Financial Services and Markets Bill [HL]

My Lords, I am honoured to open our discussions on Report on the Financial Services and Markets Bill, which we support in general but seek to improve. I congratulate the Minister on his new position and thank him for his engagement. I also thank the noble Lord, Lord Stockwood, whom I am glad to see in his place, and other noble Lords for their constructive approach in six expert Committee sessions. Despite the scale of the Bill and the complexity of the subject, we also ran to time—to the satisfaction, I hope, of the noble Lord, Lord Wilson of Sedgefield. As it is the first day on Report, I declare my registered interest in Meta and Amazon. This is a large group of amendments, reflecting the anxiety of many of us over the excessive use of delegated powers and the uncertainty this creates in the modernisation of consumer credit law—a move we support. I am moving Amendment 1 to Clause 1, but I intend to focus my remarks on the final amendments in this group: Amendment 93 and Amendments 100 to 103, in my name and that of my noble friend Lord Altrincham, whom I also thank for his work on this Bill. I hope these amendments might provide a compromise. They address one of the most serious concerns that we and noble Lords across the House have raised about the approach taken in the Bill: the question of how we preserve meaningful parliamentary oversight as increasingly significant powers are transferred away from primary legislation and into the regulatory model established by the Financial Services and Markets Act 2000. That Act was passed when we were still in the European Union, with scrutiny of new areas of regulation in the European Parliament and at ECON, the committee chaired by the noble Baroness, Lady Bowles. Post-Brexit, there is a democratic gap and therefore a huge task for the Treasury Committee in the Commons and the Financial Services Regulation Committee in your Lordships’ House, which is so well chaired by my noble friend Lady Noakes. We recognise that there are considerable advantages to the FSMA model: greater regulatory flexibility can allow the framework to respond quickly to changing markets, new technologies and innovation. In areas such as consumer credit, the industry itself has argued that moving away from parts of the Consumer Credit Act 1974 could make the regime simpler and less costly to operate. However, flexibility must not come at the expense of accountability. The effect of the Bill is to place considerable trust in the Treasury and, ultimately, the regulators to use their new powers proportionately, effectively and with sufficient clarity for both consumers and industry, yet we simply do not know what the regulatory landscape will look like once these provisions have been commenced. These amendments propose a simple and practical safeguard: before the relevant powers are brought into force, the Treasury would publish and lay before Parliament a report explaining how it expects them to be used. The requirement would apply both where the new areas of regulation are being transferred to the FCA, the PRA or the Bank of England, and where the Bill creates significant new powers. This includes: consumer credit regulation, currently provided for under the Consumer Credit Act 1974; payment systems; anti-money laundering supervision transferring from existing professional and industry bodies; the powers relating to overseas recognition regimes; and the new powers under Clause 46 concerning crypto assets. As will be apparent, many of these powers are presently in primary legislation. There is a further problem with the excessive powers on access to banking in Clause 3, but we will come on to discuss a different solution to that in group 2. The transparency that would be achieved by our proposed approach would benefit not only Parliament but consumers and industry. Greater clarity before commencement should mean better scrutiny, greater certainty and better regulation. I hope the Minister will recognise these amendments for what they are: a constructive, workable and proportionate compromise on an issue that has plagued our discussions on the Bill because of the sheer scale of change envisaged. They preserve the flexibility that the Government say they need while introducing a modest but meaningful mechanism of parliamentary accountability. I would be grateful if the Minister could set out what assurance the Government can give that Parliament will receive this kind of information before these significant powers are brought into effect. If we do not receive sufficient comfort from the Government, I reserve the right to test the opinion of the House on Amendment 93 and its consequentials on Wednesday. Finally, I thank other noble Lords for their amendments in this group and look forward to hearing from them. I beg to move.

