Consideration of Lords amendments
Before Clause 1
Duty of care for financial service providers
I beg to move, That this House disagrees with Lords amendment 1.
I am delighted to speak again on the Financial Services Bill following its passage through the other place, where it has been well looked after by my colleagues Earl Howe, Lord True and Baroness Penn. As our first major piece of financial services legislation since leaving the EU, the Bill will enhance the UK’s world-leading prudential standards, protect financial stability, promote openness between the UK and international markets and maintain an effective financial services regulatory framework and sound capital markets.
The Bill was thoroughly scrutinised in the other place, with more than 200 amendments tabled across Committee and Report. In total, the Lords made 21 amendments to the Bill. During the passage of the Bill, there has been a lengthy discussion about how best to address issues of consumer harm in the financial sector. Lords amendment 1 before us today proposes that this should be addressed through a requirement on the Financial Conduct Authority to bring forward rules that would place a duty of care on financial services firms in relation to their customers.
The Government are committed to ensuring that financial services consumers are protected and that steps are taken quickly to address new issues when they are identified. However, the Government believe that the FCA already has the necessary powers and is acting to ensure that sufficient protections are in place for consumers. The Government therefore cannot accept this amendment, but recognise that Parliament wants to be assured that the FCA’s ongoing work will lead to meaningful change.
I will today set out the standards that firms must already adhere to when providing financial services to their customers. These are governed by the FCA’s “Principles for Business”, as well as specific requirements in the handbook. These principles set out how specific requirements on firms work, and they include:
“A firm must pay due regard to the interests of its customers and treat them fairly.”
The FCA’s enforcement powers allow it to ensure that these standards are met, although the FCA recognises that the level of harm in markets is still too high and is committed to taking further actions.
The Government agree with the concerns that were raised in the other place that this harm may in part stem from an asymmetry of information between financial services firms and their customers. The risk is that many firms may seek to exploit this asymmetry. The FCA is well aware of how informational asymmetries and behavioural biases can influence consumer behaviour, and is committed to ensuring that these issues are addressed where it considers that they may result in harm. The Government therefore support the FCA’s ongoing programme of work in this area and believe that it will deliver meaningful change for the benefit of consumers.
The FCA has considered its existing framework of principles, and whether the way in which firms have responded to the principles is sufficient to ensure that consumers have the right protections and get the right outcomes. Building on this, the FCA will consult in May on clear proposals to raise and clarify its expectations of firms’ actions and behaviours, and on any necessary changes to its principles to deliver this. These proposals will consider how to raise the level of care firms must provide to consumers through a duty of care or other provisions. Ultimately, the proposals in this consultation will seek to ensure that consumers benefit from a better level of care from financial services firms.
I have therefore tabled amendment (a) in lieu of Lords amendment 1. This amendment will require the FCA to consult on whether it should make rules providing that authorised persons owe a duty of care to consumers. It ensures that the FCA will publish its analysis of the responses to this consultation by the end of this year. It also ensures that the FCA will make final rules following that consultation before 1 August 2022.
I hope that the establishment of these clear milestones demonstrates the commitment of both the Government and the FCA to delivering better outcomes for financial services consumers. In line with commitments made in the other place regarding Parliament’s scrutiny of the financial services regulators, I can confirm that the FCA will bring its conclusions to the attention of the relevant parliamentary Committees, giving them an opportunity to consider the proposals and, if they choose, to express a view or raise any issues. The FCA will respond to any issues that are raised by parliamentary Committees.
I now turn to Lords amendment 8 on mortgage prisoners. It is an issue I take extremely seriously, but I am afraid that the Government cannot accept this amendment. We must continue to be guided by the facts and the evidence. The FCA’s analysis shows that half the 250,000 borrowers with inactive firms meet the normal risk appetite of lenders and could therefore switch if they chose to without any Government intervention.
I have been contacted by many constituents who are in a precarious position and do not have such options. My hon. Friends the Members for North Antrim (Ian Paisley) and for South Antrim (Paul Girvan) have conveyed to me that some of their constituents are also in that position. I respect the Minister greatly, but is it not possible to reconsider given the precarious position that my constituents and others find themselves in?
I thank the hon. Gentleman, as ever, for his contribution. I will go on to explain the situation of the remaining 125,000 individuals who could be categorised in that way, the actions that we have taken to date and what we will continue to look for. If that category can move without Government intervention, they are not “prisoners”.
Of the remaining 125,000 who cannot switch, 70,000 are in arrears and therefore could not secure a new deal even if they were in the active market. Those borrowers need to work with their lender to agree an appropriate repayment plan. The remaining 55,000 who are with inactive lenders and are up to date with their payments but who cannot switch are paying on average only 0.4 percentage points more than similar borrowers on reversion rates with active lenders—those with similar characteristics. The reason these borrowers are unable to switch is not that their mortgage is with an inactive firm but that they do not meet the risk appetite of lenders. They may, for example, have a combination of high loan-to-values, be on interest-only mortgages with no plan for repayment, or have higher levels of unsecured debts, non-standard sources of income or poor credit history. Similar borrowers in the active market are also typically unlikely to be offered deals with new lenders.
As I have set out previously, the Government and FCA have undertaken significant work in this area to create additional options that make switching into the active market easier for some borrowers. In particular, the modified affordability assessment allows active mortgage lenders to waive the normal affordability checks for borrowers with inactive lenders who meet certain criteria—for example, not being in arrears and not wishing to borrow more.
I know that the problem the Minister is trying to solve is not of his making. The problem originated when the affordability rules were changed pursuant to the financial crisis. The affordability rules were waived for people with their existing lenders who wanted to move from one fixed-rate deal, when it terminated, to the next one. Those with inactive lenders who are in the same situation cannot do that because those products are simply not available. That is one of the key problems that we have not solved yet. I would appreciate his continued efforts to work with us on this particular issue.
I thank my hon. Friend, who, without equal in this House, has done so much to champion mortgage prisoners. I hope he will carry on working with us as we continue to improve our understanding and the quality of the data that could underpin further interventions.
I can reaffirm to the House today that my own, and this Government’s, commitment is as strong as it ever has been to finding further solutions that do not provide false hope to borrowers, but I am afraid that amendment 8 represents neither a proportionate nor practical response on this complex issue. I will address the two sections of the amendment in turn. First, the amendment seeks to cap the standard variable rate, or SVR, that inactive firms charge borrowers. This would be an unprecedented intervention in the mortgage market and is a completely disproportionate approach when the data shows that the 55,000 borrowers to which I referred pay on average 0.4 percentage points more than similar borrowers in the active market. Such drastic Government intervention should not be undertaken lightly, as it could have significant impacts above and beyond the effect that the amendment seeks.
That cap would be deeply unfair to borrowers in the active market who are in arrears or unable to secure a new fixed-rate deal, because the cap would not include them. Let us consider two hypothetical borrowers. The first borrower took out their mortgage prior to the financial crisis when, as my hon. Friend said, there were looser affordability requirements. They borrowed, in some cases, 125% of the property’s value, avoiding the need to save a deposit. Shortly after, their lender failed and had to be nationalised. The second borrower took out their mortgage following the financial crisis, when there were stricter affordability requirements. They saved a deposit of 5% or perhaps even 10%, and then were able to buy their home. Let us say that both those borrowers lost their jobs and now work in lower-paid jobs. They live in an area where property prices have not grown as much as they would have liked. Both try to keep up with their repayments, but ultimately fall into arrears, with the result that neither can easily access new deals. Neither of those borrowers has done anything wrong, and both deserve support from their lender and the wider financial system, but the Government cannot possibly agree with the idea that one should be supported by an unprecedented market intervention of this kind, and the other not. Both adhered to the prevailing conditions at the time.
I am also concerned that any cap on standard variable rates, including one only applicable to inactive lenders, would have unintended consequences for financial stability. The London School of Economics agreed and did not recommend a cap, noting that it could cause market harm. It would restrict lenders’ ability to vary rates in line with market conditions—the ability to vary SVRs allows lenders to re-price products to reflect changes to the cost of doing business—and could therefore create risks with significant implications for financial stability.
The second part of the amendment would require new fixed-rate deals to be offered to borrowers with inactive lenders, although it is unclear how that is to be achieved. Lending remains a commercial decision based on a variety of factors and it would not be right for the Government to compel lenders to provideproducts for specific groups. If the amendment is intended to require the current holders of these mortgages to offer new products, that would require firms that do not currently have the lending expertise, systems or regulatory permissions necessary to offer new mortgage products to do so. However, in opposing the amendment, I reiterate once again my commitment to continue to find further practical and proportionate options for affected borrowers, supported by facts and evidence, as I have over the past three years. Equally, I do not want to give false assurances, or false hope, for the sake of political expediency, especially when it is likely that there is a limit to what further action the Government can take to support such borrowers.
