Financial Regulation: a preliminary consideration of the Government's proposals - Treasury Contents

Examination of Witness (Question Numbers 274-298)

Chair: Thank you very much for coming to give evidence to us this morning, Mr Lewis. Could you tell us whether you agree that the new CPMA should be a consumer champion?

Mr Lewis: I certainly think it should be pro-consumer and I'm delighted to hear that it has a pro-consumer remit. I have wrestled with the concept of it being a consumer champion as I think, certainly, from my own perspective, having lobbied over consumer issues and pro-consumer issues over years, there are some things I know I can say that, no matter how much freedom of remit the CPMA will have, it will never be able to rant and tirade in quite the way that sometimes consumers need.

Whether it should be a full-on consumer champion, which for me is not balanced—I'm very lucky I don't have any intrinsic need to be particularly balanced in my view. I am, unapologetically, one-sided in the way that I work. I think the other consumer champion organisations out there: Consumer Focus, which I'm very, very disappointed to see to be going, or Which? or Citizens Advice, are unapologetically pro-consumer, and I think there are some difficulties with the regulator going quite that far. So I wrestle with the point and the term "consumer champion". I'm certainly delighted to see it have a very strong pro-consumer remit and be reacting to the consumer champion bodies that are out there. But whether, in reality, a regulator can truly be "the" consumer champion I find a difficult concept.

Chair: Do you think that increased competition is likely to be the best consumer champion?

Mr Lewis: I have always been a fan of increased competition, apart from when the action that that competition takes has been to tie up the market, which we've seen in financial services. It's a very limited marketplace and we do know that banks tend to operate in a very similar way. If we take the old example of bank charges for going beyond your overdraft limit, until the recent investigations into bank charge reclaiming, there was no competition in that market. The difficulty with competition, when we talk about the financial sector, is that the competition takes place on the headline rates, so banks will compete over interest rates, over introductory bonuses, over overdraft rates, but often, on the bits that people never think of, the stealth charges, the bits that people don't see, there is no competition in those marketplaces and no way to avoid them. So I think, certainly, competition addresses some of the problem. Competition certainly helps and I genuinely believe that, in this country, we have a relatively competitive financial services sector. There are those who argue that we should have a limited choice of mortgages out there because that would aid people's problem with confusion. I disagree. I think we want as much range and as much choice as possible. But what I would hope to see a regulator do is make sure that there is real choice and real competition, right across the board, in all areas of a product, but there only is in headline rates.

I have two big problems with the way the situation works at the moment. The regulatory system is massively complicated and we have a financially illiterate public, and those two things do not add up. My second point would be that banks and financial institutions, deliberately and maliciously, use the complexity of the system to avoid recompense and redress when they do things wrong. Those two things are very severe problems, in my eyes, that need to be looked at.

Chair: The first of the two things that you referred to, before you got into that second set of two, was stealth charges. Presumably, what we need from the regulator is pressure to ensure that those charges are not stealthy but are visible and costed out, so that consumers can make informed choices?

Mr Lewis: Yes and no. The problem I have with the way we've dealt with stealth charges in the past—I'm going to use credit cards as an example because it is the easiest to describe. One of the problems for me is that consumer credit isn't part of the remit of this regulation, which I don't understand frankly. I find that a very difficult and confusing issue and I know many consumers do too. But let's take credit cards for a second—

Chair: That is a very difficult case you've moved straight on to, perhaps one of the most difficult for establishing clarity of charge, but anyway.

Mr Lewis: But I'm going to use it as—

Chair: There are easier examples than that.

Mr Lewis: Can I give the example of the problem with how we regulate over stealth charges because I think this will make more sense than using an easier example? We introduced a few years ago—after much lobbying, which I wasn't a part of—credit card summary boxes. Now that was because there was a demand that you must know the information, and the detailed information, about a product.

I gave a talk at a university I'm a governor of the London School of Economics. With regard to the Lloyds advance card, I asked the students what it meant when it says in the summary box for the interest free period—"None". Nobody knew. A few of them stabbed, as many consumers think, that it meant that there wasn't a 0% period for six months or for a year. What it means is, even if you pay the card off in full at the end of the month you will pay interest on it. I asked the same about repayment hierarchies, nobody understood what that meant. I asked the same about credit card loading.

My problem with making stealth charges less stealthy is we need explanation, not information. One of the great excuses the industry has given over the last 10 years, of how it has improved, is it has given more information. But with no financial education—I'm a great believer in compulsory financial education in schools; an issue for another day—and a financially illiterate public, giving information doesn't do the job because people haven't got a bloody clue what it means.

My problem with saying what a regulator should do is make sure they're not stealthy and that companies have to publish them, well what we end up doing is publishing a massive range of charges. We tell people what they are but people don't look at them and don't understand. It's a more difficult problem than just providing the information.

I read the submission from the head of the BBA when she was talking to you, I think it was last week, and she talked about needing to provide information. This is the great excuse of the industry: we give them all the information. But I'm afraid if you were interviewing real members of the public and you asked them even basic questions about financial products, they wouldn't understand them. Information is not good enough. It is not good enough.

Chair: Just to summarise your overall view: the regulation is far too complicated and, therefore, not achieving its purpose, and the industry is hiding behind complexity, part of which is a result of the massive amount of regulation, in order to rip off customers.

Mr Lewis: Let me make the second point very plainly. Perhaps the biggest scandal in—

Chair: Do I have that right?

Mr Lewis: Yes, bang on.

Chair: All right. Carry on. Make the second point in the way that you would like.

