Financial Services and Markets Bill [HL]

My Lords, before we start the debate on the first group, I remind the Committee of the rules on declaring interests. Noble Lords should declare any relevant financial interest the first time they speak at each stage of a Bill. This means that, in Committee, relevant financial interests should be declared during the first group on which a noble Lord speaks. Thereafter, the declaration does not need to be repeated in debates on later groups at this stage. Declarations should be specific and brief. Members should briefly indicate the nature of their financial interests, not simply refer to their entry in the Register of Lords’ Interests. I also remind noble Lords of guidance at paragraph 8.82 of the Companion: when withdrawing amendments, noble Lords should “be brief and need not respond to all the points made during the debate”. Clause 1: Consumer credit Amendment 1

My Lords, it is a pleasure to open our deliberations on the Financial Services and Markets Bill. I thank the Minister for his constructive engagement so far and I thank noble Lords across the House who have shared their initial views with us. These conversations have been very helpful and have underscored a shared objective: to improve financial services regulation in a way that promotes growth, attracts investment and supports innovation. Although there are differences between us, we all agree on the importance of the financial services industry across the United Kingdom: the contribution it makes to GDP, the 2.5 million jobs it supports and the £110 billion in tax it pays. However, I think this first group of amendments will challenge the Minister on a very important issue that we will want to address at several points throughout Committee: oversight and parliamentary scrutiny. We have approached this with slightly different amendments, but I believe that the noble Baroness, Lady Bowles, shares the concern, which also applies to her amendments in group 2. Clause 1 is short, but it is the gateway provision that introduces Schedule 1. It provides for the repeal and recasting of significant parts of the remaining Consumer Credit Act framework into FCA rules. The reasoning behind this desire for reform, as we said at Second Reading, is broadly understandable. The Treasury’s policy statement on CCA reform says that the current framework is increasingly out of date because it was designed for a paper-based credit market and now sits awkwardly alongside modern regulation. The Government say that the aim is to create a more “agile and proportionate” regime, and we do not disagree with that assessment. Certainly, that is the feedback we have been getting in our discussions with stakeholders. However, identifying the right problem does not necessarily mean that the Government have chosen the right solution. Their approach has two serious consequences. First, Parliament will lose control and oversight of the core consumer protections currently contained in the CCA. Secondly, we are being asked to approve the repeal of these protections without being able to scrutinise the regime that will replace them. This sets a deeply concerning precedent. The purpose of your Lordships’ House is to scrutinise legislation, challenge the Government, ask questions and ensure that the law is workable, proportionate and effective. Yet there is nothing for us to scrutinise. The Government are dismantling the existing regime without showing Parliament what will take its place. Both Houses contain a wealth of expertise—much of it is here today—including Members with extensive industry experience, who can identify unintended consequences and suggest more effective solutions. As we have frequently made clear, we want to work constructively with the Government on this Bill, but asking Parliament to surrender its powers to a regulator before it can examine the replacement regime is not meaningful scrutiny and it is not an approach that we can support. Consumer credit in particular matters because it is woven into the everyday financial lives of millions of people. It allows households to spread the cost of major purchases, manage short-term cash-flow pressures and access funds when they are needed, all of which supports wider economic participation but needs to be done carefully and responsibly. This is a very important area and, as with the other parts of the Bill that delegate power, the Minister must take this opportunity to answer some key questions. First, which core consumer rights and remedies do the Government intend to keep in primary legislation? By what principle have they decided which protections may safely be moved into the FCA rules? Secondly, when will Parliament be able to see the FCA’s replacement rules in draft? Will these rules be finalised before any repeal of the existing statutory protections is commenced? What transitional arrangements have the Government found? Thirdly, how do the Government intend Parliament to scrutinise future changes once the substance of consumer credit protection sits in the FCA rule book, rather than in statute? Finally, what assessment have the Government made of the effect of these reforms on smaller lenders, brokers and intermediaries, as well as on the availability of credit and related services more broadly? What effect is uncertainty on this point around the future regulatory regime having on economic activity and how much is that costing? My amendment seeks to re-establish a basic constitutional principle that is being threatened by the Government’s approach in this part of the Bill. Parliament should not be asked to repeal important statutory protections before it knows what will replace them, how the new regime will operate and how it will be held to account. Modernisation and agility are worthwhile objectives, but they cannot justify Parliament legislating in the dark. Before Parliament agrees to transfer such significant powers, the Minister must show us not only that the destination is right but that the safeguards, accountability and route for getting there are right as well. I look forward to the Minister’s response and I beg to move.