Could we agree a basic principle that identical borrowers—the Minister uses the example of two similar borrowers in similar situations—should be treated exactly the same? One should not be treated better than the other. Will he agree to a principle that, if a person is a UK borrower and is in the same financial situation as others, whether they are with an active lender or an inactive lender, the treatment of those individuals should be the same: the options should be the same; the deals should be the same.
I would be happy to seek solutions for those mortgage holders of active and inactive lenders, but my hon. Friend must recognise that different individuals have different characteristics: different loan-to-valuation ratios; different credit histories; different income flows; and different histories in their financial situation. Those characteristics cannot be factored out. None the less, I am absolutely committed to this issue and it is in that spirit that I announce today that the Treasury will work with the FCA—that means work with it on a review to its existing data on mortgage prisoners—to ensure that we have further detail on the characteristics of those borrowers who have mortgages with inactive firms and are unable to switch despite being up to date with their mortgage payments.
The FCA will also review the effect of its recent interventions to remove regulatory barriers to switching for mortgage prisoners and will report on this by the end of November, and I will lay a copy of that review before Parliament. I know that my hon. Friend the Member for Thirsk and Malton, who has done so much excellent work in this area and who champions the cause of mortgage prisoners, may wish to bring proposals sooner than that, and, of course, I have always made myself available to Members across the House to look constructively at any solution that has merit.
The Treasury will use the results of the review that I have set out to establish whether further solutions can be found for such borrowers that are practical and proportionate. Recognising the significant constraints that I have noted, I assure the House and the other place that the Government will continue urgently to seek any further solutions that may provide support to borrowers with inactive lenders who are unable to switch, but, as I have said, those solutions must be practical and proportionate.
In addition, I am grateful to the active lenders who have come forward to offer options to these borrowers. I am also committing today to write to active lenders to urge them and the wider industry to go even further and look at what more they can do to ensure that as many borrowers as possible benefit from these options.
I hope that I have convinced the House that this amendment, in this form, is not the right solution to such a complex issue. I also hope that I have demonstrated my personal commitment, and the Government’s commitment, to continuing to seek sensible and workable solutions.
I turn to two Lords amendments, tabled by Lord Holmes of Richmond, that the Government were pleased to support. Lords amendments 9 and 13 introduce an exemption for cashback without a purchase so that it will no longer be a regulated payment service. This means that it will be brought into line with the regulatory treatment of cashback with a purchase. This removes a significant burden for firms that want to offer this service. Where the service is offered, a local business, such as a corner shop, café or pub, will be able to provide cash to a customer without their having to make an accompanying purchase. This change will take effect two months after Royal Assent. I am very happy to take this opportunity to deliver this change through the Bill—a change that has become possible only as a result of leaving the EU.
However, Lords amendments 9 and 13 are only one of the steps required to protect access to cash and ensure that cash infrastructure is available long term for the millions of people across this country for whom this access remains important every day. The Government are committed to legislating and will continue our work on this important issue.
I turn to the remainder of the Lords amendments, which were tabled by the Government. Members of this House will recall my commitment in Committee to act quickly following the publication of the Woolard review, to enable “buy now, pay later” products to be brought into the scope of regulation if that was what the review recommended. That review has now concluded, so Lords amendment 6 provides the necessary powers to bring “buy now, pay later” products into Financial Conduct Authority regulation in a proportionate manner. As I said, this was discussed extensively during our earlier consideration of the Bill, and I hope that the hon. Member for Walthamstow (Stella Creasy) will be pleased to see that the Government are acting.
The role of the financial services sector in tackling climate change was the subject of significant and passionate debate in both Houses. As I have detailed previously, the Government and regulators are both committed to ensuring that the sector plays its part. Lords amendments 16, 17, 18 and 19 require the Prudential Regulation Authority and the FCA to consider the 2050 carbon target in relation to the Climate Change Act 2008 when making prudential rules under the accountability framework set out in the Bill. The Lords amendments also delay this application of mandatory climate change considerations to 1 January 2022 to avoid any delay in implementing these vital prudential regimes. Lords amendment 7 makes a minor change to the market abuse regulation to ensure that personal data collected for the purposes this regulation can be retained for longer than five years, where appropriate. Without this action, the FCA would have had to begin deleting vital data from July this year, posing risks to the ability of the FCA to investigate and prosecute complex cases of market abuse. The GDPR’s protections for personal data will still apply.
Lords amendments 2 to 5, 10 to 12, 14, 15, 20 and 21 remove Northern Ireland from the scope of the relevant parts of clause 34 and schedule 12, and make changes to clauses 44 and 45 to help give effect to this. During the passage of the Bill, it became clear that, despite the best efforts of Ministers and officials from the Treasury and the Northern Ireland Executive, legislative consent motions for the relevant parts of this Bill would not be completed in time. Therefore, in line with the Sewel convention, the Government tabled these Lords amendments to ensure that the Government are not legislating for Northern Ireland without its consent. I am grateful to the Lords for the improvements made to the Bill but hope that this House will approve the Government’s motions in relation to Lords amendments 1 and 8.
I thank their lordships for their work in considering the Bill. In particular, I thank Lord Tunnicliffe and Lord Eatwell, who led for the Opposition in the relevant debates.
Let me start tonight with some of the areas where we agree with what the House of Lords has done with the Bill. Lords amendments 16 to 19 make the UK’s net zero targets part of the remit of the financial services regulators. We moved similar amendments in this House, both in Committee and on Report, and both times the Minister led MPs on the Government Benches to vote them down. Indeed, when the House last discussed the Bill, on 13 January, the Minister said
“I do not believe that regulators should be required to have regard to broader questions that are not so closely related to prudential standards.”—[Official Report, 13 January 2021; Vol. 687, c. 398.]
So what was it that led to this Damascene conversion? What happened between 13 January and now to make the Minister do a U-turn and support amendments that he and his party voted down repeatedly in the Commons?
There are many reasons to oppose legislative propositions in this House, but “not invented here” has to be one of the weakest. We have argued throughout the passage of the Bill that financial services, including the work of the regulators, are a vital part of the drive towards net zero. There was no good reason for the Government to oppose the idea during the earlier debates on the Bill. Every sector of the economy will have to adapt to the change and it will be for Government Members to explain to their constituents why they voted the amendments down.
We also welcome Lords amendment 6 on the regulation of “buy now, pay later” firms—a cause championed with characteristic energy and determination by my hon. Friend the Member for Walthamstow (Stella Creasy). Again, we called for such regulation in the Bill’s previous Commons stages and the Government voted against it on Report. As financial services innovate, so must the regulatory boundaries. The regulation was recommended by the Woolard report, which was published in February, and we welcome its inclusion in the Bill. The new clause that has been inserted will be just the first stage of the process; the FCA will have to decide exactly how it will be done. Given the enormous growth in the use of such platforms over the past year or two, it is important that the regulator gets on with it as soon as possible.
Lords amendment 9 deals with cashback without purchase. There has been a significant decline in the use of cash during the pandemic, with a big move to contactless payments and payments online. We understand that this has many benefits for consumers—indeed, the pandemic has been called the great acceleration in respect of the many ways it has influenced our behaviour. Despite that acceleration, there will still be a proportion of the population who need cash, both for payments and for budgeting purposes. The Government promised to legislate on this issue at the Budget last year. Since then, it has felt like this is an ownerless problem, with the banks, LINK, the ATM providers, the regulator and the Treasury all somewhere on the pitch but no one really gripping the situation.
Cashback without purchase might be part of the answer, but that alone does not fulfil the Government’s commitment to ensure a nationwide system of free-to-use access to cash. We cannot allow innovation in payments to mean that the lowest-income households in the country have to pay to access their own money. When will the Government get a grip of the situation and bring forward a proper plan for access to cash, even in a world where the total number of transactions paid for in cash declines?
Let me turn to what are perhaps the more contentious issues before us. For many years, consumer groups have campaigned for a duty of care for financial services providers, because of the enormous imbalance of information between the sellers of such products and the purchasers. If we add to that imbalance a financial incentive to sell, we have the seeds of many of the mis-selling scandals that we have seen, with all the distress they have caused to individuals, plus, of course, the lengthy and extremely expensive processes of redress that the industry has had to establish. Would it not have been better to avoid the push selling of inappropriate products in the first place? That is the idea behind a duty of care. Its aim is to change the question in the seller’s mind from, “Is it legal?” to, “Is it right?” The amendment made in the Lords would empower the FCA to introduce such a duty.