Mr Lewis: PPI reclaiming is a campaign I've been involved in since 2007. One million template letters have been downloaded from the website on this one. I will explain it to you in the same way that I tell the public when I'm on television or radio, because my job is to try and bring this down to its ultimate nub. I say, "Here are some of the reasons you may have been mis-sold. They told you it was compulsory; it isn't. They didn't tell you, you have the product. That's a classic mis-selling. They didn't ask you whether you had a pre-existing medical condition. They didn't check whether you were self-employed so the policy doesn't cover you. If any of those applies you may well have been mis-sold. This is what you do: you write to your bank, you explain why you've been mis-sold and your bank will tell you to get lost. Expect it to tell you to get lost. The fact it tells you to get lost has no bearing on whether you have a case or not. It will almost certainly tell you to get lost. It will do that with a large letter in legalese telling you why you have absolutely no case. That is part of the dance. You then take that letter to the Financial Ombudsman where you have an 81% chance of winning; a four to one chance of getting resolution in your favour". Those are the stats from the Ombudsman in payment protection insurance. Every one of those 81% have been rejected by their bank with a letter telling them, "You don't have a case".

Well that is absolutely ridiculous. There is an eight-week period you have to wait and it is a deliberate policy of attrition of the public, so that they cannot get justice by using a devious form of rejection to try and stop people claiming. Claims-handling industries have grown up on the back of this, when all you need to do is go to the Ombudsman. They charge 25% of the £3,000 or £4,000 that people are owed. They have already been ripped off once. They are taking their money yet again, because the system is too complicated and financial institutions are allowed deliberately to use confusion to stop people getting redress. The very simple solution for me is: any sector where the Ombudsman upholds over 30% of cases should automatically be reviewed—I would do it by the Ombudsman because I think they're in the best position—and all that sector needs to be looked at. We need to stop putting people through the mill of this.

Everybody knows that while payment protection insurance can be a good product but the ones sold by banks are a rip-off. It's a pure and simple rip-off sold by the banks. It has been a rip-off for years. I love the fact I'm allowed to say that freely in here. It's been an absolute rip-off and it should have been stopped. What we should have done is come down, and instead of people having to complain about it, when this is ill-informed members of the public who have absolutely no way of fighting their corner—I'm going to say one more thing and then I'll stop my rant. My template letters, I have been told—

Chair: I don't know what you have for breakfast but—

Mr Lewis: I've been up doing telly already. I've been going for hours. This is why I get upset about this: on the template letters we send, people are asked to put in their names and address and their financial details. I've been told that about 5% to 10% of people, where it says "your name", "your address", leave the "your name", "your address" in, and where it says "put in your account" they leave "put in your account". They just send the letter without adding their personal details. Now you can laugh at that, but for me that means there are people in this country so desperate and so trusting, and—whether it's due to mental handicap, whether it's due to mental capacity issues—so unable to deal with their own financial issues that they just send a template letter without putting any details in, in the hope that they will get redress.

For me, those are the people we should be protecting, and the only way we can protect those people is by a proactive stance so that when we can see obvious systemic abuse, as we can—just look at the Ombudsman's stats for complaints upheld; it shows systemic abuse; it shows lots of cases where people have been rejected, then over 50% of the cases are upheld by the Ombudsman—there needs to be some form of automatic investigation and ease of redress for people. Payment protection insurance could be up to £10 billion mis-sold and we have not handled it. It's a disgrace.

Chair: So we have to point this legalistic pirouette with the banks, which they're engaging in, in order to minimise payouts and engage in attrition with the consumer?

Mr Lewis: It's a tactic. It's a pure and simple tactic.

Chair: That is basically a summary of what you've said..

Jesse Norman: I would like to just ask you about the FSA and the retail distribution review that's been done. That's a review which has caused, I think it is fair to say, a great deal of concern in this Committee and among other Members of the House. Could you just give me your view of whether you think it's a sensible piece of regulation and whether you think IFAs have been fairly treated by it?

Mr Lewis: I'm rather worried. Funnily enough, many financial journalists are very pro-fees, when it comes to IFAs, and think that IFAs should charge fees. Probably, by the nature of what I do, I deal with a wide spread of the public. The websites have 10 million unique users a month. It's a very wide range of people. I worry that if you ask people to pay for financial advice they will not pay. Now, I'm not the greatest fan of IFAs, but I certainly think they're far better than tied agents and are well worth people going to on issues like protection, pension and investments especially for somebody who doesn't have a clue. I sometimes worry about which is the worst evil: having some IFAs who are paid commission and who have limited levels of commission bias, which should be regulated very stringently to try and reduce the commission bias, or not having people go at all.

So I'm not 100% convinced of the idea that fees solve everything. I think, to an extent, what we're going to end up having is tied agents who are getting commission, going in selling hard. It's very difficult for the public to understand the concept of tied agents—multi-tied IFAs—going in selling hard. People go into their bank and think the salesperson, who is commission incentivised, selling them payment protection insurance, is a financial adviser. That's difficult enough. To tie IFAs' hands by not allowing commission, certainly in environments where people would prefer them, seems to be a problem for me. I understand there are some solutions to that, in that they can keep the commission, but they tell how much it is and rebate if it's over a fee level. It's not my strongest area. It's not what I look at because, basically, in the areas that IFAs look at, I tend not to because that's not my job, if you know what I mean. But I'm not convinced fully.

Jesse Norman: Let me put the question a different way: do you think there is a segment of the investing public that would be disadvantaged by the threat to IFAs from a loss of commission income?

Mr Lewis: I need to be honest with you: I don't cover investment. I don't. So I don't think it would be fair for me to give you an answer because I'm not well enough informed on it.

David Rutley: We had a conversation with Peter Vipond from the ABI recently, and he felt very strongly that the CPMA should have a statutory duty to encourage savings, and Mark Hoban is absolutely opposed to the idea. Based on what you have been saying about the importance of education, where do you think things should fall?

