.

Stephen, L.

Stewartby, L.

Stoneham of Droxford, L.

Stowell of Beeston, B.

Strathclyde, L.

Taylor of Goss Moor, L.

Taylor of Holbeach, L.

Thomas of Gresford, L.

Thomas of Swynnerton, L.

Thomas of Winchester, B.

Tonge, B.

Trefgarne, L.

Trenchard, V.

Trimble, L.

True, L.

Tyler, L.

Tyler of Enfield, B.

Ullswater, V.

Verma, B.

Wakeham, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Wasserman, L.

Wheatcroft, B.

Wilcox, B.

Willis of Knaresborough, L.

Wolfson of Aspley Guise, L.

Younger of Leckie, V.

6.05 pm

Amendment 116A not moved.

28 Nov 2012 : Column 240

Amendment 116AA

Moved by Lord Whitty

116AA: After Clause 102, insert the following new Clause—

“The levy

(1) Section 173 of the Legal Services Act 2007 (the levy) is amended as follows.

(2) In subsection (7)(a) at the end insert “except for the purposes of section 161 (in relation to claims management services) which is to be deducted from its expenditure incurred under or for the purposes of the Act (section 173(7)(a), as with the amounts paid into the Consolidated Fund pursuant to 173(7)(b)), and”.”

Lord Whitty: My Lords, this is a technical amendment to cover a gap which I would have hoped the Government would have covered by now. It is an amendment to the Legal Services Act 2007 and it deals with complaints from consumers about the activities of claims management companies, about which we have heard a fair amount in this House, particularly at the initiative of my noble friend Lord Kennedy of Southwark.

The purpose of the amendment is to enable the Office for Legal Complaints, that is to say the Legal Ombudsman, to receive payments from the Lord Chancellor under Section 172 of that Act for its costs in relation to handling complaints against those claims management companies.

There has been a pretty widespread air of complaint in this House and in wider society about the activities of claims management companies. Citizens Advice has identified a whole range of problems in this area, from the time and resources wasted on invalid claims through to the aggressive, intrusive and often offensive methods of marketing. I suspect most noble Lords have received an odd text within the past few days, offering them untold riches under the PPI arrangements. It is not just consumer groups that want action on this front. The FLA—the Finance and Leasing Association—would look for an improvement to CMC regulation and, in particular, the tens of thousands of unfounded claims received from CMCs in respect of products which, as we all know, were never sold in the first place. This is a huge irritation which is misleading for consumers and diverts activity for providers, so we need a complaints system which is recognised as robust by consumers and providers alike. We want the Legal Ombudsman service to be able to accept complaints against claims management companies that breach the regulation.

Following discussion on several occasions in this House, the Minister has assured us that regulation is being tightened up to stamp out some of the more horrendous practices that we have heard about and, indeed, been subject to. One of these assurances was in relation to access to redress for consumers. The Government announced on 28 August that complaints handling companies would be handled by the Legal Ombudsman, using the powers under the Act to which this is an amendment. That was repeated by the Minister on 20 November in response to a debate introduced by my noble friend Lord Kennedy. However, I now understand that, due to the Government’s decision to leave claims management regulation within the department —as distinct from an outside regulator—the provisions

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that would have allowed the Legal Services Board to levy the claims management regulator for Legal Ombudsman expenditure are now deemed unworkable.

The amendment therefore seeks to remedy that position. It allows the Lord Chancellor—in other words the Ministry of Justice, which is, effectively, the claims management regulator—to make payments direct to the Legal Ombudsman without any subsidy by existing ombudsman levy-payers, who are lawyers and are not, of course, party to these complaints.

My understanding is that such money would need to come from a levy on claims management companies rather than the general taxpayer—quite right, too—and that the only effect of the amendment would be to allow the only body with authority to levy them, the Ministry of Justice, to pass such funds to the Legal Ombudsman. Despite this being a levy on these firms, the Treasury has stated that, under the Legal Services Act as currently drafted, the Secretary of State as the regulator of claims management services cannot be designated a leviable body for Legal Ombudsman purposes. The levy is technically considered a tax, and thus a public body, the Legal Services Board as the collector of the levy, cannot impose a tax on government.