My Lords, as this is my first contribution in Committee, I declare my interests as recorded in the register, in particular that I hold listed shares in financial services companies and technology companies that may be affected by the Bill or amendments tabled to it. I am going to use the opportunity of this first group of amendments to raise the issue of the accountability of the financial services regulators, which, as we have heard, are being given significant regulatory powers. This theme certainly applies to Clause 1 and Schedule 1, because of the vast new powers in relation to consumer credit being given to the FCA, but the theme is pervasive and we will debate it several times in Committee. I should start by saying that I agree that consumer credit legislation needs a massive overhaul. The current legislation focuses on paperwork and processes. It was written in a pre-digital age and does not have a sophisticated approach to consumers—for example, it does not have the concept of a vulnerable customer. It is crying out for change. Indeed, when we scrutinised the Financial Services and Markets Bill in 2023, I tabled an amendment to give the Treasury significant powers to rewrite the legislation, including the ability to delegate to the FCA. My noble friend Lady Penn, who was the Treasury Minister at the time, convinced me that this was a step too far because of the many significant consultations that were needed. In withdrawing my amendment, I suggested that the extensive consultations sounded to me like an excuse for not making any progress. I am, therefore, supportive of the Government using this Bill as a vehicle to make some progress, although I regret that they still have not completed the task. That support is qualified by issues that have become apparent since the 2023 Act was passed. At that time, I was a supporter of the FSMA model, which allowed Parliament to determine the overall principles of financial services regulation and left the detail to the regulators. Instead of challenging the huge burden being put on the FSMA model by the 2023 Act, which made provision for the repeal and replacement of retained EU law, a number of us focused on the accountability of the regulators. This was an error. I now believe that we failed to understand fully what that meant for democratic oversight of what the regulators do with the powers that they acquire. We also failed to appreciate the scale of the task of holding the regulators to account. The FSMA model was set up by FSMA 2000 in an era when the most significant financial services regulation was set by the EU and either applied directly or incorporated by our own legislation. In either event, there was significant oversight through the processes of the European Parliament, particularly ECON, which was chaired by the noble Baroness, Lady Bowles of Berkhamsted. In addition, both Houses of Parliament had committees dedicated to oversight of the regulatory outpourings of the EU, and, in the case of your Lordships’ House, we had a Sub-Committee of the EU Select Committee dedicated to financial services. The FSMA model was not designed to do the heavy lifting that it is now being asked to do, first via the 2023 Act and now via this Bill for consumer credit legislation. I do not advocate scrapping that model but I believe the time is right for re-examining Parliament’s oversight and the accountability of the regulators. The 2023 Bill initially provided for some additional oversight by the Treasury Select Committee in the other place but was amended during its passage to add what is now the Financial Services Regulation Committee of your Lordships’ House. I am a member of that committee, along with several other noble Lords present today, and I currently chair it. These arrangements were designed to increase the accountability of the regulator, but I have to tell the Committee there remains a significant accountability deficit. Of more importance, committees of Parliament cannot and should not replace democratic oversight of the judgments made by the regulators. That is particularly important when we come to consumer credit law. The arrangement envisaged in the Bill passes to the FSA almost total responsibility for judging the complex balance between consumer protection and the need for innovation and competition in the market. Quite simply, that is not the right answer and Parliament needs more involvement. The noble Baroness, Lady Bowles, has some amendments to Schedule 1 that we will be debating in the next group, and I believe they are designed to alter the balance between Parliament and the regulators. I look forward to that debate, but that measure alone would not be enough because any reasonable approach to modernising consumer credit legislation will still involve significant delegations to the regulators. That is why we need to use the Bill to revisit the mechanisms for the accountability of the regulators. At a later stage in our Committee, we will be reaching some important amendments designed to tackle that: the noble Baroness, Lady Bowles, has a provision requiring a periodic independent review of the regulators, and my noble friend Lord Bridges of Headley has some amendments dealing with an office of financial regulatory accountability. These issues of democratic oversight and regulatory accountability are unfinished business, and we must use the opportunity of the Bill to strengthen both and not sleepwalk into a situation where the regulators govern us rather than the other way around. We will be debating the accountability of the regulators again when we get to Clauses 16 and 17, when we reach the accountability amendments that I have just referenced.