Mr Lewis: I think we should first encourage people to pay off their debts, and I think that's one of the great dangers that we have going on right now. I did a talk at the Building Society conference a few years ago, and I asked there, "How many of you are savings managers?"—this is mutuals—and they put their hands up. I said, "How many are remunerated by how much savings you bring in?" They put their hands up. I said, "How many of you tell your staff that if customers come in, the first question they should ask them is, 'Do you have a high interest rate credit card, and have you considered paying that off before you start saving'?" No hands went up. I am very pro people saving—although whether the economy needs it or not is another question; I know the Bank of England doesn't necessarily agree—but they have to pay off their debts first. This is always the problem when we have blunt ideas of how we work things.

So I would first have a debt reduction plan and make sure people are incentivised, first to reduce their debts and only after that to save. If you have debt on an 18% credit card, savings are at 3% after tax, 2% in a high street or even in a top savings account—pay off your credit card. It's the best way you can save. Frankly, going forward, with mortgages now at 5% or 6%, for many people paying off their mortgage, as long as they have an emergency fund, is better than saving. So should it have a statutory remit to encourage people to save? Yes, as long as you count saving in that wider context of reducing debt as being a part of saving. I don't know whether it did or it didn't; you have to forgive me.

David Rutley: Following on from there, what worked well, in your view, with the FSA, and what should be transferred across to CPMA? You highlighted an interesting theme—I know you've been preaching it for many years—about education. How do you think that can be best picked up? So two questions, really.

Mr Lewis: I'll start with education first, if I may.

David Rutley: Sure.

Mr Lewis: It's very difficult not to go on a polemic on this. I've always found that quite difficult. The fact we don't have compulsory financial education in schools, when we've had student loans in this country for 20 years and we have educated the nation into debt when they go to university, but never educated them about debt, is a national disgrace. We're just about to introduce potentially much bigger student loans with real rates of interest, and we are still not going to have compulsory financial education of the people who are going to borrow them. We are going to get them to hang the debts around their neck without understanding it. That is wrong in every single system. The main thing we could do to improve your regulations—to stop mis-selling, to have better informed consumers, to have more responsible borrowing, to penalise irresponsible lenders—would be to teach every child in school how finances work. If they started to understand it, all these problems would diminish.

I think the FSA has done some reasonable work on that. It's not for the FSA to put it on the national curriculum. It is for Members, and it's very nice to be talking to you about that. The education system—and I'm probably rent-seeking here. I own the UK's biggest money website; it's important I say that before I say what I'm about to say. The FSA has done things like setting up Moneymadeclear. It's done the classic thing of government, which is you see something that works well and you try and replicate it in your own image. It hasn't worked. It has a very small amount of traffic, compared to my site and other sites. It is this type of idea that Government considers it needs to do itself rather than work with external websites. I would be quite happy—and I suspect many of the other sites would be—if the FSA told us what it thinks we're doing right and doing wrong, and gave us a stamp of approval, rather than spending its own money on replicating what we are doing and it never being read, or not give us the stamp of approval if it doesn't like it.

The way that education has been done, for me, is relatively staid and relatively boring. A word I never use in my public broadcast is "finance", and it's the word that we're here to talk about. Finance isn't interesting. Looking after the pound in your pocket is. Saving money is interesting. Beating the system is interesting. When we talk about education, we have to not do it in a po-faced way. We have to do it in a way that shows that by being educated you can gain. I think the FSA has had some good remits on its education and CFEB, I hope, will help and improve that. But I still do think that, unfortunately, we do it in such a worthy way that it doesn't work well enough, and people don't necessarily trust those institutions. I'll just give you an example. We have the FSA; we have the Ombudsman; we have the FSCS; we have the OFT; we have the Competition Commission. If you ask the public what they do, most people wouldn't know.

If you want your savings to be safe, you have to split them into institutions that aren't linked, but Halifax Bank of Scotland is one institution; RBS and NatWest are two institutions. So you could put £50,000 in each of those and you'd be safe, but only £50,000 in Halifax Bank of Scotland to be safe. If you want to find that list, it doesn't exist on the FSCS website. It exists on the FSA's website, even though you're protected by the FSCS. On the FSA's website, the only way you can look this is up is by looking at the banking registration on this. We have it on our website. We've done it and I have someone who works to keep it up-to-date. That type of completely disjointed thinking that people can't penetrate, unless they work through the system, defeats all forms of education anyway because we're not giving the information out in the first place.

I don't think the people who are doing the education understand how consumers think and need the information to come across to them, and until they do that, the education won't work.

David Rutley: So are you planning a reality TV show to help make this more accessible?

Mr Lewis: If the television companies would give it to me, I would do it. I did a team cash class three years ago, where I went in and taught 12 15-year-olds of mixed ability how to save money. We sent them home and they saved their parents £5,050 after a day's lesson. That teaches you two things: one, we desperately need compulsory financial education in schools; two, we could do with some compulsory financial education of adults as well. So I would love to do that. Unfortunately, it's the TV channels who have to decide—not me—whether that happens. But yes, that type of thing—the opposite of The Apprentice—trying to teach kids to be money-saving experts. We've made entrepreneurship programmes, and that's great, but we need to make being a good consumer and understanding that important as well. We're just coming out with our own curriculum guide that we've been working with pfeg on to go and help teachers, but all that work could be done.

As for what the FSA has done well, well, it has done some things well. It needs to be proactive; it needs to be spotting flaws before they happen. I think that's one of the great problems that we have at the moment. There is a genuine disconnect between the people at the top of organisations and the people creating products; the FSA isn't necessarily talking to the right people. There is a disconnect between the manufacturers of product and product marketing, which means what the product is set up to do is often not what it is being sold to do. There's a disconnect between the people selling the product, those at the coalface, and what is going on with top management, and I think in many ways the FSA hasn't been quick enough to look at all those different elements and bring its regulation in. It has done it on certain occasions. I thought what it did on mortgage administration fees was a great piece of work. It spotted a problem, it told them they had to change and companies changed it.