It is for this reason that primary legislation to amend the Act is needed. I hope that the Minister, who is supportive of action on this front, can support the amendment. The legislative change that is needed to facilitate it must happen immediately, so that consumers are not left without a course of redress. This is necessary so that the ombudsman can handle complaints as well as provide better intelligence to the regulator and the industry to drive better practice.

Amendment 120, which complements the first amendment, would allow the technicalities to come into force immediately on Royal Assent without further, secondary legislation being required. It seeks to cover a gap in the present arrangements. The Minister may have a better way of so doing. If so, it is a pity that he has not come forward with it already. Nevertheless, I am prepared to hear what he says. If he is prepared to bring forward an alternative amendment which covers the same points at Third Reading or ensures that there is provision for the Legal Ombudsman to be financed in this way, I will probably be prepared to withdraw the amendment. However, it is a gap that needs covering. At this relatively late stage of the Bill, a commitment from the Government to do so is necessary. I beg to move.

Lord Newby: My Lords, as the noble Lord, Lord Whitty, said, the amendment seeks to amend the Legal Services Act 2007 to facilitate the expansion of the Office for Legal Complaints ombudsman scheme to encompass the handling of complaints about claims management companies, on which we have spent considerable time while discussing the Bill in your Lordships’ House. I understand that its specific aim is to prevent any costs incurred by the OLC in respect of claims management companies being passed on to the wider legal services profession.

The Government have announced that the OLC will assume responsibility for the handling of claims management companies next year. They stand by that commitment. I agree with the noble Lord that it is

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important for consumers of claims management companies to have greater access to redress when things go wrong. As a result of the Government’s policy, the OLC will be in a position to provide more meaningful forms of redress, including compensation up to £30,000 if appropriate. This compares with the current arrangements, under which the regulator can only direct businesses to apologise, redo work and, in limited circumstances, provide a full or partial refund of fees. In addition, the OLC will be able to use the feedback from complaints that it receives to assist the claims management regulator in driving up standards within the sector.

I understand the desire to implement this change as soon as possible given the proliferation of complaints about the conduct of this sector, but we are very concerned to get it right. That means ensuring that the necessary funding, regulatory and operational arrangements are in place before we commence the provisions in the Legal Services Act 2007. This amendment would not achieve that outcome. For example, it is right that the wider legal profession should not cross-subsidise claims management companies. Conversely, we need to ensure that legal firms do not gain any unintended benefit when the Legal Ombudsman assumes its new powers. Under this amendment, the wider legal profession would benefit because case-fee income generated by the ombudsman in respect of claims management companies would be deducted from the levy they have to pay.

The Government’s position, then, is absolutely clear: the wider legal profession should not bear the cost of dealing with complaints about that sector. On this we are in agreement with the noble Lord and the arrangements we put in place will be consistent with that principle. I reiterate our commitment to implementing the changes in 2013 and I hope, therefore, that the noble Lord will feel able to withdraw his amendment.

6.15 pm

Lord Whitty: My Lords, I appreciate what the Minister said, but I am not quite clear how this then operates. We are at one in believing that the broader legal profession should not be levied for instances which relate to claims management companies—that is clearly a red line and it should be avoided—but in order to avoid it, the Legal Ombudsman, the OLC, will need to have some resources from a levy, or quasi-levy, from the CMC, unless this is to be a matter for general taxation, which would not seem to be appropriate and I do not think is the Government’s intention. Therefore, the Government need powers rapidly in order to have a levy system there, which presumably, as I said in my opening remarks, would have to be via the Ministry of Justice, even though the money would then be passed over to the OLC.