My Lords, I will speak briefly as a member of the Delegated Powers Committee, which has produced a report on this Bill. That report concerns especially Clause 3, but it raises general issues that fall within the scope of the amendment that my noble friend has moved from the Front Bench. My noble friend is essentially asking what the purpose of the Bill is and what it will do. On the committee we have heard again and again, where government Bills are introduced, quite correctly, that this is a fast-moving world, that the Government need the flexibility and room to move quickly, and that it is therefore appropriate to do these manner of things and those manner of things by regulation. That is far from being a contemptible argument. The Government have a good point, and I suspect that Ministers in other political parties have made the same point from the Dispatch Box in the past. However, there are some important general issues to consider. First, as my noble friend indicated, it is not generally a good thing to bring in legislation if you do not know quite what the intention is and you propose to proceed by regulation. Secondly, Ministers at this point tend to say, “Trust us”, which is fine, but the Minister may change. Another Minister may come with a different approach, and we are about, I read, to have a change of Prime Minister, and the Government may decide that there is some alteration in their approach to these matters. Thirdly, you may have a change of political party, and quite another Government of a different complexion deciding what to do. I do not want to anticipate the debate on Clause 3, but, if I read the Bill rightly, as noble Lords will find when we get there, power is given to the Minister by regulation to pretty much close every bank account in the country. Why is all this happening? The reason is that, down in the other place, things are changing. Members of the other place are besieged by WhatsApp messages all day in their groups and are drowning in constituency correspondence from people besieging them with matters that often would be better addressed by priests and psychiatrists. They are being drawn away from the Chamber by dealing with this on social media, at a time when, as my noble friend Lady Noakes has pointed out, the burden of what they consider has had to increase because of Brexit. Whether one is pro-Brexit or anti-Brexit is not the point here; the point is that there is simply more to do. In short, there is a general attention deficit problem in our culture, which I am sure affects this House as much as anyone else but is particularly affecting the other place. Poorly drafted legislation is rushed through, it is then challenged successfully at judicial review, and then we all blame the judges. Why should we do that when the fault is literally and almost completely in our own House? I am grateful for the chance to raise these general issues and look forward to the Minister’s reply.

My Lords, I declare my interests as a significant shareholder in Lloyd’s Banking Group, of which I was formerly chairman. Although I recognise the concerns raised by my noble friends, it is important that we tackle the confusion caused by the dual roles of the courts and the regulator in the regulation of consumer credit. The regulation of consumer credit is not a black and white issue. A balance has to be made all the time between the level of protection offered to consumers and the costs of compliance borne by the institutions, and the risk that, if the courts are unpredictable in the way they interpret the Consumer Credit Act, suppliers will either withhold products or build an insurance premium into the costs. We have had too many incidents over the past few years where what financial institutions thought was a settled issue, as determined by the regulator, has been altered retrospectively by decisions in the courts. We can have a choice one way or the other, but it is important that we tackle the confusion caused by the dual responsibility. As I see it, the Consumer Credit Act is an outdated piece of legislation, as the Government have set out. It was based on conditions that have changed radically. We have since set up the financial services regulator, with devolved responsibilities for regulation. We may or may not think that the regulator is doing well or want to increase supervision of it, but the Government should try to make it clear through these amendments to the Consumer Credit Act whether the result will be, as I hope, to make it clear that there is a single definitive source of regulation for the Consumer Credit Act, which is the balance struck by the Financial Conduct Authority, and that the courts, so far as possible, no longer have a role.

