My Lords, the Government are very concerned about the problems in the debt management market, including the quality of advice, which was highlighted by the Financial Conduct Authority’s thematic review. This is why we reformed debt management regulation, transforming responsibility to the FCA’s more robust regime to better protect consumers. Debt management firms are currently going through the FCA authorisation process. Firms that do not meet the FCA’s threshold conditions will not be able to continue in the market.
My Lords, the Government are right to be concerned. The fact is that the FCA found that a staggering 60% of fee-charging debt advice cases posed a high risk of harm. The requirement to disclose the availability of free debt advice at first contact was often not done or was rushed, not impartial or not sufficiently prominent. It is not even clear whether cold-calling lead generators are obliged to disclose the availability of free debt advice at all. Cold-calling lead generation is banned for mortgages. Will the Minister agree to meet me to discuss banning it for debt advice as well?
My Lords, although lead generators are independent and not regulated, the FCA requires debt management firms accepting leads from lead generators to satisfy themselves that the business has been procured fairly and in accordance with data protection privacy in electronic communication laws. The FCA is going through the authorisation process at the moment, as I said, and that is one of the things that will be taken into account. It has to ensure that the lead generators do things such as signpost to consumers the availability of free debt advice. The FCA has committed to undertake a review of its rules on unsolicited marketing calls, emails and text messages from consumer credit firms. Lastly, of course I am always pleased to meet the noble Lord.
My Lords, the House will remember that the Government dithered on tackling the abuses by payday lenders until the noble Lord, Lord Sassoon—the Minister in the Lords at the time—took personal action and drove the change. Will Ministers today consider doing the same, because cold calling is making victims of vulnerable people on a daily basis?
My Lords, on the broader issues of debt, will the Minister confirm that household debt is on course to reach a new level of 183% of GDP by 2020? That is above any level that it reached under 13 years of the last Labour Administration. Is it not clear that this faltering economic recovery that the Chancellor boasts about is being backed by household debt, with serious consequences in the longer run for the economy and for all households?
My Lords, the noble Lord opposite has decided not to mention that household debt as a proportion of income has fallen to 145% in Q1 of 2015—down from a peak of 169% in 2008 under the Labour Government. We accept the forecast that household debt will rise by 2020, but this is driven by households investing in financial and housing assets. At the moment, three-quarters of debt is secured by property.
My Lords, given that the FCA report discovered that not-for-profit organisations were better at giving impartial debt advice, will the Minister tell us what plans Her Majesty’s Government have to ensure that those organisations have sufficient funding to be able to offer that service to the 8.8 million people in the UK who are in need of debt management advice?
The Government have increased funding to the management advice service to £47 million —an increase of nearly 23%—this year. We also accept that there is a position for fee-paying debt advice, but it has to be regulated properly and to treat consumers fairly. That is what the FCA is in the process of doing. The authorisation process will make some decisions on those individual firms by the end of this year. I should mention that the FCA’s thematic review took a sample of eight firms out of approximately 200.