I am not sure what the Minister means when he says that we will sort this out in 2013. Does he mean that, while the other provisions of the Bill will apply, we will need further primary legislation; or does he mean that there will be almost instant secondary legislation under the Bill to ensure that that happens? Because one way or another, for that to be achieved by 2013, which is only about four weeks off—although I guess

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that he has the whole 12 months to fulfil his intention—a whole pile of complaints that are manifold at the moment will be held up for some months before they can go into the system and the Office for Legal Complaints will be able to deal with them.

I accept the Government’s good will and good intent in this respect, but I still think that the precise system on which it operates needs to be spelled out and that we need to be assured that it will be in place pretty much at the same time as the Bill is passed. I hope that the Minister can give that assurance; alternatively, he could come back with something else at Third Reading. I did not think that he went as far as that in his remarks.

Lord Newby: My Lords, I did not go as far as that, in terms of amendments at Third Reading, and I am not going to go as far as that now. As I said, the new system will not come into force immediately, but it will come into force during the course of 2013. I will write to the noble Lord if I am wrong about this, but my understanding is that the funding that is required from the claims management company sector, as it were, will come from the levy, which is being increased at the moment. If I am wrong in that, I will write to the noble Lord.

Lord Whitty: I appreciate that having it exactly at the point of Royal Assent is not necessarily the point; the point is that when these provisions come into play there will be resources to cover it. I would be grateful to receive a letter from the Minister and, with that, I beg leave to withdraw the amendment.

Amendment 116AA withdrawn.

Amendment 116B

Moved by Lord Flight

116B: After Clause 102, insert the following new Clause—

“Bank account transferability

(1) If an individual customer gives notice in writing to a bank at which he holds a personal current account (Bank A) that he wishes to transfer the balance standing to the credit of that account (Account A) to a personal current account established or to be established at another bank (Bank B) and thereafter to close Account A—

(a) Bank A shall without charge within a period of 10 working days pass to Bank B a copy of all material that it holds in relation to the customer as a result of having performed checks on his identity, the source of his funds or otherwise with regard to its regulatory obligations to counter financial crime;

(b) Bank B shall without charge, save where it has grounds for suspicion, accept the material provided under paragraph (a) in lieu of performing fresh checks on the identity of the customer, the source of his funds or otherwise in relation to its regulatory obligations to counter financial crime.

(2) In this section a bank shall mean any person authorised under this Act and holding permission for deposit taking granted by the PRA.”

Lord Flight: My Lords, I think that there is broad agreement across the House that an ingredient part of a more stable banking system is that we should have

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healthy competition and, indeed, that a number of the problems that have developed over the past few years have been the result of a banking system that was not competitive enough, that was described as oligopolistic or cartelised. One important issue in terms of banking competition is the ease with which individuals can move their bank accounts.

I moved an amendment in Committee that largely covered all the practical things about transferring direct debits and standing orders. As many will be aware, the Payments Council has spent a lot of money on sorting that out and next September will implement its proposals to address the mechanistic aspects of changing a bank account.

My amendment in Committee raised the possibility of the Bill being used to enforce that. It is being done on a voluntary basis, and I am aware that most banks have signed up to the Payments Council arrangements. The one aspect that is not covered is the grandfathering of anti-money laundering information. I declare an interest as a senior non-executive director of Metrobank. Metrobank has pioneered removing a lot of the unnecessary—indeed, uncompetitive—measures that banks have typically used, such as requiring you to have your passport signed by a lawyer and to produce an original bill. Metrobank is able to get all the information it needs from your driving licence, so it can open an account pretty quickly. However, that cannot cover all circumstances, and as any existing bank has to have done all the necessary “know your customer” and anti-money laundering checking, it seems only sensible if, when an individual moves an account, the existing bank is obliged to pass on—to grandfather, to hand over—that anti-money laundering information to make it easier for individuals to move their accounts. Amendment 116B provides for banks to do that without charge.

I would obviously be lucky to get the Government’s agreement to include that in the Bill, but in thinking how it might be dealt with practically, this is an issue where the FCA, if not the PRA, could reasonably direct the banking system. One way or other, anti-money laundering is being used as a deliberate barrier to competition, a deliberate discouragement to people to move from one bank to another if they are unhappy with their existing bank’s service. That needs addressing and I hope that the Minister may have some clever idea as to how the point can be grasped.