My Lords, I will speak to my non-diminution Amendments 2 and 3, and to Amendments 4 and 5, which stem from them. In Committee, the Government made it clear that they wish to remove tail risk for firms—a theme running through the changes to the CCA and FOS. I agree that issues such as font sizes and business practices need updating—I would certainly prefer not to have to agree instantly to a garbled recitation of terms and conditions over the phone just to access basic service contracts—but the Consumer Credit Act is fundamentally about protecting consumers from bad corporate behaviour. Aside from the much-cited font issue, tail risk usually arises from bad behaviour that simply takes a long time to surface. There is no justifiable reason for remedy to disappear. Although I see the attractions of using the FCA framework, I do not accept that there should be a time limit after which bad behaviour is insulated from rectification, or that protections requiring judicial remedy might fall away—over which there is no current certainty. That is the purpose of my non-diminution amendments: to allow modernisation, but not at the cost of significant consumer rights. A long-standing defect in the CCA illustrates the point: the Act was drafted in 1974, before securitisation existed. As a result, consumer credit has been sold on in ways that mean that the statutory definition, and thus obligations, of the lender no longer apply. This was a happenstance of financial evolution, not intentional design, yet it seriously degrades a regulated product and directly created the modern mortgage prisoner problem that my noble friend Lord Sharkey has brought to this House more than once. One can foresee the same happening with student loans once they are sold off. The solution is straightforward. Whenever any right stemming from lending or credit is exercised, including the setting, levying or collecting of interest, the corresponding obligations must travel with that right. That must hold even where responsibilities are split across multiple entities under securitisation structures that currently allow each actor to claim it is not the statutory lender. This is entirely consistent with the CCA’s original assignment provisions, and we have precedent, because the MCOB rules already require obligations to follow the exercise of rights in mortgage services. This principle works. We explained it to the previous Minister and officials before the summer, providing copies of my first amendment and documentary explanation. I recognise there have been changes on the Government’s side, but it is regrettable that there has been no engagement since, especially as collaborative working on good ideas was a stated commitment of the new Prime Minister. Some may ask: who loses? The answer is that no one suffers unjustified loss. When a regulated consumer product is transferred, the protections attached to it must remain intact rather than be severed, whether by design or accident. For consumer credit, this simply maintains existing rights or, in the case of mortgage prisoners, restores them prospectively. But they had those rights when they took the mortgages out. Taking the same principle to student loans, once sold into the private financial system, they must carry with them the standards of respectable financial products. Borrowers must be protected from predatory interest rates and, under international accounting rules, when projected non-repayment exceeds 50%, the entire corpus of loans, not just the unpaid part, is pulled on to national debt metrics. Allowing predatory interest rates simply deepens that problem. This is the logic behind this family of amendments. I urge the Minister to engage constructively as the Bill progresses. As he will know, when I have a principled solution in my sights, it does not go away, because it rests on my conscience, as it should on his.

My Lords, I will speak to Amendment 5 in this group. Structurally, the amendment follows the approach used by my noble friend Lady Bowles in her previous amendment, and I am very grateful to her for the help and support in drafting. My amendment has a simple purpose, which is to bring relief to mortgage prisoners. As many of your Lordships will know, mortgage prisoners are people who are stuck with their existing mortgage holders—who are not active lenders—on very high interest rates and who cannot access a better deal, such as the normal market fixed-rate deals. As a result, mortgage prisoners continue to pay interest at around four percentage points over the normal market fixed-term rates. This costs them hundreds, and even thousands, of pounds extra per year. According to the UK Mortgage Prisoners action group, there were originally around 195,000 mortgage prisoners. This number is declining slowly due to death, reaching the end of term and repossessions. The largest group of mortgage prisoners are former Northern Rock customers. After nationalisation in 2007, these mortgages were placed in a Government-owned company run by UK Asset Resolution—UKAR. When returning these mortgages to the private sector, the Conservative Government could have sold them to active lenders, which would have offered the prisoners a fair market deal. The Government did not do that. Instead, they sold the mortgages to non-active lenders and vulture funds; the consequences we continue to see. It is not as though the Government were not warned about the problem this would cause. The risk to customers was clearly identified. In January 2016, the noble Lord, Lord McFall, wrote to the Treasury and UKAR, warning them that: “Many of … those affected by these sales, will be mortgage prisoners and will be unable to switch lenders”. He told the Government that the customers affected by the sales should be protected, offered a fair deal and given access to fixed rates. He warned that: “Given the prospect of rising interest rates it is important that all mortgage customers are given the opportunity to achieve certainty over their payments by accessing a fixed rate”. He told the Government that he was, “concerned that some customers affected by these mortgages sales … will not be offered reasonable fixed mortgage rates”.

My Lords, I support Amendment 2 in the name of the noble Baroness, Lady Bowles of Berkhamsted, to which I have added my name. As we have already heard, this amendment would ensure that, when provisions of the Consumer Credit Act are repealed or replaced by FCA rules, the overall level of consumer protection would not be diminished. The Consumer Credit Act has long provided established routes of redress to consumers; it has done so for decades. It provides a core of fundamental protections enshrined in primary legislation and developed through parliamentary scrutiny, and probably is fairly well known. As financial services continue to evolve, the ways in which consumers are protected must be capable of adapting to change. Were we to open up the CCA to repeal by the Treasury and the FCA without putting significant statutory protections in place, it would risk reducing standards of consumer protection for all people. Indeed, in its own review of the Consumer Credit Act, the FCA stated that many of its provisions “could not be replaced by FCA rules” under its current powers “without adversely affecting … consumer protection”. I have spoken many times before about the importance of equal financial opportunity for underserved communities, especially those who have less financial literacy or who face language barriers. The Joseph Rowntree Foundation tells us that a record number of people in this country are currently living in “very deep poverty”. Without equal access to financial services, they are deprived of the tools that might help them to stay afloat. For many families, credit is a lifeline in the face of the cost of living crisis. It is what enables them to make ends meet, but accessibility must be accompanied by adequate protection.