Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Kingsland: We support this amendment and hope that the Government will also do so. In that context, I was particularly struck by the words of the Minister in response to Amendment No. 47 earlier today. I sought then to say that the FSA would find it very difficult to prevent financial crime, but the Minister was not prepared to accept that. If the noble Lord thinks that the FSA can prevent financial crime, he surely must think it well within its grasp to facilitate, as far as possible, access to financial services for disadvantaged consumers.

Lord McIntosh of Haringey: Before I discuss my noble friend's amendment I wish to say a few words about the home service insurance business, to which she referred. The Government have announced that the industrial assurance Acts, which have always been so burdensome and have regulated home service insurance business, will be repealed. The business will be regulated under the Bill. This has been welcomed by the insurance industry. We are also taking steps to help credit unions and friendly societies to conduct their business more effectively. We recognise the importance of the role they play in helping the financially excluded.

Amendment No. 51 would introduce into Clause 2 a requirement that the FSA has regard to the desirability of facilitating access to financial services

20 Mar 2000 : Column 30

for disadvantaged consumers. That would move the FSA towards trying to tackle financial exclusion. This is an issue that has come up before and it has been considered carefully and seriously, both by the Government and by those who have scrutinised the Bill in Parliament.

When the Joint Committee published its first report its conclusion was that, if the Government wished to impose social and ethical obligations on financial services businesses, they should do so directly rather than via the FSA. The Government agree with that conclusion. The Joint Committee stated at paragraph 62 of its first report that additional duties,

    "would make life unnecessarily difficult for a regulator responsible for prudential supervision, and would damage lines of accountability. If the Government wishes to impose social or ethical obligations on financial services business, it should do so directly".

Of course this is a matter of serious concern. My noble friend raises an important point. However, I do not believe that this is something which should be tackled through the Bill. Adding in the requirement proposed in the amendment would distract from the FSA's core role as a financial regulator, cutting across its main objectives. If we are to maintain clarity as to duties and lines of accountability, and allow the FSA to act effectively as a regulator, it is important that we should be clear in the objectives that we are setting.

In any case, the terms of the consumer protection and public awareness objectives are relevant to tackling financial exclusion. The objectives do not exclude disadvantaged consumers; they are applied to all consumers. For example, the appropriate level of protection will depend on the nature of the consumer and of the product and will affect our proposals for the deregulation of business carried on by a number of mutual societies. They will enable those societies to provide services which they are not able to provide at present.

I turn to Amendment No. 61. Clause 5 expands on what is meant by the FSA's regulatory objective of protecting consumers. It deals with the protection appropriate to different types of consumers. There will, of course, be wide experience and expertise across society as a whole. Therefore the needs of consumers for advice and information will differ, and their particular circumstances will be one factor in that equation.

But this clause already requires the FSA to have regard to that spectrum of needs. Adding a paragraph requiring that the interests of particular social groups should be taken into account would at best muddy the waters and at worst lead to an unfair focus on the needs of particular groups, possibly at the expense of the needs of consumers in other groups. I do not want to be too particular because obviously the noble Lord could have produced a whole range of disadvantaged consumers. However, I suggest that his list would place particular importance on the needs of, let us say, an experienced financial adviser who is retiring to the countryside--two of the criteria on the noble Lord's list would apply to such a person--but would exclude people who were, for example, poorly educated, or

20 Mar 2000 : Column 31

particularly inexperienced in financial matters, or who belonged to ethnic minorities, or had language difficulties, and many others. If one includes such a list, one immediately gets into all kinds of difficulties.

It is essential that the FSA, in seeking to secure the appropriate degree of protection for consumers, takes account of the various needs of all consumers, whatever the origin of those needs. Clause 5(2) currently embraces all consumers, including those consumers who might fall into one of the groups referred to in the amendment.

I appreciate that Amendment No. 51 has gained support from all sides of the Chamber. I can only repeat my sympathy with its objectives. However, it would not be an appropriate measure for a regulatory body concerned with prudential supervision. I hope that my noble friend will treat it as a probing amendment.

Lord Fraser of Carmyllie: Before the noble Baroness decides whether or not to withdraw the amendment, I wish to ask the Minister a question. He has advanced a clear and coherent argument as to why this measure should not be imposed on a financial services regulator. At the present time the Utilities Bill is progressing through another place. I understand that the Government intend to impose certain social and ethical duties on utilities regulators which would cover disadvantaged customers. If that is an appropriate course to follow in the case of gas, electricity or water, I am baffled as to why that should not apply also to financial services.

Lord McIntosh of Haringey: After many years in this Chamber I have learned never to look at Commons Bills until they have finished their passage through the Commons. In that way I concentrate only on the final version rather than on a version which may be before another place at any particular time. The Utilities Bill is a particularly good example of that philosophy. I would have wasted my time had I spent days mugging up on the telecommunications and water parts of the Utilities Bill. There are differences as between financial services, utilities and postal services, which have been referred to. I can best illustrate that point by referring to what happened this morning. We take seriously the needs of disadvantaged consumers of banks. That is why we have referred the relevant aspects of the Cruickshank report to the Competition Commission. We do not intend to do nothing, but we think that such action is not appropriate for this Bill.

