My Lords, with the leave of the House, I shall repeat in the form of a Statement the Answer to an Urgent Question asked in the other place earlier today. The Statement is as follows:
“Mr Speaker, the Government are committed to ensuring a strong, diverse and dynamic economy, where small businesses can access the credit they require in order to prosper and grow. As such, we expect the highest standards of behaviour across the financial sector, which is why we have introduced a number of necessary changes to restore public trust in financial services, such as the senior managers and certification regime. While it would be inappropriate for me to intervene in individual cases, particularly while they are subject to ongoing legal proceedings, we must always remember the human element to each case. That is why the Government have been consistently clear that, where there has been inappropriate treatment of SMEs by their bank, it is vital that these businesses can resolve their disputes and obtain fair redress.
At the Budget last autumn, the Government set out their support for the FCA’s plans to expand eligibility to complain to the Financial Ombudsman Service to small businesses as well as microenterprises. This will ensure that, from 1 April this year, well over 99% of all UK businesses will have access to fast, free and fair dispute resolution. The Government have also been clear that banks need to work hard to restore businesses’ trust in their institutions, and have welcomed the banking industry’s commitment to establish two independent voluntary ombudsman schemes to resolve SME disputes.
I am extremely pleased that last week my honourable friend the Member for Thirsk and Malton agreed to sit on the steering group responsible for implementing these schemes, alongside Nikki Turner from the SME Alliance. That follows several months of intense engagement with the APPG here in Parliament. While eligibility for the scheme to address historic complaints will need to be determined on a case-by-case basis, I encourage all SMEs that believe they are eligible to apply once it is up and running in September.
I am pleased that the sale of loan portfolios to third parties is now covered by the standards of lending practice—overseen by the Lending Standards Board—to which Clydesdale is a signatory. This means that it is now committed to ensuring that third parties that buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute which cannot be resolved. I can also confirm that Andrew Bailey of the FCA has spoken to Clydesdale about the case in question.
The Government are not complacent about this serious matter. We will monitor the implementation of these new or expanded dispute resolution schemes, and we will continue to remind banks of the importance of restoring SMEs’ trust in them”.
My Lords, I am grateful to the Minister for repeating the Statement made in another place in response to an Urgent Question. The overall impression one gets from listening to him is a sense of slight panic in the Government’s ranks and an attempt to try to catch up with a situation that seems to have got out of control. It has been understood for some time that the way that our banks deal with SMEs has been a cause of real concern, and there was also an issue about whether there was an appropriate way of getting redress on a fair and appropriate basis. Some of what he said is helpful—I acknowledge that. However, I still wonder why it took the Government quite a number of months—in fact, almost years—to change from limiting the redress from microenterprises to SMEs; after all, we believe that SMEs are the future of much of our economic growth in this country. There is still the question of whether historic cases are being dealt with on a voluntary basis. Is that really the case? On what basis will the Lending Standards Board, which he mentioned, be able to act? Will that also be on a voluntary basis? If the answer is yes, when can we expect to see the regulatory framework?
I am grateful to the noble Lord for his response. It makes sense to wait for the expansion of the financial ombudsman’s scheme, which I and he referred to, and which comes into effect next month. I also believe that the two voluntary schemes to which he referred are better than the alternative—a statutory independent tribunal, which the Treasury Select Committee considered. We gave that serious consideration, but agreed with Simon Walker’s conclusion that that would not be the right approach. It would involve primary legislation, setting up a tribunal and probably costs for the SMEs that wished to access it. I think a dispute resolution system, as outlined, would be much quicker, much less expensive and not constrained by a narrow interpretation of the law. An ombudsman could see whether a contract was fair and reasonable, for example.
The noble Lord asked whether the standard lending practice was voluntary. Yes, it is a voluntary scheme. It sets the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers throughout the entire product life. We believe that this is the right approach to resolving complaints, but we have not ruled out other options if it does not deliver.