Viscount Trenchard: My Lords, I support the amendment moved by my noble friend Lord Flight. Since the disappearance of the traditional bank manager from the high street, customers have increased difficulty in communicating with their banks at all, let alone to request a transfer to another bank.

What particularly irks me is that when you seek to engage with the successor to a bank manager by telephone—or when you respond to a text message requiring you to telephone the bank—you first have to go through a long process of answering questions put to you by a machine to establish your identity. If you successfully pass such questions, you may eventually be able to speak to a human being, who will then proceed to put you through an identical process of security checking. I wonder why you cannot be put

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straight through to a human being, rather than wasting time on your telephone, usually on an 0845 number or something like that, answering questions put to you by a computer, because it does not make any difference. When you speak to the person, the person requires you to do the security again. It is then very often the wrong person and you are transferred to another department and you have to go through the process again, probably in duplicate, first with a computer and then with another human being. Therefore, you have to allow at least 30 minutes if you are going to attempt to engage with a bank to do something that ought to take five minutes.

I welcome my noble friend’s amendment. It should be made much easier to transfer your bank account to another bank. For a long time the mobile telephone companies resisted a similar facility to change supplier; I understand that it is now much easier to change from one company to another. I see no reason why it should not be so in the case of banks.

However, in order to permit the customer to do this, banks should be required to provide forms for this purpose on request—and the request should be able to be given in writing or orally—making clear what information is needed. Otherwise, people writing in may not give the correct address or branch of the bank, and the banks will have reason not to act on the request. So the forms should be standardised and make clear what information should be given.

At the same time, the individual should be required to grant permission to bank A that it may release on behalf of the customer what my noble friend calls the anti-money laundering information—the material that it holds in that connection—because otherwise bank A will surely be prevented from releasing such information to a third party under data protection legislation. It would be necessary to agree a prescribed time limit for the transfer of such information, because in the case of somebody who has banked with a certain bank for 40 or 50 years, material that bank may hold dating many years back may be irrelevant to bank B. Does my noble friend have any comment on that?

Baroness Hayter of Kentish Town: My Lords, my noble friends Lord Mitchell, Lord Peston, Lord Barnett and Lord Davies of Oldham have all had the opportunity to thank the Minister today for hearing their arguments and meeting them. Perhaps it is now time for the Minister to do the same for one of his own side, and accept these arguments from his noble friend Lord Flight. The noble Lord, Lord Flight, is right on this: consumers will only be able to drive competition if they can swiftly, easily and cheaply change bank accounts. Without that, there really will be no way to drive up standards.

It was interesting to hear the noble Viscount, Lord Trenchard, talk about phone calls and automatic voice recognition. It reminds me of a wonderful publication produced by the National Consumer Council called The Stupid Company. This asked a whole lot of consumers, not just in financial services, “What are the things you most hate about companies?” In the top three was automatic voice recognition. It was really interesting that when that was played back to companies, they continued to use it although they knew that it was the

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thing their consumers most hated. Banks are like that. Until people can change banks easily, I fear that they will continue to do things that none of us likes. I hope very much, therefore, that the Minister can send Lord Flight home happy this evening by having accepted his amendment.

Lord Hodgson of Astley Abbotts: The noble Baroness leapt to her feet very quickly. I know that the House is like a horse running for the stables, and I will not detain the House long. I support my noble friend’s amendment. As regards money-laundering and transferability, I would like to pick up a point made by the noble Lord, Lord Newby, in replying to the debate on 24 October, when he talked about the transferability of direct debits and how that works as regards the Payments Council initiative.

I am afraid that this again involves the charity sector. There is general agreement that there are far too many charities and that many ought to be closed down. There are many thousands of shell charities, which are the result of mergers. There has been a perfectly proper merger and there was no problem as the Charity Commission, the trustees and the lawyers were all happy with it. However, when you ask why this shell charity remains, it is because the banks will not accept the transfer of standing orders and direct debits to the new, enlarged charity. The charity then has to go through the process of asking every single direct debit and standing order signatory to re-sign. Administratively, that is an extremely complicated process and many of course decline to do so.