But banks and financial institutions are incredibly good at coming up with clever new products, not just in the derivatives market—that I know is another part of what you're looking at and I don't understand, frankly—but in the consumer finance market. We look at these very carefully, and the number of times we see a product that is marketed and we get very excited and think it will be great to tell people about, and then we spot a hole. It comes up all the time. Now, whether we should regulate away from that or whether we should just make sure they communicate what that flaw is, unfortunately doesn't work because no form of regulator is quick enough to spot this. When a new product comes out and the marketing goes in heavily, and they're following the existing regulations, but they've found a new way to make profit and to take money out of consumers' pockets, I can't see any regulator being quick enough, which goes back to my original point about whether it should be a consumer champion or it should be pro-consumer. We need a way for people to filter into that process. If I spot problems that I think should be changed, I don't know how to do it and I'm one of the biggest gobs out there on the subject. And I don't know how to get something changed, because every time I've tried to do it, it doesn't work, or at least to get something looked at. So how does that happen? There must be a way that people can filter in to get things looked at when there are problems.

Mark Garnier: You've talked about problems being education, too much information, obfuscation, complex procedures, confusion, all this kind of stuff. Turning more specifically to the products that you list on your website, do you see any common thread coming in when things go wrong amongst the products themselves, as opposed to the overall umbrella?

Mr Lewis: Common? No, and it's very important that the answer to that is no. That's the great difficulty, there isn't a common thread. But there are common confusions that go on out there. One of my little agenda points—while I have my chance to say something—that has to be looked at here is the concept, for example, of FSA registration, as opposed to FSA regulation. We've just had the collapse of Crown Currency Exchange, which many people are very upset about. This was an FSA-registered company, which frankly means nothing. But when you read what people are very upset about, it is that this is a company that had "FSA registered" on its website, which people thought implied something, but means nothing. That type of confusion is a real problem. Frankly, it would be better not to have had that company being FSA registered, for all the good it has done being FSA registered, not to have had the stamp on the website, and therefore to have had no implicit—it's not a recommendation—legitimacy implied by its FSA registration would have been very useful.

When we talk about "product specific", the only thing that they have in common is that it's always very clever. What is done is always very clever. I and my team of nerds, and other people who work at this on different websites, try and spot them and we try and spot what goes on. One of the great problems I have with comparison sites is that people compare on rate. The best way to choose a product is to compare on rate and know how you use the product. Take a very simple example: cash back credit cards—wonderful products. People can make hundreds of pounds a year. I'm a massive fan, provided you, in font 100, say, "Set up a direct debit to repay the card in full every month so there's no interest". Now, choosing the best cash back credit card on rate and not doing that, defeats the whole purpose. That's a simple example. There are many much more complicated examples. I remember years ago Barclaycard set up the 0% for life credit card if you shifted your balance. All you had to do for that 0% for life was to spend £1 a month on it, which, of course, meant repayment hierarchies came into place, so that your expensive debt from spending was paid off last, your cheap debt was paid off first. Most people would spend far more than £1 a month on it. That debt would then get trapped in. Barclaycard would make its profit. We set up a direct debt system to charity for £1 a month to defeat it, and Barclaycard changed that product within three or four weeks, so that you had to spend £50 a month. It was six or seven months later that the regulation came into place that they couldn't use the 0% lifetime marketing on that product. So consumer reaction can be much quicker. But we knew what was going on with the product after day one, in fact before it was launched. I had it embargoed. But there isn't a rule.

The point is that this is a constant battle between new ways of making money come in, new ways of defeating them, and other new ways coming in. But the rule is: how they make money changes, and whatever we try and do now, or whatever the trends are now, will be different in two years' time, and new fees and new charges, and new stealth charges and new ways of manipulating, right across financial services, will come in. I perceive we have an adversarial consumer society; the companies' job is to make money from us, our job is to try and stop them, but we need some regulation to make sure it's a level playing field, which it has not been for a long time.

Mark Garnier: In summary, you are saying that there's an awful lot of pointy-headed boffins sitting in banks, trying to work out ways of getting around whatever—

Mr Lewis: And not enough pointy-headed boffins trying to tell people how to stop them.

Mark Garnier: I think your pointed head is the bigger one.

Mr Lewis: Thank you very much.

Mark Garnier: Can I just change to a slightly different subject, looking at macro-prudential tools. I think you said you went through Angela Knight's evidence last week. One of the things she talked about was the FPC's toolkit. This could include quite a lot of significant socioeconomic measures. For example, we as MPs may well see a number of constituents complain that they can't get a mortgage, because the FPC has made a decision to take the heat out of the housing bubble. Do you think, as a result of that kind of thing, you're going to see some potential conflicts coming between the FPC, the CPMA, CFEB, and possibly even Parliament?

Mr Lewis: Yes, certainly. If we take that as a very specific example, one of the problems that always happens when we talk about regulation of borrowing is that people start to get protective and say we need to protect people from themselves, from borrowing too much money. Those regulations are then enacted; let's say you put a 70% LTV cap on it, and say you can't go above 70% or 80% on LTVs. Or we put a limit on the amount that you can have on your credit card. What you effectively do, often, by those type of regulations is, you trap people in who already have existing debts. This is what we've seen, time and time again. It's what we're struggling from at the moment. We have a very competitive credit card market right now. We have the best 0% balance transfer deals we've ever seen on the market right now, for those with fantastic credit scores. But lots of people with existing debts can't use them. So what tends to happen, when you look on a macro level, is rules are made that seem very sensible, but miss the impact on real people and real lives. Certainly, putting caps for people who are desperately trying to get to new borrowing out there, would cause a tremendous strain on the public.