The Minister says that he is not convinced. Instead, his amendment in lieu proposes a consultation on the matter by the FCA. Of course there will be scepticism about that, because there have been consultations before and nothing has happened. However, we accept that this commitment, with the timetable set out, is a step forward. In any case, there would have to be a consultation before any such duty could be brought forward. We therefore encourage all the consumer groups, and anyone concerned, to take part in the consultation set out by the Minister.
That brings me to the final issue of mortgage prisoners. We have been living through a period of historically low interest rates. Few people would have predicted that, 13 years after the financial crash, interest rates would be at their lowest levels in modern times. For Governments, including our own, that has enabled the financing of large deficits. For mortgage holders—or the vast majority of them, at least—it has given them access to long-term fixed rates at a low level, enabling them to pay down debt and to finance their home ownership. Indeed, one of the policy aims of low interest rates is to help people pay down debt.
However, one group has been excluded from the ability to fix their mortgages at low rates: those mortgage prisoners stuck on high standard variable rates with little or no ability to switch to competitive mortgage rates available elsewhere in the market. That is not how it started for most of those borrowers. They borrowed from regulated high street lenders such as Northern Rock, which were considered robust institutions at the time they took out their mortgages. Since then, however, some of those lenders have gone bust and the mortgages sold on to inactive lenders. People have become stuck, often at the cost of paying thousands of pounds more per year than would be the case on a more competitive rate. An estimated quarter of a million borrowers are in that position.
The Minister quoted some figures about how much extra people were paying and how that 250,000 was broken down. Some of those figures are disputed by the all-party parliamentary group on mortgage prisoners. Let us take the 0.4% that he cited. He said that people were paying, on average, only 0.4% above average SVRs elsewhere. That is disputed by the APPG. It estimates that mortgage prisoners have in fact been paying an average of 1.33% above the average SVR available, according to the Bank of England. Also, remember that in the mortgage market in general, only a small minority of borrowers are on SVRs; most are on a two or five-year fixed rate. That is how the UK mortgage market works for most people.
The Minister said that half of those borrowers could switch now if they wanted to. However, when the affordability changes were brought in, the FCA assumed that it would be only a fraction of that number. Whoever is right, the question must be posed: why have so few of them switched if they had the ability to do so? It cannot be because they like being stuck on a rate of 4% or more. Nor is it the case that all of those borrowers are somehow at the top end of loan-to-value ratios. Three quarters of mortgage prisoners have loan-to-value ratios of less than 75%, and that figure was calculated before the increase in house prices over the past year or so.
The Government claim that 70,000 mortgage prisoners are in arrears and could not switch even if they were allowed to. Let us look at what happens when borrowers with active lenders have been allowed to switch. The APPG estimates that someone with a mortgage of £165,000 will have paid an extra £24,000 over the past decade, compared with the Bank of England average SVR.
In individual cases with active lenders, where borrowers have been able to switch the effects have been huge. The APPG cites the case of a borrower with the TSB who saw her rate reduced from 4.69% to 1.99% and her payment go down from £928 to £397 a month—a saving of about £500 per month. This is transformative for the family finances of those involved. The release of pressure and freedom conferred by such a change in their monthly finances makes a massive difference to people’s lives, and those who have benefited from being able to switch in that way talk of a great weight being lifted from their shoulders—and no wonder.
What the amendment aims to do is to take the benefits of the low interest rate environment that the Government and most mortgage borrowers have been able to use and extend those benefits to borrowers who have been paying over the odds for the past 13 years. It would apply only to those who are up to date with their payments or have missed no more than one monthly payment in the past year.
The Minister cited the LSE report. Financial journalist Martin Lewis, who backed that report, has spent the last two days encouraging this House to support the Lords amendment. The LSE report cited a number of other things that the Government have not done, such as Government equity loans, removing together loans—a particularly difficult product—partial loan write-offs and mortgage rescue schemes. The Government have not acted on any of those. The Minister takes issue with the drafting of the amendment, but here is the difference: unlike the issue of duty of care, the Government have not tabled an amendment in lieu; they have not produced an alternative legislative proposal. If it was just a matter of drafting, with the same intention, that avenue was open to the Government this evening, but the Treasury chose not to take it. That means that we will support the Lords amendment and vote against the Government proposal to strike it down.
Whatever the outcome of all this, surely it is time for the Government to do more to ensure that those who are stuck on high SVRs through no fault of their own can have access to more of the mortgage products available on the market, which could make such a difference to their finances and to their lives.
Thank you, Mr Deputy Speaker, for calling me to contribute to this debate on the amendments made in the other place. There is no doubt that the Bill represents a major step in our post-Brexit world, enabling us to take responsibility for our own financial services regulation. This is an area of the economy that is important to us all for several reasons, including the revenue the sector raises for public services, the jobs it creates and the impact it has on our financial stability and global presence. My right hon. Friend the Chancellor and my hon. Friend the Economic Secretary have rightly set ambitious targets and objectives to develop the sector for the United Kingdom.
We all know the impact the big bang had in the 1980s, elevating the UK to a leading global position in this field, but it is fair to say also that some challenges stem from such radical change, and that is why I am pleased that, at the heart of the Bill, is recognition of the need to enhance our prudential standards and commitments to maintain the highest regulatory standards. Lords amendments 16 to 19 are welcome in that they extend the reach of the Prudential Regulation Authority and the Financial Conduct Authority to take account of our climate change commitments. That shows how serious the Government are about contributing to our regulatory standards and expectations and enhancing our reputation globally in our attitude to both climate change and strong financial regulation. Lords amendment 7 and the string of amendments relating to the Proceeds of Crime Act 2002 are also welcome, updating legislation to ensure that it remains fit for purpose in the fight against market abuse and the fight against crime, and recognising the status of legislative consent, specifically in relation to Northern Ireland.
In the limited time available, I will focus on Lords amendment 8, which relates to people who are trapped with their current inactive mortgage providers—mortgage prisoners. We need to recognise the seriousness of the issue and the circumstances in which people find themselves. I, like many Members across the House, have constituents paying higher interest rates on their mortgages than would otherwise be necessary. Although I am optimistic about the economy, it is fair to say that there remains much uncertainty, and developing solutions for people in this situation, who could save thousands of pounds, deserves full and proper consideration.
It has been suggested that there are 250,000 people in this situation, although others challenge that by highlighting that many can already switch providers—that is absolutely true—and others are restricted because of arrears and myriad complex reasons. Whatever the data says, the reality is that an individual paying over the odds inevitably wants to gain a better deal or the best deal possible, and we, as Members of Parliament, have an obligation to give support in a range of ways. However, in doing so, we must also recognise the hardship and complexity of individual cases.
In spite of recognising that solutions need to be developed and worked through and recognising the positive motives of those who tabled Lords amendment 8, I do not think it would achieve what many believe or claim it would. It is simplistic in its drafting and it would be merely a short-term fix. I want to see long-term solutions to the challenges for these individuals and families. Even consumer commentators and London School of Economics research recognises that it would be only a short-term stopgap, not the longer-term answer we would like to see. Intervention in the market for some people would create issues and set precedents that may not have been fully thought through. Ultimately, we need to be working to gain market solutions that will be the long-term answer that people deserve. I welcome the comments made by the Minister in his introductory remarks from the Dispatch Box. He absolutely recognises the challenges that people face. The commitment to work with the Financial Conduct Authority is excellent news that offers the potential of a long-term solution. However, an effective market solution would not be the one-size-fits-all-approach that the amendment suggests.
We must also recognise the complexity that the Minister and the Financial Conduct Authority will have to deal with because of the unique circumstances in which each and every individual finds themselves. The reality is that answering those serious issues, with far-reaching effects on the families tied in such circumstances, requires a number of solutions that genuinely reflect the complexity of those individuals’ circumstances. The amendment has been presented as a simple answer, but, as I said, it requires much more work and study. I am grateful that the Minister responded to the calls from across the House that clearly build on the work he has been pursuing up to this stage. I ask the Minister to continue to respond to those Members supporting the amendment by asking them to recognise the complexity of the situation.