My Lords, this and the following group dwell on the same territory; I will make my main intervention in the next group alongside my detailed amendments. I am sorry that I had to separate them out, but that was only because of the Chief Whip’s speaking-time restrictions on non-movers, which ironically mean that the debate will take longer overall. I have both general points and points on the substantive amendments. I agree very much with many other speakers, and in particular the noble Baronesses, Lady Neville-Rolfe and Lady Noakes. Overall, the Bill is extraordinary for the manner in which it does and undoes many things with questionable process. My general approach on the point about the Consumer Credit Act is straightforward: I do not object to using the FCA to modernise and speed up redress mechanisms. We are already seeing that in practice with the motor finance commission cases, but that experience also contains a very clear warning. Here I depart from what the noble Lord, Lord Blackwell, would wish to have. In the first instance, the FCA made rules that were not in line with statute. It said that commission did not have to be disclosed unless asked about. We have ended up with a situation where firms which thought they were following the rules have been caught out because the statute said something different. The moral lesson is simple: if you find yourself thinking, “Oh good, I don’t have to tell them about this nice little earner”, something is already unfair. In practice, some car salesmen discussed bonuses, quotas and commissions with customers, sometimes linking them to discounts. I have personal experience of that. But if the statute had not existed, what would have happened? The logic is that the old way, non-disclosure, might have continued because the FCA rules permitted it and it had not spotted the unfairness. For all that we have some very capable regulators, we have been shown that they are not infallible and they are not legislators—a point we will return to repeatedly as we go through the Bill. From time to time, they hit the barriers of their remits, perimeters and institutional roles. Our system is not to delegate unconstrained power to regulators. Parliament sets the framework, regulators operate within it and, when necessary, the court interprets. Yet here, we are being asked to legislate for an automated substitution to set in train an unseen process that Parliament can no longer influence, that has no predetermined scope and whereby courts lose jurisdiction. That is constitutionally unsound and unsupportable. I will return to the detail in the next group but the principle is clear. As the noble Baroness, Lady Neville-Rolfe, said, Parliament should not sign away rights and protections without knowing what will replace them.

It is a great privilege to wind up for the Lib Dems. People will know from Second Reading that I am very strongly of the same mind as the noble Baronesses, Lady Noakes and Lady Bowles, and I think the noble Baroness, Lady Neville-Rolfe, takes a very similar view on this first clause. The others speak with some sense of diplomacy; I will be slightly more direct, because, from my perspective, the Bill, by repealing the CCA, basically removes consumer credit protection from law and moves it to the FCA rulebook with no meaningful accountability and, frankly, little visibility. Peers will remember that in 2021, many of us in this House and the other place were getting very frustrated with the FCA. It had some very good people but it was definitely neglecting consumer protection, and this House consequently passed an amendment to instruct the FCA to consult on a duty of care. The FCA chose not to consult on a duty of care, despite that direct instruction. It consulted instead on what it said was the equivalent, which was a consumer duty, the key difference being that a duty of care has a meaning in law, with a private right to action. In other words, an individual can turn to the courts if he or she believes that they have been wronged. This is a right that, as we heard from the noble Lord, Lord Blackwell, the FCA, at the behest of the industry, did not want the consumer to have, despite it being a long and very well-established tradition in English law. The Bill now achieves the wholesale removal of credit protection from the law and into the rulebook of the FCA, and it is obviously an extension of that deliberate process to remove paths to redress for consumers. The Committee will be aware that consumers cannot take civil action against the FCA: it is immune. It is correct that it should be immune from action by those whom it regulates in the market, but it is also immune from action by consumers. As we go on through the Bill, will see that same process of undermining redress in future groups of amendments—very much so when we are dealing with the FOS. When I have talked to members of the Government on this issue, they seem surprised at my comments because they see the FCA as a real champion of the consumer. Indeed, the industry will say the same thing. However, perhaps I have a longer memory, as does this Committee. Do Members here remember the issue of payday lenders—the very widespread abuse of individuals who were entering into incredibly high-priced credit and were finding themselves continuously in debt trouble? When the issues were put to the FCA by Members of Parliament, by complainants and by whistleblowers, the only action that the FCA agreed to take was to make some minor adjustments to the rules on rollover. It argued that payday lenders had an important part to play within our credit system. It took action in this House in 2015, when a Minister broke with the Government’s perspective and decided to support a move that had been made from the Labour Benches by the noble Lord, Lord Mitchell. It was the noble Lord, Lord Sassoon, who spoke for the Government, and he decided that enough was enough and that the only way to deal with payday lenders was to shut them down. That action was put into law, and it improved the whole credit environment that we live in today and eliminated a really serious abuse. As I read the Bill, people will lose that opportunity. When people claim that the FCA is a champion of credit, and they cite the consumer duty, they do not realise that it does not incorporate that very traditional English right to turn to the courts.