We have a ticking time bomb in the mortgage market, right now. We have people who are at 4% over base on their tracker rates. They think they're getting a cheap deal because they're at 4.5% interest. If base rates go up to 5%, which would not be anomalous—now is the anomaly—they're going to be paying 10%; whereas, in the past, trackers were at 0.5%, 1%, over base rates. So, if and when, and I presume it is when, interest rates rise, whether it's in three years or five years, there's going to be an a absolute nightmare. It costs double on the way up, is an old phrase of mine. If you save £50 on the way down, losing £50 on the way up feels like losing £100. It's always worse the other way around. So when we start looking at FPC trying to control the economy by tools that affect real members of the public, we're going to come into conflict. You can go straight back to the Keynesian paradox of thrift. Over the last few years, when we've had an economic downturn, the work I do has probably been relatively destructive, because my job has been to tell people to pay off their debts and save, and keep your money aside for the bad times. Well, the economy doesn't need that, so how the FPC and the CPMA will conflict in those times, when the FPC wants people to spend and borrow, and the CPMA is saying, "Don't borrow, it's not good for you."—it's going to be a real problem, yes.

Mark Garnier: My next point, coming on from that, is that you then have, if you like, the MPC as the body that's going to be putting its foot on the accelerator, trying to get more liquidity into the economy and this kind of stuff, and then you have the FPC that is effectively going to be the one that's sitting with its foot on the brake. It's going to be very interesting, I think—I'm very interested in your comments on this—to see how the relationship is going to work, because, if we go back to the time when we started having quantitative easing, nobody knew quite how sensitive this was going to be; whether you needed a lot of foot on the gas, or a little bit, to get things moving. Do you agree that, when you're talking about the FPC using the brakes, that it could be a lot more sensitive than people are imagining, and do you think the FPC might, unwittingly, overly slow things down and cause a crisis, or do you think they might have to be very heavy footed to get the effects they're after?

Mr Lewis: I think there is always the potential for things to be slowed down much more rapidly than they need to be, and the consequences on the individuals who are affected is the real problem. We see already people who are in terrible trouble with their debts because the liquidity has gone from the market. You can read in various newspapers stories that, having the best credit card deals we've seen since before the credit crunch is either a wonderful thing and the market is bouncing back, or it's a terrible thing and banks are doing their old tricks and encouraging people to borrow again. That is the mirror image of the FPC, CPMA remit, going on right there. I worry, certainly now, that—you will have to forgive my lack of knowledge of FPC and MPC interaction—if you put interest rates up now, there's going to be a much closer track. It will be much more effective than it has been in the past, because there are so many people now on trackers, and so many people stuck on standard variable rates, that they weren't on in the past, so that we have more variable rate mortgages, from memory, than we did previously, and more people at high rates. So the reaction to putting interest rates up, certainly, would be felt much more keenly than it has done before.

When the FPC comes forward, in terms of closing down the economy, I do have some great worries of the impact that will have on real people out there. It tends to be those people—I think the political phrase is "the squeezed middle". I'm not quite sure it's the squeezed middle, I think it's the people just a bit below that. It's those who are working and struggling at the bottom end who are going to be squeezed by this; those who get the least amount of help, but have everything on a knife edge. There are so many people out there whose budgets are balanced at 0.5% interest rates, as we have now, and as soon as that goes up, or as soon as any other costs come in, they're not going to be balanced any more. There's no going back. If you continue to spend more than you earn, you're going to be in trouble, because if you can't fix that, you're in a debt spiral.

Mark Garnier: Yes, I see.

Michael Fallon: The Treasury document on financial regulation concedes that there will be higher costs, both ongoing and transitional, for most of the firms involved. How are those costs going to be passed on?

Mr Lewis: They certainly will be passed on to consumers, because any costs that financial institutions incur are passed on to consumers. That is a simple business model, and one would presume this will be in the form of worse rates or higher charges. From my perspective of the desirability of that, I think those who will whinge and complain are probably those, like me, who play the system personally, and get the very best deals that you can all the time, because they will marginally lose. But the people who will be better off by more stringent regulation are the mass of people who are financially illiterate, and who do need a form of protection out there. So from that perspective, even if it slightly diminishes the very best products, and adds more charges on, the sheer amount of money that people have spent on products, either mis-sold or that they should not have had in the first place and which don't quite fall into the mis-selling category, is many tens of billions of pounds, which is far larger than any increased cost of regulation on the retail financial services sector. I don't know the investment banking sector at all, and I can't discuss that. So I would still say it is worthwhile.

Michael Fallon: So you are not concerned about any increase in charges by independent advisers that may then be attributed to the changes in regulation?

Mr Lewis: Again, the IFA market isn't particularly the market I look at. I wasn't specifically referring to that. If people get decent advice that comes through, and that advice is correct, I'm less worried about it. It's very obvious and it's probably not very helpful, but ultimately, if the regulation works and protects people, I don't think there's too much of a problem having some form of increased cost to it. The problem will come if the regulation doesn't work and people are paying more. My great worry is the transitional period to a new form of regulation, and exactly how that will work, when people will only see disbenefits, as you always do when there is change, and yet we will see increased costs coming on, on the back end. Certainly, I think there are some brave decisions to be taken, going forward. But the IFA market is just not my market at all.

Michael Fallon: But generally, with firms, do you not see any opportunity to use regulation now, to reduce the costs incurred by consumers?