I am not asking my noble friend to reply tonight but I say this in the hope—it is probably a forlorn hope—that the Payments Council is listening to this debate and might therefore see whether it can find some way to enable this administrative inefficiency to be dealt with. That would enable some of these shell charities, which no longer need to exist and exist only to collect direct debits and standing orders, somehow to be subsumed into the new charity of which they are now a part.

Baroness Kramer: My Lords, I will intervene only for a moment but in case the Government are unable to meet the hopes of the noble Lord, Lord Flight, and others today perhaps I might say that I chair the sub-panel of the Parliamentary Commission on Banking Standards which is looking at competition in retail banking. Account portability is a significant part of that and the staff are now on the alert to take the report of the comments made today in Hansard and make sure that it and the amendments are put before the panel’s next meeting

The Earl of Erroll: My Lords, this is a very sensible amendment and it should be accepted. I also agree with the comments of the noble Lord, Lord Hodgson, that it ought to be applied to all accounts. We have had to leave some family accounts open just to receive some old shares and such things coming in because we cannot really get around to changing them. If we could change them at the bank end, it would make a lot of sense.

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Lord Sassoon: My Lords, I am very tempted to get a few things off my chest as well about some personal experiences of the sort that we have all had, but the horse may well have long gone if I do. However, I am sure that the banks and the Payment Council are indeed listening. My noble friend has again raised an important point. Let me address two things: first, what we can or cannot do through legislation in this area and, secondly, what to do in practical terms given that I think my noble friend was accepting that it was unlikely that the Government would accept this amendment, which indeed we will not and cannot. I will explain why but let me go on to say how, prompted by his useful thoughts on this subject, I propose to take things further forward.

The essential reason why this amendment does not work comes back to the money-laundering regulations that implement the EU’s third money-laundering directive. Rightly or wrongly, it is just a fact of life that it is not compatible with the directive to require the new bank to rely on the checks carried out by the old bank in all cases. Neither is it compatible with the directive to provide that the new bank is not legally liable where it relies on checks carried out by the old bank, because under the directive each bank is responsible for ensuring that adequate checks have been carried out on all its customers.

I know my noble friend may say that moving the information across does not necessarily take one all the way down that path, but this is getting pretty close to encouraging the banks to do something that is not compatible with the directive by suggesting pretty strongly, if not requiring it, that they rely on the checks of the old bank. We must remember that switching can be between two accounts that are already open and we should distinguish, as I am sure my noble friend does, between switching and account opening. They are not the same thing because we could be talking about switching between existing accounts that an individual has opened.

Having said that I cannot accept the amendment, I shall talk about what I am trying to push forward. I was very struck by the example of Metro Bank and driving licences, because I was not aware of it. I have asked my officials to conduct an exercise with the banks to find out who is doing what, and I have already discovered that Metro Bank is not unique and one or two others are using driving licences.

I, as the Treasury, cannot tell banks how to do their “know your customer” due diligence, and neither can the FSA. However, I am initiating a dialogue with the banks to encourage them to think constructively that a driving licence is already good enough for a number of banks, and plainly it could make things a lot easier for their banks. Because the majority of banks have done it in different ways for a number of years, at the very least I want to ensure, either directly with the banks or through the BBA, that they revisit the practices of the past few years and consider whether there is something more that they can do.

My noble friend Lord Flight has served a very useful purpose in raising this topic during the passage of the Bill, and I intend to continue to press the banks to think harder about the burdens that they are putting

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on their new and existing customers in relation to the responsibilities that the banks themselves have under the money-laundering regulations. I hope that with that explanation my noble friend might consider withdrawing his amendment.