Although I am challenging the Minister—in, I hope, a positive way—I want to recognise the changes that he has introduced so far. The changes to mortgage affordability assessments have had a significant impact. They have made a major change, and there is the prospect of supporting a group of people with a more effective market-based answer than that offered by the amendment. That is the type of solution that we need as a long-term answer. I want to act to support mortgage prisoners, but I do not think that the amendment achieves that. There are many people in very many different circumstances, and I do not think that it recognises all the circumstances that exist. It will not deliver what many people believe it will achieve. There are myriad complex situations.
I would also say that it will take time for the amendment to become effective, even if it was passed today. I say to the Minister that we can use this time to come up with alternative long-term solutions. I had not expected the Minister’s response at the Dispatch Box, which commits to doubling his efforts with the Financial Conduct Authority and even setting a specific timescale. That recognises the urgency of this while managing expectations of the challenges and work that they are committed to doing. We are using the time, as I was planning to call for it to be used, to come up with long-term answers rather than the short-term fix that Lords amendment 8 claims to provide.
I very much support Lords amendment 1 on the duty of care. As the Minister will recall, we have raised this during the previous stages of the Bill, in Committee and on the Floor of the House. We think that a financial services duty of care has never been more needed than it is just now, given the difficulties that people have had in the past year with the impact of coronavirus and long covid. The Minister’s proposals are really for consultation, to kick the can down the road until August 2022, giving our constituents quite some time before they can get the duty of care that I think we would all agree they deserve.
In particular, the amendment would help those suffering not just from the effects of covid but from cancer, which is why it is supported by Macmillan Cancer Support. Four out of five people with cancer are affected financially, being on average £570 a month worse off as a result of their diagnosis. Without support to manage this financial impact, money worries can spiral out of control. Macmillan estimates that more than a third of people with cancer, 39%, are severely financially impacted by their diagnosis and of those almost one in three had to take a loan or go into credit card debt. Macmillan’s clear ambition is that every person affected by cancer can rely on their financial services provider to give the support they need to cope with the financial impact of a diagnosis.
At the moment, there is a clear gap in the service. Only 11% of people tell their bank about a diagnosis. Why is that? Is it because they do not think that they will get a fair hearing? Is it because they do not want to admit something like that to their bank because they fear some sort of negative consequence? That tells me that the rules as they stand are not working. It is a patchwork. Someone might have the good luck to have a financial services provider who is understanding, but that is not good guidance and it does not help everybody.
People support there being a duty of care. Research by the Financial Services Consumer Panel found that 92% of consumers, 99% of sole traders and 97% of small and micro businesses believe it is important that there is a duty of care in financial services. Health issues could have an impact on them, because they would affect their business and its viability going forward. The duty of care is also supported by Age UK, the Alzheimer’s Society, Fair by Design, the Money and Pensions Service, StepChange Debt Charity, Surviving Economic Abuse and The Money Charity. They believe in it because a duty of care can lead to the necessary change in culture and practice. Customers should be easily able to access forbearance from their provider, including flexibility on mortgage payments and interest freezes on credit cards or loans, without it damaging their credit files. If we put that in place, it would prevent long-term harm and financial exclusion.
There should be a clearer path to compensation when things go wrong because a provider has failed in its duty of care. That leads to a standard that people can expect and we can hold to account people who do not meet that standard. It would make a real difference were the Government to take this on, and it is hugely disappointing that they do not wish to do so today. I suppose there is still hope that the Government could change their mind right now and do this, but kicking the can around until 2022, when perhaps something will happen, does not help people here and now. I urge the Government to consider that and see whether there is any way they can bring it forward more quickly. Lots of the evidence on this issue already exists so we do not need to go into further consultation to prove the evidence that is clearly there.
In other areas the evidence is slightly more contentious and disputed, such as Lords amendment 8 on mortgage prisoners. The number of people affected seems to be part of the contention. The Minister said that he follows the facts and the evidence, but in reality he is disregarding some of the facts and evidence that do not suit his position. As the right hon. Member for Wolverhampton South East (Mr McFadden) said, the evidence is disputed. Although there may be up to 250,000 people stuck on that standard variable rate, many of them have also paid considerably over the odds in their mortgage payments.
There is also a degree of geographical impact. As a result of the location of Northern Rock, 14% of those affected are in the north-east, 16% in the north-west, 12% in Yorkshire and Humberside, and 11% in Scotland. That bears consideration, because this issue has a disproportionate impact on a large and significant group of people and their families, particularly in the context of covid and the challenges that many will be facing, which have deepened this year. It is incumbent on the Government to bring forward some kind of solution.
People are undoubtedly being let down again by the Government and by the Minister. We need solutions, and it is deeply frustrating that the Minister is leaving people trapped with no solution. It is a bit hollow for him to talk about practical options and solutions, but not to say when such solutions will be brought forward. Unless he is prepared to do so—perhaps in the Financial Services Bill; the best minds in the Treasury could have been put to this—the situation does not give people an awful lot of hope. The Minister talks against the notion of false hope, but he is leaving many with no hope at all that there will be a solution and that people will get change. I pay tribute to the all-party group on mortgage prisoners, the hon. Member for Thirsk and Malton (Kevin Hollinrake), and all those who have worked hard with this group of people. They deserve a solution from the Government to this long-running issue, and they deserve it now.
The SNP was glad to see the move to extend cashback, particularly because the wider issue of access to cash is missing from the Bill, despite its being a perfectly good place to include it. The move might to some degree help to keep money in local communities. Many communities do not have facilities for business banking at all, and that is part of the wider picture and problem. What conversations has the Minister had with business representatives about the practicalities of this measure? Will it mean that small businesses will have to hold more cash in order to provide cashback as a service? What are the costs and implications of that? It would be useful to have a wee bit more practical information.
I pay tribute to the hon. Member for Walthamstow (Stella Creasy) who was brilliant on “buy now, pay later” in Committee. The timing of the Woolard review was not helpful for bringing things forward in the Bill, but I am glad action is now being proposed. I hope it will happen swiftly, as there has been a massive proliferation of “buy now, pay later” companies. Now when people click on any website to buy something, that is what pops up. The Government have a job on their hands to try to regulate that and ensure that our constituents are kept safe. As I said in Committee, this seems to have a disproportionate impact on young women who are buying things on those websites, and I ask the Government to do a lot more analysis into who this issue affects, and how best to introduce legislation that will protect everybody.
I welcome any movement to improve the regulations on climate change. With COP26 hopefully happening this year in my constituency, I am keen for the Government to take a leading role and do more to ensure that financial institutions take their responsibilities to tackle climate change seriously. A lot more could be done on that, and everybody needs to take responsibility and play their part if we are to tackle climate change and make meaningful progress.
Finally, it would be nice if Opposition amendments were taken on board more often, or indeed at all, by this Government. There is so much that could be done in areas reserved to this Parliament, where the Scottish Parliament would also like to act but cannot do so. I hope very much that some day soon Scotland will not have to wait for a UK Treasury Minister to act, and that we will be able to do so ourselves, with the proper powers of an independent nation to protect our own people and to build a fairer, more inclusive, more prosperous nation.
Mr Deputy Speaker, you will be pleased to know that I will keep my remarks incredibly focused and brief. They will be entirely on Lords amendment 8, which I am afraid I cannot support.
Let me first congratulate and thank the Economic Secretary for all his hard work in bringing the Bill through so eloquently and in such a detailed way. I thank him particularly for his remarks on Lords amendment 8, which I will re-emphasise for the House. He set out very clearly that there are 250,000 people with inactive lenders, of whom 120,000 are unable to switch. Of them, 70,000 are in arrears, which means that they are unable to meet the risk criteria of other lenders.
However, it is worth pointing out that the Government are taking action to help financially vulnerable people and people in financial difficulty with mortgages, for example through the breathing space scheme, which helps to enhance legal protection for borrowers, and the pre-action protocol, which essentially puts repossession at the end of the queue, as a last resort for borrowers.
The centrepiece of Lords amendment 8 is, of course, the cap on SVRs. I entirely agree with the Minister and many others in the market who suggest that that would be unfair to borrowers with active lenders, but most significantly, it would represent a significant and radical intervention in private markets. It would represent a serious risk to financial stability, as the Treasury and the Minister have outlined. Lenders’ ability to adjust SVRs according to market conditions is critical, to enable them to take a risk-based approach to market conditions. Taking that away would make those lenders more vulnerable to financial shocks, such as a future financial crisis, which none of us wants.
This is a significant issue. The Treasury has said that it does not support a cap on SVRs, as has the London School of Economics, as many speakers have already outlined. The right hon. Member for Wolverhampton South East (Mr McFadden) outlined that Martin Lewis backed the LSE report. Martin Lewis has also said that a cap on SVRs would be imperfect and a temporary “stopgap”. That is not a ringing endorsement. For the reasons I have outlined, I simply cannot support the amendment.