Mr Lewis: The interesting point for me is that the costs that consumers pay are generally very cheap, if you know what you're doing. I think this is the friction here, to talk about costs for consumers. Right now, you can have a bank account that pays you £100 to go to it, and 5% interest and a 0% overdraft. We have people getting car insurance for less than £20 a year if they use the right system, people being paid to take out their home insurance. If you're savvy and smart, costs are very low. The problem is, the majority of people are not using those techniques, and if they did, they wouldn't work.

Michael Fallon: How can we use regulation to reduce costs more generally for consumers, not just the clever ones who use your website?

Mr Lewis: I think you regulate so that products are fairer. It goes back to what I said in the first place: many of the costs don't come in the headline prices; they come in the ancillary costs that are never broken out and that aren't looked at, where there's no competition. They're only put in the small print, and people don't understand. If we go back to my great problem with "treating customers fairly" regulation—this does answer your question—I've always had a problem with treating customers fairly, in that I can set up the most abysmally over-expensive product with stealth charges and, as long as I tell you about it, even if you don't understand it, and I get you to sign on the line, and I follow the procedures, I am treating you fairly, according to the rules. For me, regulation needs to look at the real impact of the product, and product rate, and product charges, not just the procedure of product. So if you want to regulate to bring down costs, I would get regulation to work in a way that looks at what the product actually does, rather than whether the product is procedurally correct. Does that answer your question?

Michael Fallon: Yes, it does. Thank you.

John Thurso: I wanted to ask you about the Financial Ombudsman Service. Before I do, going back to the comment you made about our adversarial system—the consumer society—and the fact that those selling financial products set out to make as much money as they can, as long as it's sort of legal, it's a pretty predatory and irresponsible lending, and it's largely what has got us where we are. Should we have just a cap on the amount of interest you can charge on things like consumer credit and credit cards, and just say, "You can't go beyond that?"

Mr Lewis: I think on credit cards the argument is relatively simple. Having said that, I was suggesting, a couple of weeks, ago that people get a credit card that had 55% interest. The reason for doing that is, it's the only credit card they can get, and my suggestion was, they get that credit card and they set up a direct debit to pay it off in full every month, so there's no interest, use it for a year, and it will help rebuild their credit score. So there are certain tools out there that I wouldn't want to stop working, as long as people use them correctly. My problem with a cap on interest—I get so many e-mails and messages from people saying, "I've just seen an advert for a company charging 2,300% interest, that's disgusting, it should stop"—is that I did a pet calculation the other day which showed that if I lent you £20 and said, "Pay me back a pint of beer next week; buy me a pint for it," and the pint cost £3, that's 141,000% interest, if you compound it. Yet most people would say, "Buy me a pint and £20, is a pretty reasonable deal." Interest rates are a blunt tool. I'm more concerned about 8% secured loans over 25 years at a variable rate which then get increased up to 15%, 16%, which no interest rate cap would touch, than I am over 2,300% payday loans, where you pay back after one week. The problem with payday loans is they encourage you to keep borrowing, keep borrowing and it snowballs, not the interest rate, per se. So I'm not unsympathetic to the cap on interest rate argument, but I do worry that it is just too blunt a tool to have any real impact. I hope that makes sense.

John Thurso: Yes. Turning to the FOS, at the moment consumers pay nothing for the service, the charges fall on the industry and ultimately come back to the consumer generally. It has been suggested to us that there ought to be at least a small charge, in order to deter what was called the frivolous calls. What would your view be on that?

Mr Lewis: My view is that if you want to deter frivolous calls, you stop the banks rejecting people who have good cases in the first place. Until the banks stop doing that, they should absolutely—I can't swear in here, but they should get lost. That suggestion is deeply offensive. I encourage people to make so-called frivolous calls on the Ombudsman, because they are only frivolous because the banks pretend they are not valid—81% of people rejected by banks for PPI, then win at the Ombudsman. The banks would say they're frivolous; it's the banks being frivolous, and until they get their house in order, they need to bloody pay for it. First of all, the eight-week rule needs to go, making people wait eight weeks. I have stats that show 40% of people who complain to banks don't get a final letter that triggers allowing you to go to the Ombudsman. That's the Ombudsman's own stats on investigations. The system is being abused by banks. It's free and it needs to stay free, because we're talking some of the—if you're making a financial hardship claim, and you claim you've been mistreated in financial hardship, to have something that deters you by putting a cost barrier in place, is absolutely, morally wrong.

  There is a real disjoint here and finding these figures is very difficult, so please, I apologise if I have them wrong. I would love you to find out what the real answer is, because we've tried. Our researcher who did it is in here and he spent a day and a half and we couldn't work it out. 1.6 million financial complaints in a six-month period: half of them are dealt with by the banks, 800,000 aren't dealt with, 80,000 people go to the Ombudsman. That's wrong. Only 10% of people are getting to the Ombudsman on the complaints. Those stats may be wrong, because they're very difficult to work out, but it's certainly a very low proportion.

  What we know is the banks' policy of attrition works. Any barriers put in place to deter claims we should not have. We need to encourage. We need to resource the Ombudsman, encourage it, and as I say, it needs some form of proactive power. The Ombudsman is the best institution of state in a position to spot systemic problems. It is in the right position, because customers know when they're being diddled and they complain and the Ombudsman sees it. The fact that the Ombudsman cannot do anything on a wider scale, on a group scale, it can only be reactive and not proactive, I think is one of the problems in the current system.

John Thurso: That was going to be my next question. In this mix of change, what would you recommend, bearing in mind of course—and they made this point to us very strongly—that they don't want to be a consumer champion because that detracts from their ability to be an independent adjudicator. So within the role of independent adjudicator, what should we be looking at for them?