Baroness Turner of Camden: I thank my noble friend for that response. I described the amendment as a probing amendment. I wrote it and I was not absolutely certain whether it was technically correct. I hoped that if I spoke to it my noble friend might agree to consider it and bring back a government amendment along the same lines on Report. Unfortunately, my noble friend has not said that. However, he has commented helpfully on home service insurance and on credit unions, for which I thank him.

20 Mar 2000 : Column 32

Nevertheless, I still feel that there is, or should be, a responsibility on the FSA to take some account of the socially disadvantaged, mainly because, as I said when I moved the amendment, the Government expect the financial services industry to play a social role and to provide services for people who many years ago may have looked to the state to provide those services. In other words, the financial services industry is expected to fill the gap, as it were, that is left by the withdrawal of the state from a number of welfare services.

I do not intend to seek the view of the Committee on the amendment this afternoon. I shall consider what has been said. The issue is sufficiently important to return to it on Report, having considered what my noble friend has said and having considered the contributions that those on all sides of the Chamber have made. I thank those who have contributed to the debate. I am grateful for the level of support that has been evidenced this afternoon. I hope that it will have convinced my noble friend that the Government should reconsider this matter before Report. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.30 p.m.

[Amendment No. 52 not moved.]

Clause 2, as amended, agreed to.

Clause 3 [Market confidence]:

[Amendments Nos. 53 to 57 not moved.]

Clause 3 agreed to.

Clause 4 [Public awareness]:

[Amendment No. 58 not moved.]

Clause 4 agreed to.

Clause 5 [The protection of consumers]:

Lord Borrie moved Amendment No. 59:

    Page 3, line 14, after ("take") insert ("reasonable").

The noble Lord said: At Second Reading I ventured to quote from the late Professor Gower, a sometime professor of commercial law at the London School of Economics who conducted the one-man inquiry on behalf of the previous government prior to the Financial Services Act 1986. He said that legislation should not try to protect consumers from their own folly but should properly seek to protect them from being made fools of.

Consumer protection is one of the Bill's four regulatory objectives. It is amplified in Clause 5 to mean:

    "securing the appropriate degree of protection for consumers".

In considering what degree of protection may be appropriate, the authority must have regard to a number of items, three of which I have no objection to at all; I think they are eminently reasonable. It should have regard to:

    "(a) the differing degrees of risk involved in different kinds of investment;

    (b) the differing degrees of experience and expertise that different consumers may have;

20 Mar 2000 : Column 33

    (c) the needs that consumers may have for advice and accurate information".

have no quarrel with any of those. But then paragraph (d) states that the authority should have regard to:

    "the general principle that consumers should take responsibility for their decisions".

I am not happy with that because, even allowing for the factors in paragraphs (a), (b) and (c) which I have just quoted, it seems to amount to a very crude exemplification of caveat emptor, which for the ordinary non-business consumer is quite wrong. It is inappropriate when one considers the normal imbalance between the degree of knowledge, skill and expertise typically available on the part of the provider of the financial services compared to the relative inexperience and non-expertise of the ordinary consumer.

As long ago as the 19th century, the common law recognised that in selling goods, even to business consumers and traders, the crude rule of caveat emptor was modified by a condition that the goods be reasonably fit for their purpose and be "merchantable", a word which is out of date and is now translated in modern language as "of reasonable quality". In more recent years in the 20th century, any contractual clause seeking to exclude such a condition that goods be reasonably fit for their purpose and of reasonable quality has been rendered void in the case of ordinary consumers and is subject to a test of reasonableness in the case of business consumers.

In regard to the requirement that the consumer takes responsibility when buying financial services, my amendment seeks to qualify the consumer's responsibility for his or her decision to buy a financial product by requiring the authority to have regard to whether in any particular case it is reasonable for the consumer to take responsibility for his or her decision. If the product is not reasonably fit or suitable for the consumer's purpose, where the provider has completed a so-called "fact find"--as he normally has to do nowadays--and therefore knows all about the consumer's circumstances, it would not be reasonable for the consumer to take the full, unqualified responsibility and to have no come back on the provider. Financial products are very often more important than ordinary consumer goods; they are normally less frequently purchased than ordinary consumer goods, and it is odd that the consumer should have so much less protection.

The Minister will be aware that the annual report for 1999 of the Financial Services Consumer Panel recommended a complete deletion of this part of Clause 5 of the Bill; it recommended the deletion of the so-called general principle that consumers should take responsibility for their decisions. I do not want to quote all of the report, just one sentence. The consumer panel said:

    "Caveat emptor (let the buyer beware) already exists as a general principle in contract law and we believe that its unnecessary insertion in the Bill could be interpreted as demanding a further degree of consumer responsibility--an ambiguity that leaves the door open for mischievous legal challenges to the FSA's consumer protection activities".

20 Mar 2000 : Column 34

My amendment does not go so far as the Financial Services Consumer Panel in wanting to delete the provision altogether. I do not deny that the consumer should have a responsibility for his or her decision; I am simply saying that the word "reasonable" should be inserted. Surely the Minister must feel bound to accept the amendment. I beg to move.

Next Section Back to Table of Contents Lords Hansard Home Page