BRIEFING PAPER Number 8033, 15 August 2018 Financial Claims and By Djuna Thurley, Timothy Edmonds, Daniel Guidance Bill 2017-19- Harari and Richard Keen debates in Parliament
Contents: 1. Part 1 – Background 2. The Bill: overview 3. Part 1 – financial guidance 4. The Bill: part 2 – Claims Management Services 5. Appendix 1 – Brady Review of CMC regulation 6. Appendix 2 – guidance and advice 7. Appendix 3 –Debt Arrangement Schemes in Scotland
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www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Contents
Summary 3 1. Part 1 – Background 5 1.1 Statistics on personal debt and savings 5 1.2 Pensions statistics 12 1.3 The current financial guidance bodies 15 1.4 Plans for a single body 22 1.5 Claims Management Companies 24 2. The Bill: overview 30 2.1 Overview 30 2.2 Second Reading - Lords 32 2.3 Second Reading – Commons 35 3. Part 1 – financial guidance 40 3.1 Establishment of the single financial guidance body 40 3.2 Objectives 41 3.3 Functions 44 3.4 Pensions guidance function 51 3.5 Delegation to delivery partners 52 3.6 Debt respite scheme 53 3.7 Guidance and directions 57 3.8 Setting standards 57 3.9 Monitoring and enforcement of standards 58 3.10 Funding of the SFGB 58 3.11 False claims about the provision of information 59 3.12 Requirements on pension schemes to recommend guidance 60 3.13 Pensions cold-calling 66 3.14 Minor and consequential amendments 69 3.15 Power to dissolve the SFGB 70 3.16 Interpretation (sponsor department) 70 4. The Bill: part 2 – Claims Management Services 73 4.1 Transfer to FCA of regulation of claims management services 73 4.2 Power to restrict claims management charges 76 4.3 PPI claims and charges for claims management services: general 78 4.4 Legal services regulators’ rules: charges for claims management services 80 4.5 Cold calling about claims management services 81 4.6 Extent 82 4.7 Commencement 83 5. Appendix 1 – Brady Review of CMC regulation 84 6. Appendix 2 – guidance and advice 86 Regulated financial advice 86 7. Appendix 3 –Debt Arrangement Schemes in Scotland 88 3 Commons Library Briefing, 15 August 2018
Summary
The Financial Claims and Guidance Bill [HL] 2017-19 was introduced in the House of Lords on 22 June 2017 and completed its passage though that House on 21 November 2017. It was introduced to the House of Commons on 22 November 2017 as Bill 131 and had its Second Reading on 22 January 2018. The Commons Committee had three sittings and ended on 6 February 2018. Report Stage and Third Reading were on 12 March and 24 April 2018. The Financial Guidance and Claims Act 2018 received Royal Assent on 10 May 2018. The Act has two parts: • Part 1 merged three existing government-sponsored guidance services - the Money Advice Service, the Pensions Advisory Service and Pension Wise - to create a new Single Financial Guidance Body (SFGB). This is to help “ensure that members of the public can access good-quality, free-to-client, impartial financial guidance and debt advice.” The provisions follow three government consultations. The SFGB is expected to be set up and operational from January 2019. (HL Deb 24 July 2018 c1601). • Part 2 made changes to the regulation of claims management companies (CMCs). CMCs provide advice and services to assist people in making compensation claims in various sectors, such as personal injury and financial products. The Government had expressed concern that “there is evidence of malpractice” in the industry. In March 2016, following an independent review, the Government said it would change the regulatory system for CMCs. Under the Act, regulatory responsibility passes from the Ministry of Justice to the Financial Conduct Authority (FCA). • Also in Part 2, complaints handling is transferred from the Legal Ombudsman to the Financial Ombudsman Service. The FCA is given the power to impose a cap on the fees that CMCs can charge for their services. Ahead of this, an interim cap on fees would apply to PPI claims.