  Mr Lewis: We currently have a flagging system where they can flag to the FSA issues, but I haven't seen any evidence of that bearing fruit at all. I don't believe it is taken seriously or a priority. On bank charges, regardless of what happened in the Supreme Court, it was two and a half years and 6.5 million template letters before anything was done. Now, 6.5 million is a very big number. A large proportion of society was doing it before any form of institution of state dealt with the issue. They were going through the Ombudsman, as PPI are going through the Ombudsman now, scores and scores of cases, even though there's a claim being put on hold. There is a disjoint. It seems quite obvious to me that the things that people are complaining about are winning and are doing it en masse. You can probably assume that for everybody who complains there are about 10 people who don't complain and who are being dealt with in the same way. It's a very simple system of spotting systemic abuse, but the fact that nothing is done—

John Thurso: So it would be a duty on them. If they spot something that is defined as systemic, the duty would be for them proactively to take action?

  Mr Lewis: There needs to be a duty on someone else to deal with it and deal with it quickly, because the problem with regulation is it is so slow. When peoples' finances are in trouble they can deteriorate within a matter of months. The number of suicidal e-mails I'm receiving from people in bad debt at the moment is horrendous. It is absolutely horrendous. Often when you read it, it has been three months, everything has just gone. It's that dire strait of desperation where people get themselves in trouble.

  There is a nine-month queue for PPI claims at the moment—because of resource issues and because people like me have been pushing it very heavily—which is too slow. The Ombudsman does not have the resources and is trying to do other things at the same time. The point is all these cases are the same; they're the same case. They are all resolved in the consumers' favour. I'm not a financial regulator, but why can't someone say, "Look, we have 81% of these cases. These cases are similar to the 4,000 we've had before. Every case you get like this, Mr Bank, instead of rejecting it, deal with it"? Someone needs to be able to say that.

  The eight-week wait and the fact that if I send a letter today and I send an identical letter from someone in an identical situation in eight weeks' time, and this first letter has been adjudicated by the Ombudsman in the consumer's favour, the bank will still reject the second letter even if it is identical, in an identical circumstance, can't be right.

  John Thurso: Thank you very much.


 Mr Mudie: I am a great admirer of your websites and I send my constituents to you when they raise problems. But I think today it's more important you tell us what you think we should do. The Chairman started off with the first question, "Should the regulator be a consumer champion?" I would answer in this way, that I have not seen any of the regulators being consumer champions in the past few years, not only in finance, but in water, in energy and air traffic, it has always been on the margin. Do you think a regulator can be a consumer champion?

  You keep saying, Martin, "I don't know how to get things put right" and it comes back to us. You are representing consumers. We should be responding to genuine difficulties that you cannot solve, that they cannot solve and they're suffering from. It comes back to Government. At the moment, it's the regulators. We pass it to the regulators and the regulators, as I say, have it on the margin. Do you think we can carry on with regulators being seen as the consumer champions?

  Mr Lewis: It's a very interesting point. I'm always careful to say I don't represent consumers, because I haven't been elected by anybody. I can only talk from my own opinion—

  Mr Mudie: You are articulate.

  Mr Lewis: I hope so, but there are many who will disagree with me. I deliberately hedged when you asked me the question in the first place, because what I certainly don't want to see is a pro-consumer remit taken away. I think it's very important that the CPMA has a pro-consumer remit.

  Mr Mudie: No, but let me just—

  Mr Lewis: You're right, I don't believe it can be a champion, no.

Mr Mudie: When the Governor of the Bank of England came here on the first hearing, I thought I was pretty marginal myself, because I asked about the position of the CPA and where it was and how it was positioned with the Markets Authority, why it wasn't separate. But the further the discussions have gone on, when you consider what's happening to consumer protection or consumer interests in the last few weeks and months, you see, we could be arguing about a finance consumer champion, but there are consumer champions needed across all government.

Mr Lewis: Absolutely.

Mr Mudie: I watched what happened to women in the last Government in terms of there being a Women's Minister in the Cabinet Office, with the ear of the Prime Minister, which means that all Departments pay attention if they raise a problem and all pieces of legislation are viewed through the eyes of how this affects women. Do you not think there is a very strong case for a consumer Minister in the Cabinet who is the champion and we don't have this fielding it off to regulators in the separate Departments, where some are better than others, but they're all bloody bad?

Mr Lewis: If you forgive me being cheeky, would they be able to get anything done either? The problem is legislation and getting legislation through is even more tricky than getting—the reason I say regulation is that at least regulation can be monitored.

  Mr Mudie: No, no, don't be negative. Come on, don't be negative. This is your chance to tell us how you think we could play a better role than we have. Now, come on, you have to come off the fence and tell us.

  Mr Lewis: I think you need both, is the honest answer. I think you need a strong consumer minister there to represent consumers with a very defined role that says they don't have to give a high jot what business thinks.   Business is very important; I'm not an enemy of business in any way, but business often has the ear of the Government. I think there should be someone with a role who is very specific, who is deliberately polemic, deliberately on the side of the consumers, who, if someone says to them, "Come on, it might cut the profits and we need to make sure our big businesses are okay," will say, "Well, you know what, talk to someone else. It's not my job, you can argue that with the other people. I'm here to represent consumers."

  But the same goes to the regulator as well because there are many things; regulation should be able to be done more quickly than legislation. I think it should work that way. I will give you my litmus test as to whether the CPMA would work. This is the question we can never answer because it's past. When we had bank charges and when the banks had paid back £1 billion and had continually paid out, and a test case went to the court between the OFT and the banks, the FSA decided to put bank charge reclaiming on hold, but it did not put on hold the charging of bank charges. For me, that was a biased decision that favoured the banks against the consumers.