Lord Flight: My Lords, I thank the Minister for his supportive response and my noble friends Lord Trenchard and Lady Kramer for their support. I am delighted to hear that my noble friend Lady Kramer will be pursuing this aspect as part of the banking review; I make the simple point that it is obvious that it should be easy to move accounts. I also thank the noble Baroness, Lady Hayter, for her support.

I would not say that I was surprised but I am interested to note that the Minister cited yet another example of protectionist practices in the EU. To the extent that what he described is there to stop the transfer of such information or to make it unacceptable, it is clearly a barrier to trade. Anyone in the financial services industry who thinks that the single market means a free and competitive one has another thought coming, because the practical barriers to trade and financial services in the EU are substantial at a retail level. I am not sure if the Minister is right, however, because the law as it stands is that it is up to each bank to do what it wants to or feels is necessary and adequate to comply with its “know your customer” due diligence, and I would have thought that if the new bank got all this information it could make it a decision that it thought was sufficient.

I say to my noble friend Lord Trenchard that my amendment provided 10 working days for the information to be transferred once you had given notice that you were going to move your account.

Viscount Trenchard: I am sorry, I did not explain my question clearly. It was how old the information should be that must be transferred—10, 20, 30 years or what?

Lord Flight: The answer is that it is the current information that the existing bank has which satisfies its “know your customer” credentials. Maybe there could be a time period of two years or something, but it is the current information that is relevant.

On the basis of the Minister’s reply I am happy to withdraw the amendment, but I would like to think that somehow, through the banking committee, the FSA and the work that the Treasury is doing, a sort of code of practice among banks could be accepted and evolved. Just as the mechanistic aspects of moving bank accounts are being signed up to on a voluntary basis by the banks at the initiation of the Payments Council, I hope that practice in this area to go along with it might be brought into a code of conduct by banks. I beg leave to withdraw the amendment.

Amendment 116B withdrawn.

Amendment 116C had been withdrawn from the Marshalled List.

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Schedule 19 : Repeals

Amendment 117

Moved by Lord Sassoon

117: Schedule 19, page 346, line 3, at end insert—

“Bank of England Act 1998

Section 1(3).”

Amendment 117 agreed.

Clause 105 : Orders: Parliamentary control

Amendments 117A and 118

Moved by Lord Sassoon

117A: Clause 105, page 193, line 20, at end insert—

“( ) an order under section 36(2) (power to amend sections 391 and 395 of FSMA 2000);”

118: Clause 105, page 193, line 27, after “which” insert “section (Affirmative procedure for certain orders) or”

Amendments 117A and 118 agreed.

Schedule 20 : Transitional provisions

Amendment 118A

Moved by Lord Sassoon

118A: Schedule 20, page 349, line 6, at end insert—

“(1A) The FSA may disclose to the Bank of England any information which the FSA considers that it is necessary or expedient to disclose to the Bank in preparation for the commencement of any provision of this Act conferring functions on the Bank.”

Lord Sassoon: I will not take up much time. It would be nice to end this mini-marathon of a Report

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stage with a flourish, but this is not going to be terribly exciting and will not detain us for very long.

Amendments 118A and 118B are minor technical amendments to the transitional provisions in Schedule 20. They enable the FSA to disclose information to the Bank of England in advance of the new regime coming into force to allow the Bank to prepare for the functions conferred on it by the Bill—for example, the regulation of clearing houses. Paragraph 9 of Schedule 20 already makes provision for the FSA to disclose information to the PRA to assist in its preparations for undertaking its new functions. These amendments make similar provision in respect of the Bank. I beg to move.

Amendment 118A agreed.

Amendment 118B

Moved by Lord Sassoon

118B: Schedule 20, page 349, line 8, leave out “sub-paragraph (1)” and insert “sub-paragraphs (1) and (1A)”

Amendment 118B agreed.

Clause 111 : Commencement

Amendment 119

Moved by Lord Sassoon

119: Clause 111, page 196, line 9, at end insert—

“section (Payment to Treasury of penalties received by Financial Services Authority);”

Amendment 119 agreed.

Amendment 120 not moved.

House adjourned at 6.43 pm.