I start by paying tribute to Rachel Neale and the UK Mortgage Prisoners group for their incredible resilience and the way that they have worked for the last two years with the all-party parliamentary group on mortgage prisoners, which I co-chair, to help to get a pragmatic solution to the problems that we know they face. I also pay tribute to my constituent Mohammed Masood, who first brought this issue to my attention after his family’s own experience—a situation that, after so many years, is still ongoing.
I am grateful for the opportunity to speak in support of Lords amendment 8, which would provide immediate relief to up to 250,000 mortgage prisoners—the FCA’s estimate—by capping standard variable rates and ensuring that they could access fixed-rate deals. The arguments for that were made powerfully and movingly in the other place, and indeed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) from the Front Bench tonight.
The Minister said that he wants to be guided by the facts. I thank him for his commitment to addressing this issue, but perhaps I can share some other data and another interpretation of the same facts to show why I and others believe that the solution proposed in Lords amendment 8 would indeed be both proportionate and practical.
The 250,000 mortgage prisoners took out their mortgages prior to the financial crisis with fully regulated high street banks such as Northern Rock. They were then kept trapped on high standard variable rates before being sold to mortgage loan sharks such as Cerberus, Tulip and Heliodor. The amendment would apply a cap on the standard variable rate for mortgage prisoners with inactive lenders and unregulated entities and ensure that they can access fixed-rate deals. It would be a targeted intervention that would have no impact on the wider market of active lenders, such as the main high street banks, which compete to offer their existing customers new deals.
The margins on these Northern Rock mortgages increased significantly after the financial crisis. As interest rates available to those at active lenders fell, the Government kept mortgage prisoners on high SVRs and then sold them off to inactive lenders and vulture funds, who also kept them on high SVRs. Prior to the financial crisis, the gap between the Northern Rock SVR and the base rate was 2.09%. Since 2009, it has been 4.29% above the base rate.
When the Government sold on the loans, they gave some of the purchasers, such as Tulip Mortgages, complete discretion on interest rate policy after 12 months. Protections for later packages of mortgages sold required only that the SVR be kept at the level of the third highest of a basket of 15 SVRs, which was higher than the current rate charged to mortgage prisoners. If mortgage prisoners were entitled to new deals on the same basis as other customers, the average rate they would be paying would be 1.8% below the level of the proposed SVR cap of 2.1%.
The Minister suggested that the SVRs paid by mortgage prisoners are just 0.4% higher than SVRs at other lenders. As I said on Report, our case studies, which include nurses, teachers, members of the armed forces and small business people, tell another story. It is inappropriate to compare the rates that borrowers with inactive lenders are currently paying with those paid by SVR customers at other active lenders. If mortgage prisoners were with an active lender and up to date with payments, they would have access to a product transfer, giving them a lower fixed rate.
The Treasury has said that the amendment cannot be supported because it would not be fair to borrowers in the active market, but more than 75% of borrowers in the active market move off the SVR within six months as they are able to access a new deal. Mortgage prisoners have been stuck on high SVRs for more than 10 years. Their mortgages were sold by the Government without their consent and without the proper protections. People trapped on these high interest rates do not have much chance to reduce the amount they owe. When their mortgage finishes when they are in their 60s or 70s, these mortgage loan sharks often put pressure on them to sell and threaten to repossess their home.
The FCA and the Government claim to have helped mortgage prisoners by changing the rules on affordability tests, but there has been very slow take-up of those new flexibilities. The FCA’s cost-benefit analysis, published when the rules were proposed, estimated that somewhere between 2,000 and 14,000 mortgage prisoners would switch using the new rules. The APPG has received reports from campaign groups that only 40 mortgage prisoners have been able to switch so far.
Mortgage prisoners have been neglected for more than 10 years. Families have been destroyed and homes have been lost. While the Minister commissions yet another review, every month mortgage prisoners struggle to make their monthly payment due to high interest rates. The delays will mean that more homes will be lost. As the consumer champion Martin Lewis has said, an SVR cap on closed-book mortgages
“would provide immediate emergency relief to those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”
We welcome support for the amendment from Martin Lewis and from Surviving Economic Abuse.
The Government have the option of coming up with an alternative proposal to provide the relief that mortgage prisoners so desperately need. So far, they have failed to do so. That is why I hope that all colleagues will support Lords amendment 8 tonight.
I rise to speak to amendment 8. I listened carefully to the Minister’s comments, and he has engaged across the House very frequently on this issue. I know this challenge is not of his making. It is not even of this Government’s making, but it is the responsibility of the Government of the day to solve it, because it is a problem of a Government’s making—indeed, it is of a Conservative Government’s, or coalition Government’s making. We are duty-bound to find a solution.
We have heard some very good speeches, including some very fine points about markets and intervention in markets. I am somebody who absolutely believes in markets. The markets have revolutionised my life and I have seen them revolutionise many others—how much wealth they create, how many jobs and opportunities they create, and what a great job they do for consumers in driving down prices and driving up service. But there is no market here. This is an extreme example of market failure. Inactive lenders do not set their SVRs based on recruitment of new customers, which is what should happen in a marketplace. It is not defensible to say, “We cannot intervene in this way in terms of an SVR cap because it is an intervention in markets.” The two things are not compatible.
The Economic Secretary to the Treasury set out an example of two similar customers and said that we should treat both customers the same. I absolutely agree with that principle. Let me just give him an example of how iniquitous this is. Louise Womble—I have permission to mention her—is a member of the UK Mortgage Prisoners action group. The group is led very ably by Rachel Neale, who has done fantastic work on this issue. Louise is with the regulated entity Landmark, an inactive lender that is owned by Cerberus. She is on a 5.19% mortgage with two years left on it. She is divorced; her husband left 10 years ago and paid nothing towards the mortgage. She has cancer. In two years’ time, because the inactive lenders will not renew or extend that mortgage—there is no requirement to do so—she will lose her home.
If Louise was with an active lender—assuming she was not in arrears, which I have no reason to suspect she is—she would be on something more like 2% or 2.5%, which is a huge difference compared with the payments that have been made over the last 10 or 12 years: something like £30,000 or £40,000. Of course, with an active lender, Louise would also be given the chance to stay in that property until perhaps she was in her 70s and then probably take an equity loan; she would not be forced out of her home. That is a massive difference when we are talking about two potentially identical borrowers. We cannot countenance that unfairness. I agree with the Minister about fairness and with his description of two identical borrowers, but we must also look at this example.
We created this problem. Of course others created it through irresponsible lending—Northern Rock, Bradford & Bingley and others—but we gave the job of disposing of those loan books to UK Asset Resolution. When it decided to dispose of the loan books—the first, I think, was back in 2016—to Cerberus, it took some reassurances from Cerberus that these people would be able to access new deals and fixed rates, and would even be able to take further advances. When that did not happen, UK Asset Resolution wrote to John McFall, the then Chair of the Treasury Committee, to say that it had clearly been misled, but that at the time it had had no reason to disbelieve Cerberus.
There were no doubt some very clever people looking after this at UK Asset Resolution, but that was pretty naive. I mean, I believe in business and that business is a force for good; nevertheless, to simply take it on trust that Cerberus would do the right thing by these borrowers was terribly naive. I think it was Charlie Munger, Warren Buffett’s right-hand man, who said:
“Show me the incentive and I will show you the outcome.”
Clearly, the incentive for Cerberus and the like is to extract maximum value from their portfolios without worrying about reputational risk.
Louise, who I was talking about earlier, is one of—I would guess—about half a million people who are affected. We talk about 250,000 people, but that is the number of mortgages or households, not people. All the people in the household are affected by the issue, so we are talking about a cohort of potentially up to 500,000 people. Of course, everybody is in a different situation, but the FCA’s analysis suggests that the current provisions and changes that we have made—I welcome any changes that will relieve some people from this situation—will only help between 2,000 and 14,000 people. Let us say that it is a mid-range of 8,000 people; we are probably looking at a maximum of 5% of the cohort, meaning that 95% of people in this situation will not be helped.
We are making things worse. We have just sold off another loan book; 89% of the people in that loan book are on 4.5% or greater and some are on over 5%. Again the iniquity continues.
The iniquity does not just apply to people who are up to date with payments. All this occurred because of the change in affordability rules following the global financial crisis. We said at that point that people had borrowed too much and that in future in order to access deals people would have to be on more modest borrowing and sensible affordability criteria. That was perfectly sensible.