  The banks had paid back £1 billion. That reason is pretty decent evidence that they were pretty scared. They lost in two courts and it was only on a technicality in the Supreme Court that it was overturned. It was a very painful day. But my perspective on that is why was the hold put on reclaiming if a hold wasn't put on charging? How is that fair to consumers? How is that balanced? If the CPMA is a real consumer champion, it would have said, "You can't do this, if you're going to put a hold on and stop consumers getting their money back." Even after we'd won in the High Court, even after we'd won in the Court of Appeal, the hold on reclaiming was still on, but banks were still allowed to charge. That was just a nonsense decision. A real regulator, CPMA, pro-consumer regulator, in my perspective, would have put that hold on both. That is a good litmus test to how we go. Even though it lost in the end, it's a good litmus test for fair treatment on both sides. But I think the worry about the economic impact of damaging business is seen as a much stronger worry than damaging consumer interests.

Chair: You have given us some very interesting and entertaining evidence. There are many people who have cause to be grateful for a lot of the work you do. I want to end by asking who regulates you?

  Mr Lewis: Nobody. In that my website has a very minor impact because we tell people to go to comparison sites, it has to be a regulated introducer, so I have FSA status for that, but I am a journalist, and we are not regulated. I could either say, "No one," or I could also answer, "The same people as those who regulate you, sir," which is the general public and my users who would leave me, ditch me and not trust me if I got it wrong. We do get it wrong on occasions. But when we get it wrong, we get it wrong for the right reasons, not the wrong reasons. I am a financial journalist and regulation of the media is an interesting one.

  I go back to what I said earlier. Someone spent a lot of money setting up Moneymadeclear. You know what, if they had come to us and said, "We want you to do this, this and this and we'll give you a stamp," I would have been regulated and you would have saved the Government a lot of money.

Chair: You did, for example, recommend Kaupthing Edge just before it went under, only days I think before it went under, as the lead account.

  Mr Lewis: Kaupthing Edge didn't go under. Kaupthing Edge was transferred to ING Direct. A better example would be Icesave. What we said with Icesave was the protection system is £35,000 per person the first £18,000 under the passport scheme, which should be scrapped, is regulated by the Icelandic Government. The Icelandic Government has told us it would be safe. When I interviewed Yvette Cooper, the Minister on this, which was not shown in the TV programme months before, and asked about the system, I was told that whatever happened it would be safe and that money would be safe.

  What I said to people, what I still say to people now, is we cannot judge company solvency and we will not look at company solvency. But what we will do is where there is a protection anomaly, we will tell you about it. I was the voice shouting for years before that, for a year after Northern Rock, "Spread your savings. Don't put more than £35,000 in any one account." So yes, we go on best products because I am certainly not qualified to look at company solvency and would never dream of doing so, but we do try, where we can, to tell people how they are protected. But did you know that the Icelandic Government wasn't going to pay up, because that was the only thing that we had slightly wrong. Thankfully, the British Government kept up with its promise and did. Yes, as I say, we make mistakes and I wish I couldn't, but we do sometimes, but we make them for the right reasons.

 Chair: You are offering IFA-like advice though in many ways, aren't you?

  Mr Lewis: No, no, not on regulated products, no. We are a website. First of all, we don't ever deal with individuals.[1] We are a website offering articles based on what we believe are products, pros and cons to those products to allow consumers to make a choice. IFAs give specific advice based on personal circumstance. We allow people to come and read and tell them the pros and cons to make their own decisions and no more than The Guardian money website section or Sunday Times money section do. Hopefully, we think we do it very well and we are more prescriptive.

  Just to flick that back at you, we are about to give generic money advice and are setting that up through CFEB. The problem we have is that generic money advice is generic. Nobody has ever asked me, "How do I get a cheap loan?" What people ask me is, "What's the cheapest loan?" No one has ever asked me, "How do I get a cheap credit card?" They ask me, "What's the cheapest credit card?" Now, I do all my couching because I'm scared, because of all the reasons you have just said, of giving the wrong answer. Even if I've done my research, I'm not perfect. We do it to the best of our ability. Generic money advice won't work because it's generic. Regulations penalise people for doing the right thing and trying to help. I will flick this back to you, I would be happy to be regulated if it gave me some protection to give the right answers to people.

  Chair: I think it is important you should have an opportunity to put these points on the record.

  Mr Lewis: Yes, thank you. I'm not having a go.

Chair: Who pays you?

Mr Lewis: We won't take adverts on the site, because I don't believe anyone should be able to pay to be on the site. What we do is we have a Chinese wall between our editorial team and the two-man commercial team. Obviously, I get paid by broadcasters and for newspaper columns, but I presume you're talking about the website. We write our articles to the best of our ability, we work out what the best products are when there are products, and a lot of our articles do not have products. And then we go to the commercial money websites, like your Moneysupermarket or your uSwitch, and we take their links. If they have a link through to a card or a product, we use their link and we get a split of the revenue there. But if we can't get a link that pays, then the best product is still the best product, and it just doesn't pay. My only possible way of impacting traffic, and we do do this, and I say this on the website, is we won't direct traffic to products, but we can direct traffic to articles that happen to more remunerative at the time. So if the top savings article has a decent affiliate linked in at the time, we can direct people to top savings more at that moment. But if people want to know top savings at a time when it does not have affiliates in, they can just go to that page themselves. That is the commercial tool. I have 32 staff to pay.

  Chair: Thank you very much, Martin Lewis, for coming along. We have enjoyed the evidence you have given us this morning.

Mr Lewis: A pleasure, thank you.

  Chair: We will take a three-minute break.

1   Note by witness: IFAs look at giving individuals specific bespoke advice on regulated products and investments. Yet our prime subject areas are the things where there's no advice available - it splits into three categories - first there's guides on debts, savings, bank accounts, utility bills, then we've a deals section for cheap consumer products and discounts, and finally we have a financial justice section for reclaiming issues, consumer rights, and personal financial advocacy. It's important to understand we are a website. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2011
Prepared 3 February 2011