My Lords, do the Government recognise that people have been waiting for more than six years for justice? Those SMEs were maltreated by Clydesdale, RBS and Lloyds. They were viable companies paying their loans that were put into bankruptcy so that their assets could be stripped for profit and advantage, and the Government have at every step of the way dragged their feet, as has the regulator. Now, rather than the limited, partial voluntary schemes that the Minister proposes for the future, will the Government understand the reality of the experience of so many people, take a much firmer hand following the Australian example, do a complete retroactive review and ensure that everyone is compensated by the Government’s initiative, not wait for people who have been badly damaged to come forward to battle yet again?
If there was inaction for the past six years, that covers a period when we were both Ministers together in the coalition Government. The noble Baroness asked whether it was fair to ask people to wait. What we propose would bring a swifter solution to those who have already waited a long time—as I agree—than the alternative of a statutory scheme which, as I said, requires primary legislation, regulations controlling SME lending, which is not regulated at the moment, and then possibly expensive access to the tribunal through legal representation for SMEs.
The banks have a good record of observing the recommendations of the financial ombudsman scheme, so we should let them have the opportunity to show that they will also honour the recommendations of the two schemes being announced today, which will be up and running in the autumn—far sooner than a statutory scheme.
As there is a gap, I return to ask another question. Am I right in my assumption that the Minister would accept that the issue that has given rise to this Question is not limited to one bank: there is a broader, possibly systemic issue affecting the way in which banks relate to SMEs? Taking up the point made by the noble Baroness, Lady Kramer, does he think it might be worth looking further at some of the measures used by the banks to attract new customers, particularly interest rate exchange mechanisms, which seem very complicated and difficult to understand? They involved swapping of rates, which was not perhaps fully disclosed to those borrowing the money, and the question of tailor-made loans, the details of which were also rather obscure.
One would be tempted to suggest that an element of criminality was sometimes drawn into those issues, for which a voluntary scheme will be hopelessly inappropriate. As the noble Baroness said, perhaps it is necessary to have a properly organised review carried out by, say, the FCA, to ensure that the practices driving those issues are driven out.
I recognise that there are more cases than the one that has generated the interest. There has been a lot of press interest in some RBS schemes. Looking at the FCA estimates, we estimate that the expansion in eligibility for the FOS scheme will result in no more than an additional 1,300 cases from businesses on top of the existing 6,000 cases from microenterprises. To put that in context, the employment tribunal received over 109,000 cases in the financial year. We think the FCA’s planned expansion of the FOS to include small businesses is the right and proportionate response. We look forward to the next steps and to these vital pieces.
The noble Lord then asked me a number of questions about the incentive loans or interest rates that banks sometimes offer and some of their other practices. I am not sure whether they fall precisely under the remit I have just announced but, if the noble Lord will permit, I will write to him when I have received further clarification.
My Lords, since I can now follow up with another question, I remind the Minister that during the coalition years Vince Cable, in his role at BIS, commissioned the first investigation into the many complaints against RBS, its abuse and its behaviour. As a consequence the FCA, as it is now—the regulator—was asked to act. The regulator commissioned a consultant called Promontory to produce a report, which was utterly damning—but we did not know that, because it was not published—and the summary the FCA produced was 180 degrees different from the underlying report. It was only its leakage and its exposure that brought this to much wider attention. Essentially, Members on all sides of this House—and in the other House—have been dragging this Government to try to deal with this and to get the FCA and the other regulators to deal with their underlying responsibilities. Would it not be appropriate to make sure that, where an institution is to any degree regulated by either the FCA or the PRA, they take fundamental responsibility for its ethical behaviour and not limit themselves to the narrow regulatory perimeter behind which they hide?
I do not disagree with the recommendation the noble Baroness made at the end: that they should have a broader remit in their responsibilities and not confine themselves to the narrow remit that may be set out. Again, perhaps I can write to her, as she has strayed just a little from the rather narrow case that brought me to the Dispatch Box. She raises an important point about the broader responsibilities of regulatory bodies, which I will write to her about.