We then realised, however, that lots of people would not be able to re-mortgage. The UK is unique in the western world—Andrew Bailey said this. Most of us are on fixed rates and that is how we keep our payment levels low. We realised that lots of people would not be able to access fixed rate deals, so the mortgage conduct of business rules were changed at that point, in 2012, to say, “If you are already borrowing, you are not in arrears and do not want any further monies, the affordability tests do not apply to you. If you are with an active lender you can refinance and continue on your fixed rate deal.” If you are with an active lender—not, of course, if you are with an inactive lender, because inactive lenders do not offer new mortgages and new fixed rates, even though we thought they would when we sold it off to them. It is one of those basic iniquities for people who are not in arrears.
It is also unfair to those who are in arrears. I know we say, “Well, if you are in arrears you would be in the same situation with an inactive lender as you are with an active lender”, but that is not the case. With an active lender, the rules are far more flexible. For example, they will let you capitalise the arrears, putting you out of arrears and then you can go to new deals. Of course, if you have been paying a lower amount, either through a fixed rate or a lower SVR, you will have lower arrears, so it is bound to be easier to move from a more expensive deal to a cheaper deal.
What we tried to do when we sold the loan books off was look after the public finances and who can argue that that is not the right thing to do? However, there has to be a balance between what is right for our public finances and what is effectively consumer detriment. Looking back, I wonder—the Minister was not about when this happened, of course—whether the balance was right. I feel that we got the balance entirely wrong.
The key is how we move forward. Some Members have said that the SVR cap is not the right thing to do. Comments have been made that this is a stop-gap. I do not think that anyone would argue that it is not anything other than a stop-gap: it is a stop-gap until we get to a long-term solution that we all want to bring forward. If you are paying 5%, I doubt you would consider it a stop-gap to move down to 2% or 2.1%.
There is no doubt, however, that it is a nuclear option. When we have talked about it in the all-party group, we have always said it is a nuclear option to try to precipitate a good response, either from regulators, lenders or the Treasury to resolve the problem. Yes, it is a nuclear option, but it is also brutally simple and very effective at solving lots of problems.
I can, of course, see the arguments why not. It may be that foreign investors would, to coin a phrase, regard us as an unreliable boyfriend if we sold off the loan book and then restricted the rates that could be charged on that loan book. I am very reassured by the conversations I have had today with the Treasury, including with the Economic Secretary and the Chancellor, and by the determination and renewed effort to find a solution. They have shown a willingness to be innovative in the past with things such as the recently rolled out mortgage guarantee scheme, so I am willing to take on trust that the Minister will work with me and other stakeholders, such as the UK Mortgage Prisoners action group, to find a holistic solution that works for borrowers with inactive lenders and active lenders, and that we can bring forward solutions as quickly as possible.
On that basis, I am happy not to support the amendment and not to vote with the Government. This is the closest I have been, in six years doing this job, to voting against the Government. Nevertheless, I am reassured by the conversations I have had with the Minister and am willing to work with him to try to make sure that we can find solutions, as rapidly as possible, to solve the plight of many tens of thousands or even hundreds of thousands of people.
I associate myself with the powerful speech by my hon. Friend the Member for Feltham and Heston (Seema Malhotra). I understand where the hon. Member for Thirsk and Malton (Kevin Hollinrake) was coming from, but I really believe that we could make some progress on this issue this evening. That would be of great benefit to many people affected by the issue, so I will certainly support the relevant amendments.
We know how important this legislation is. I pay tribute to the Minister, who has been listening to concerns throughout the Bill’s passage. I wish to comment on two particular issues in respect of which I would like him to tell us further information; I hope he might be able to. We know that this legislation matters desperately because between a fifth and a quarter of adults have experienced a reduction in income in the past year. That is mainly because of furloughing but is also true among the self-employed. It is crucial to get financial services right as we come out of the pandemic to help to make sure that people are not stuck in interminable circles of debt.
We knew that one in five people were already struggling to pay for housing, food and energy and were unable to meet their credit commitments. That proportion has now risen to two thirds among people who were already suffering from financial problems before the lockdown. There has never been a more important time to get right how we regulate our financial services. StepChange points out that 26% of those affected by coronavirus have borrowed money to make ends meet, usually using their credit cards or an overdraft facility. At least £3.3 billion of new debt has been taken on since the start of the crisis. The question for us is whether the Bill is going to do enough to make sure that that credit is offered at a fair and affordable price for people.
Given that 6 million Britons have already fallen behind on a household bill, this is a question for the state as well as for our economy. Mothers, lone parents, those from black and ethnic minority backgrounds, the young and the disabled are most at risk of debt. In April, a quarter of all mothers from minority community backgrounds reported that they were struggling to feed their children, and 32% of young women reported finding it hard to pay for essentials. That is not just a financial problem; it is a mental health issue. There is a mental health crisis coming to our country, with one in every 12 people who are over-indebted experiencing mental health problems.
I know that the Minister shares the concerns I am outlining. That is why I have been a terrier when it comes to the “buy now, pay later” industry—because of my concern about the way in which it engages in lending to our communities. The Minister knows the speed at which the industry has grown during the pandemic. The FCA found that 11% of consumers in this country—roughly 5 million people—have used a BNPL product since the start of the covid outbreak, and many of them say that they use “buy now, pay later” credit because they cannot manage their financial distress, which is directly related to the crisis, without it.
BNPL companies have exploded. Within a year, Clearpay now has 1 million customers in the UK, lending to them on average eight times a year. Klarna, perhaps the most well known, reports that its worldwide revenue for 2020 grew by 40%, to $1 billion. The founder of Laybuy expressed concern and surprise that fraud in the UK market was huge in comparison to that in New Zealand and Australia. That just shows the problems of the industry coming and exploding at such a rate in our communities without regulation.
Compare the Market tells us that “buy now, pay later” schemes are being used 35% more than they were in the pandemic, with most customers saying that it is because they cannot afford to make purchases outright. We are a nation with a massive debt bubble underneath our economy and we need to ensure that, when these companies operate, they do not exacerbate it.
I welcome the Woolard review, which was clear that the “buy now, pay later” industry needs to be regulated because people were in financial distress and difficulty because of these products, that the products were not good value for money, and that many of the things their lobbyists had told MPs were simply not true. Indeed, the review also found that consumers may not be applying
“the same level of scrutiny to their decision-making as they would for other credit”
“including consideration of the potential consequences of failing to repay”,
because they were not getting the right information. The Minister will know—we tried to tell him at the start of the Financial Services Bill—of the case that we needed to take to the Advertising Standards Authority about the way in which Klarna was advertising its products.
I welcome an amendment that does what we were trying to do through the Bill— to get these companies regulated—but the Minister will understand that I have some questions about this regulation. Looking at that context and the explosion of these companies, it is absolutely critical that we get this right. I was very troubled to hear the Minister in the other place say that the Government do not believe that all elements of the Consumer Credit Act 1974 should apply to the “buy now, pay later” industry, as it would be what he called “disproportionate”.
Will this Minister tell us what sets this industry apart, and the problems that we have seen already, from other forms of credit so that it does not need regulation in the same way that other credit providers do? What would be disproportionate about applying the 1974 Act? In particular, what factors has he assessed with regard to consumer detriment and how has he determined that that regulation is not in the consumer’s best interest? Can he tell us bluntly and simply now, if the Bill goes through and it becomes an Act, what form of redress consumers will have? We know that there are thousands of people who have complained about these companies. Will they be able to go to the ombudsman’s service, and what standards will the ombudsman be able to hold these companies to account for now?
The Minister stated that with “buy now, pay later”, it is important to note that those products are interest-free, and thus they are inherently lower risk than most other forms of borrowing—that was said in the other place—but the Woolard review itself pointed out that the service might be free to the consumer as long as the repayments are made on time. It is the repayments that are the issue. The Woolard review stated:
“The exemption under the CCA was never intended for this kind of product but only for short-term invoice deferral.”
So why are the Government not taking on board what the Woolard review said and bringing that into the Bill now to make sure that we properly protect consumers from these companies?
Will the Minister tell us whether more regulation of the “buy now, pay later” industry is coming outside the Financial Services Bill? We know that the industry is continuing to lobby hard. We have heard the words and we have seen the briefings, but, Minister, we need to know who is speaking for consumers in this—the millions of people in difficulty, in debt and indebted to these sorts of companies. Who is meeting the Government from those organisations as these proposals are crafted? Will he urge retailers to exercise caution until the proper regulations are in place? Will he hold the major companies —the H&Ms, the Marks & Spencers—to account for promoting these companies, so that we can keep consumers safe while this is resolved? This matters in the same way that access to cash matters, because as so many consumers have found, being limited in options means being open to exploitation, and I fear that this is not the end of the “buy now, pay later” industry issue, but just the start.