House of Lords stages The Bill was amended in the House of the Lords. Most of the amendments were to Part 1. These included opposition amendments to enable the Secretary of State to introduce a ban on pension cold-calling and to increase take up of Pension Wise. Both were replaced with government amendments with the same aim. The Government amended the Bill at Third Reading to enable the introduction of a ‘debt respite scheme’ in England, Wales and/or Northern Ireland. This would be designed to protect individuals in debt from further interest, charges and enforcement action for a set period and enable a realistic repayment plan to be put in place. The issue had been raised previously by many Peers, who pointed to the experience of such arrangements in Scotland. Other government amendments to Part One were to:
• Make it explicit that the SFGB should target those ‘most in need’, particularly those in vulnerable circumstances (s2 (1) (d)); • Make it clear that public financial guidance is free and impartial (s3);
Authors Djuna Thurley (financial guidance); Timothy Edmonds (claims management companies); Daniel Harari (debt and savings statistics); Richard Keen (pension statistics); Abigail Bremner, SPICe, Scottish Parliament; Lorraine Conway (debt respite scheme).
Cover page image copyright - perzonseo.com – businesswoman working at laptop in office 4 Financial Claims and Guidance Bill 2017-19- debates in Parliament
• Make it a specific offence for someone to create the impression that they are providing information, guidance or advice on behalf of the SFGB when they are not (s15 and 16); and • Ensure there is a public consultation before the Government can lay draft regulations to dissolve the SFGB (s24). Government amendments to Part 2 enable the introduction of an interim fee cap in relation to PPI claims and provide for FCA regulation of CMCs to extend to Scotland.
House of Commons stages The main changes to the Bill at Commons Committee stage were government amendments to: • Require pension schemes to recommend guidance (s18 and 19); and • Provide for a ban on cold calling for claims management services (s35). Report stage amendments Government amendments at Commons Report Stage related to cold calling for pensions and other financial products (now s21 and 22) and to the take-up of pensions guidance (now s18 and19) – see sections 3.12 and 3.13 below. The Government made a statement on pensions cold calling on 12 July 2018 and launched a consultation on draft regulations on 20 July 2018. Once it has considered the responses, in the Autumn it intends to lay regulations under the affirmative procedure and, subject to parliamentary approval, bring the regulations into force as soon as possible thereafter.
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1. Part 1 – Background
The subject of personal finance encompasses many issues, many of which are often in the news and other media – like consumer affairs TV programmes. Some issues like financial education, capability and financial exclusion and inclusion have been looked at by policy makers over decades. The ease and availability of credit, over-lending and its attendant consequences of ‘problem debt’ found a renewed prominence when they were seen as both contributors to, and a result of, the financial crisis in 2008. There have been ongoing campaigns and concerns about the potential for consumer harm from particular forms of lending, such as payday loans. Further, the introduction of the ‘pension freedoms’ in April 2015 gave people more choice about when and how to access their pension savings, placing more responsibility on them for their decisions and raised questions about how well-equipped they are to make them. These matters are relevant to Part 1 of the Act, which creates the framework for a Single Financial Guidance Body (SFGB), ensuring that “people have access to the information and guidance they need to make the important and effective financial decisions that we all have to make at some point in our lives.”1 Part 2 focusses on claims management companies (CMCs) – a specific part of the consumer financial landscape which is seen to not be working well for consumers, particularly in respect of their remuneration as compared to the value of the service they provide.
1.1 Statistics on personal debt and savings What is personal debt? Personal debt2 is owed by individuals to banks or other financial institutions. It includes a wide range of borrowing, from mortgages to payday loans, car and other personal loans, credit card balances and bank account overdrafts. It can broadly be grouped into two categories: secured and unsecured. • Secured debt is a loan secured on an asset (the security for the loan). If the loan cannot be repaid, the lender will then be able to take possession of the asset. The most obvious example of secured lending is mortgages. In the UK, mortgages account for the clear majority of overall household debt. • Unsecured debt is lending provided to individuals that is not secured on an asset. Credit card lending and most forms of consumer credit lending are unsecured debt.