Finally, I just want to say something about the net zero amendment, which, for many of my constituents, is a vital issue. Achieving this country’s new target to cut its greenhouse gas emissions requires action across all parts of the economy. It is not just about retrofitting buildings or driving less, or using solar power, but about the crucial things that our state can do and that our regulatory bodies can do and that we can do through our finance. That is a lesson that we can learn from many other countries around the world.
Again, I have to be honest: I share the shadow Minister’s frustration that, throughout the Bill, we were proposing these measures on net zero and meeting resistance from Government. As with the “buy now, pay later” amendments, had we agreed on these much earlier in the Bill, we could be much further forward not just in making sure that we are getting on track with our existing carbon commitments in the run up to COP26, but in gaining the benefits that come from being a net zero economy. We need that kind of fresh thinking. There is agreement across the House, whether that is on “buy now, pay later” industries or on net zero, but I wish that the Minister had agreed with us much earlier to do this, because we could then, in the run-up to COP26, be leaders in this field, rather than playing catch-up.
As we shift our country’s resources away from importing fossil fuels and towards sustainable infrastructure and reskilling the—[Inaudible.]—the need for national income will grow. We know that it is a benefit to our economy as well as our society and, indeed, our children’s future. I hope therefore the Minister will use this as a springboard to go much further so this is not just about individual regulators but is instead about becoming that net zero economy and putting climate change and sustainability at the heart of our future covid recovery. Tonight’s Lords amendment is a good step towards that, but it is just the start of a clear pattern we need to build within our financial services to make sure we are not just doing our bit in the UK, but that we are world leaders.
I will support the Lords amendments, and I hope the Minister will take it in the good spirit in which it is meant when I say that I will continue to lobby him on these issues, because I know that he does want to get this right. Currently, however, there are still too many unknowns about what will happen next, and without that action—without that clear commitment, on tackling not just consumer detriment but climate change—we will always be playing catch-up. Our constituents need and deserve nothing less than for us to take this forward and be world leaders.
I will keep my remarks short, because I know it is late and we have a lot of work to do.
There are many amendments to welcome from the other House, particularly the regulation of “buy now, pay later” by the Financial Conduct Authority, where there is clear risk of consumer harm. The Proceeds of Crime Act 2002 is a remarkably ineffective piece of legislation but it is right that it is extended to e-money, as there is a clear loophole there. On cashback without purchase, there is no risk of consumer detriment there and we need to increase access to cash. It is right that it is brought outside the FCA’s remit.
On Lords amendment 1 and the duty of care, I spent five years of my life trying to get the banking industry to improve the care given to vulnerable customers, and clearly many consumer harms carry on. I launched schemes, actually in this House, for the banking industry to help customers with cancer and customers with Alzheimer’s. I am very attracted to the idea of some sort of blanket duty of care, but I do not support this amendment, for two reasons. The first is that, as written, it is so wide-ranging that there would clearly be massive unintended consequences, which even vulnerable customers would live to regret. The second is that, as the Minister said, the FCA already has very wide-ranging powers, almost certainly enough to deal with all the consumer harms that need to be dealt with. I very much welcome the Government’s move, through their amendment, to push the FCA to look at how to reduce consumer harm and implement an effective duty of care.
On Lords amendment 8, mortgage prisoners absolutely need help. They have suffered massively, through no fault of their own, losing tens of thousands of pounds, if not more. We have rehearsed all the arguments tonight for and against this measure. We agree that we need to help these people, but the question is: how do we do that? The cap of interest rates is, as people say, a sticking plaster—even its supporters say that. I can see the appeal of it, but this sticking plaster comes at great cost: Parliament would be setting out interest rates in primary legislation. That could lead to huge unintended consequences in lots of ways—for example, through the impact on financial stability that we heard about earlier on some of the firms. It would also set an extraordinary precedent, with the Government doing price controls in that way. One does not have to be an historian of the 1970s to know of all the dangers of price controls.
It is also really not the solution we need. Where someone is trapped in a horrible prison with their guards abusing them and they are very uncomfortable, would they want that prison to be made more comfortable and the guards to behave themselves, as this cap in effect proposes, or would they want to get out of the prison? They would want to get out of the prison. We need to make sure that mortgage prisoners can move to other mortgage providers. That should apply to all people who are mortgage prisoners, including those who are in arrears, for the reasons that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) set out. This is very complicated stuff. There are lots of reasons why people cannot move, whether it is their loan-to-value ratio or their income stream, or because they are in arrears. It is absolutely right that they should be helped to go to regular mainstream mortgage lenders that are offering other suppliers, and I very much welcome the Government move to really push on that, working with the FCA. I take on trust their commitment to really push in that direction and get a solution to that for all the mortgage prisoners.
For those reasons, I am happy to vote against Lords amendment 8, so long as the Government do everything they can to help those prisoners.
I, too, will keep my remarks brief. In the debate tonight I, on behalf of the Liberal Democrats, will be opposing the Government’s motions to disagree with Lords amendments 1 and 8.
In particular, I would like to focus my comments on Lords amendment 8. This amendment would offer significant relief, I believe, to thousands of so-called mortgage prisoners caught in a vicious cycle of debt through no fault of their own. We have already heard the arguments rehearsed and some terrible stories of what they have been through. All that has been the result of the original decision, after the collapse of the mortgage providers, to sell off those mortgages to investment funds, and that has left as many as a quarter of a million homeowners trapped in spiralling mortgage costs for more than a decade now.
It is a situation that the Government have failed to address, even though there is clear evidence that it is jeopardising wellbeing. A recent study found that mortgage prisoners experienced higher rates of physical and mental health problems, and that they are up to 40% more likely to default as a result of coronavirus. The significance of this amendment is that it would finally unlock this trap and offer an escape from the nightmare of the past decade. Significantly, it would lower interest payments through a cap on the standard variable rate of interest for mortgage prisoners who are borrowing from a firm that no longer lends to new customers. The cap would be no higher than 2% above the Bank of England base rate, which is currently a mere 0.1%. It would also require lenders to offer mortgage prisoners new fixed interest rate deals in certain circumstances—for example, if they have kept up with payments in the past 12 months, if they have an outstanding loan amount of over £10,000, or if they have not received consent to let the property.
The misery caused to tens of thousands over the past decade and the continuing threat it poses demand that we act. We have heard tonight why. To me, it seems simple. It seems the correct thing to do, and therefore I strongly urge the House to reject the Government’s motion to disagree with this amendment—Lords amendment 8 —as well as with Lords amendment 1.
There is a famous saying, is there not, that an Englishman’s home is his castle, but the problems born out of the banking crisis in 2008 still persist. Indeed, there are a quarter of a million households with mortgages affected by lenders who suffered at that time. They are with inactive lenders, and in simple terms their mortgages are stuck with non-lending asset management funds.
We know that the Government have looked at many of those borrowers to try to help them so that they can switch lenders. Many of them can—almost half of them—and they can benefit largely from doing so, but it is the remaining half that are our real problems, the so-called mortgage prisoners. Their rates, as they came off the original term deals, moved on to the standard variable rate we have heard about tonight, leaving them paying such disproportionately high repayments. Their lender’s debt was sold on, and as such they cannot remortgage or switch, leaving many families struggling immensely to manage each month. Lords amendment 8 would require the FCA to introduce a cap on those standard variable rates and ensure that mortgage prisoners can access new fixed interest rate deals.
I know there are huge amounts of work going on to try to help these people, not least by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake)—I thank him for all the work he has done—but also by the Minister, who has been a tower of strength. He has been talking to me far too much about how we can help these people, and I thank him greatly for that. It is an absolute must that we do keep helping these people.
First, the 70,000 mortgage prisoners who are in arrears, would—for many reasons, unfortunately—potentially not be a better position if they were in the active market, as borrowers are unlikely to be able to switch within the market, given the very stringent risk criteria there are today. The Government are trying to support these householders with the initiatives we have heard about, such as the breathing space scheme.
It is the remaining 55,000 who have kept up their repayments that I particularly want to make sure the Treasury can really help and work on solutions for. I know there are again attempts to modify the affordability criteria assessment to try to move those people on to a new lender. Notwithstanding such efforts, those solutions are not the final answer. So what is the answer? Is it Lords amendment 8? Do we interfere with a market?
I should know this from experience, because I have asked the Chancellor before about other scenarios: rarely, and for good reason, do we create interventions in the market. The ramifications and unintended consequences can easily have knock-on effects. What if those in the active market on high interest rates, struggling to make repayments and perhaps affected recently in the pandemic, are now in arrears and unable to switch? Where do we draw the line of the cap for those in the inactive market without prejudicing those in the active market? Market intervention is the easy answer to an incredibly difficult and complex problem that we must solve, but the easy answer is not necessarily the right answer.
As much as it pains me not to be able to pass a quick simple fix, patched on this problem by this amendment, it is not a workable solution that addresses the problem adequately. I will keep working with Ministers to ensure that, absolutely, we work with the FCA to look for the workable solution to this and to help borrowers end their misery. In summing up, I hope that the Minister will give us hope and progress on helping those people effectively.
It is a pleasure to speak on this issue, Madam Deputy Speaker, and I thank you for giving me the opportunity to speak in the debate this evening.
As other Members have, I will speak to Lords amendment 8 on mortgage prisoners. In an intervention on the Minister earlier, I expressed concern about the issue. I do so having been asked by numerous constituents to highlight the dreadfully precarious position in which many have found themselves. I will give one example. The hon. Member for Thirsk and Malton (Kevin Hollinrake) also gave an example, and such examples are real-life ones of people on the frontline.
I have spoken on a number of occasions—I believe this to be the fifth time since 2017—on the subject of mortgage prisoners and, from the outset, I make it clear that my colleagues and I will vote in favour of Lords amendment 8. I have the deepest respect for the Minister, but there has to be more than cake tomorrow to assure my colleagues and me on behalf of my constituents. We hope that he and Her Majesty’s Government will do what is right for those people.
As we have all heard, the Lords amendment coined the phrase, “mortgage prisoners”. That is what my constituent has highlighted—she believes her family to be prisoners of their mortgage. She writes:
“My husband and I, like many others in Northern Ireland are classed as mortgage prisoners, through no fault of our own. Like many others in Northern Ireland, our mortgage was taken out with Northern Rock, which subsequently collapsed. Our mortgage was then sold to a vulture fund without our consent. As these vulture funds are not an active lender, they do not offer mortgages, hence are unable to offer alternative mortgage products.
We are penalised on very high interest rates, which at the moment is currently well over 4% above the BOE base rate. This is crippling us, never mind the detrimental effect that it is having on our mental health.”
Sometimes it is not just about the finances; it is the effect on mental health as well.
Her email was not the only one to use such terminology. My belief is that the Lords amendment would take strides to free those who have thus far been all but imprisoned through no fault of their own, unable to do anything but scrape by, not entitled to Government help or aid, as their wages are sufficient on paper, but not in reality. I agree that a cap on the standard variable rate of interest for mortgage prisoners on closed books would address the issue.
I do not propose to spend much time rehearsing the specific arguments, which others have done already. Instead, I wish to make two points that are self-explanatory. Last Monday, the Minister came to the House to tell us that a compensation fund for London & Capital bondholders—with a sum of £120 million of UK taxpayers’ money—would be necessary following the excellent forensic investigation and analysis report by Dame Elizabeth Gloster. I understand the rationale behind that decision, and yet it leads me to my second point : why not a solution for the mortgage prisoners tonight? As I said, and have been reiterating for years, there continues to be what I can only term a failure to regulate in any way vulture funds such as Cerberus, but at the same time Her Majesty’s Treasury rightly made the decisions on Northern Rock. Despite limited efforts by the FCA, due to the restrictions placed in legislation by Her Majesty’s Government on the regulatory perimeter, little or nothing has been done for those mortgage prisoners in more than a decade. It is time for that to stop and for Her Majesty’s Government to start finding credible solutions.
A constituent contacted me to tell me that there is a rumour that the Conservatives will impose a three-line Whip against Lords amendment 8. If that is true, it is very sad. I also believe, with respect, that it is disgraceful. Many of my constituents are worried. They have talked to me personally. My hon. Friends the Members for North Antrim (Ian Paisley) and for South Antrim (Paul Girvan), and my other colleagues have all expressed the same concern. We have to make a decision tonight on behalf of our constituents that ensures that their viewpoints are heard, and we have to do it in the best way that we can in this House, which is by how we cast our vote.
After seeing at first hand the impact of no action on the lives of mortgage prisoners in my constituency and beyond, I can do nothing but agree. If this is the line of the Government against these 250,000—or the half a million, as one hon. Member has said—struggling families, I will be supporting Lords amendment 8. I have no difficulty in that and I shall ask all other right-thinking MPs to do the same.
A decade of struggle has passed. We have it in our hands, right now, in this Chamber, to make a change. It is, I believe, right to do so. I shamelessly ask Members to do what is right on this occasion for those families in the middle section who have been squeezed beyond belief, physically, financially and mentally. Let us give relief to them, as today, right now, it is in our gift to be able to do so.
I am extremely grateful to all Members who have contributed to this debate. I will not to rehearse the arguments that I made at the outset, but will respond in the right spirit, in the right way, to the constructive and careful analysis that we have had from many Members across the House this evening.
Let me start by addressing the right hon. Member for Wolverhampton South East (Mr McFadden). I said to him during the Committee stage that I was always listening. I think that I have proved that to be the case in the way that the Government have responded on the climate change amendment and on “buy now, pay later”. I listened very carefully to the hon. Member for Walthamstow (Stella Creasy) who spoke with characteristic deep knowledge of the sector. It is absolutely clear that we need to get the legislation and the intervention right when it comes to “buy now, pay later”. She rightly asserted the massive growth in that sector and the unfortunate consequences that will certainly befall, and that does befall, a number of consumers. We will work quickly to examine that market and what interventions will meet the need.
I am very tempted to address a whole number of points around Lords amendment 8. It is a real priority of mine to find a response that meets the unfortunate situation where people are trapped in very difficult circumstances. I pay tribute once again to my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) who made a passionate speech, identifying Louise, a mortgage prisoner, whose personal story was one to which the whole House was sympathetic. A number of other colleagues raised similar stories. None the less, I do need to have a proportionate response—a response that can take account of data. I appreciate the excellent work carried out by the all-party group and I recognise its dataset—449 people. None the less, when I am faced with data from the FCA, looking comprehensively at 23,000 cases, I cannot deny that asymmetry. I will commit to continued dialogue to try to find a way forward. Those are not empty words; they reflect the complexity of this matter—a matter that is underpinned by half a generation of different rules and regulations. Before the crisis, people could borrow in ways that today we would think totally unacceptable, and that are indeed unacceptable. The market must provide better solutions than it can provide at the moment, and I will look carefully at what we can do to ensure that that happens.
The hon. Member for Glasgow Central (Alison Thewliss) made a number of points on Lords amendment 1 about the duty of care, and I have set out at length my approach to that, which is again to examine and listen carefully to what the FCA is saying. It will then be obliged to come forward with rule changes. So these are not empty words; they recognise all the work of the charities and organisations that are highlighting this case. Of course, in financial services there is a strong dynamic of change, and the Government and regulators must be ready to step in and make appropriate interventions as that market changes.
I believe that this Bill is a key component of a new, broader regulatory strategy that will underpin the UK financial services sector as a genuine world leader now that we have left the European Union. I welcome the speeches from my hon. Friends the Members for Grantham and Stamford (Gareth Davies) and for South Cambridgeshire (Anthony Browne), which exhibited a deep knowledge and a constructive approach to this very sophisticated industry, underpinned with a lot of personal experience. I will take from this debate many points of detail. I do not agree with every point that has been made on Lords amendment 8, but I stand ready to engage with Members across the House to seek to find solutions. I am proud to have been able to lead this Bill through the House.
Lords amendment 1 disagreed to.
Government amendment (a) made in lieu of Lords amendment 1.
Lords amendments 2 to 7 agreed to.
Motion made, and Question put, That this House disagrees with Lords amendment 8.—(John Glen.)
Lords amendment 8 disagreed to.
The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.
Lords amendments 9 to 21 agreed to.
Motion made, and Question put forthwith (Standing Order No. 83H), That a Committee be appointed to draw up Reasons to be assigned to the Lords for disagreeing to their amendment 8;
That John Glen, David Rutley, Craig Williams, Mr Pat McFadden and Owen Thompson be members of the Committee;
That John Glen be the Chair of the Committee;
That three be the quorum of the Committee.
That the Committee do withdraw immediately.—(James Morris.)
Question agreed to.
Committee to withdraw immediately; reasons to be reported and communicated to the Lords.