1 HL Deb 5 July 2017 c904 2 Personal debt is also often called household debt. In other words, debt that is owed by individuals rather than companies or the public sector. 6 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Trends in personal debt levels Statistics on the total stock of outstanding loans in the UK economy – the household debt level – are provided by the Office for National Statistics (ONS) and the Bank of England. The total level of household debt as at Q3 2017 in the UK is £1.9 trillion.3 As well as the level of debt it is important to consider its affordability. One way to do this is to compare debt levels with income levels.4 Total household debt in the UK rose sharply from the late 1990s up until the financial crisis in 2008. Debt as a proportion of household income rose from 93% in 1997 to 157% at its peak in early 2008 (the total amount of household debt went up from £600 billion to £1.6 trillion over this time). Between 2008/09 and late 2015, household debt-to-income ratio fell to 133%, as banks tightened lending standards and consumers repaid debts. However, household debt levels started to grow again in early 2016, leading the debt-to-income ratio to increase from 133% in Q4 2015 to 140% in Q2 2017:
Household debt, % of disposable income
200
150
100
50
0 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Sources: ONS, series NNPP (debt) and rolling 4-quarter total of QWND (income)
Since 2015, mortgage debt (around 80% of total debt) has been rising at a steady 3% per year. There has been more rapid growth in non- mortgage debt (excluding student loans, or consumer credit), which has increased by at least 10% per year since early 2016.5 Growth has slowed slightly since spring 2017, as the surge in car finance loans in recent years has eased a little.6
3 ONS, UK economic accounts, 29 September 2017, table 6.1.11 4 Other important factors that determine affordability are the interest rate and payment schedule of the loan. Even with high debt levels, low interest rates can make the monthly debt repayments – the debt service costs – more affordable. 5 Bank of England, Money and Credit statistical release, 29 November 2017 6 Most of this is via the increased prevalence of people leasing their cars via PCPs or Personal Contract Purchase plans. Bank of England, Financial Stability Report: November 2017, 29 November 2017, pp17, chart A.15
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Borrowing costs have fallen sharply in recent years The cost of borrowing for individuals has fallen sharply over the past decade. For instance, the interest rate on a personal loan of £10,000 fell from around 10% in 2010 to under 4% in 2017.7 Mortgage rates have also tumbled, with the interest rate on a typical two-year fixed rate mortgage with a loan-to-value ratio of 75%, falling from 4% in 2010 to 1.6% in 2017. However, as shown in the chart below, interest rates on overdrafts and credit card balances have been increasing gradually and remain much higher than the cost of new borrowing. For example, the average interest rate on credit cards rose from 16% in 2010 to 18% in 2017, while the rate on bank overdrafts rose from 19% in 2010 to 20%:
Interest rates on selected perosnal debt products since 2007 %
20 Bank overdraft
15 Credit card
£10k personal loan 10
5
2-year fixed rate mortgage* 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bank of England, Bankstats tables, G1.3 (monthly data to Nov. 2017); *75% LTV
How many people hold debt products? There are many forms of personal debt, ranging from mortgages to overdrafts on bank accounts, credit cards to student loans. Unsurprisingly, mortgages are the largest in terms of terms of amount owed. Around one-third of households have a mortgage. In terms of debt excluding mortgages (commonly referred to as consumer credit) around half (51%) of UK adults have used some form of it in the past 12 months.8 This figure excludes those – 29% of the adult population – who use credit products, chiefly credit cards, but pay them off in full every month (referred to as “transactors”).9 The table below shows the proportion of UK adults, broken down by age group, who currently hold and have held in the past 12 months various types of consumer credit products. Overall, those aged 25-44 are most likely to hold consumer credit, with 71% of 25-34-year olds doing so, compared with only 20% of those aged 65 and over.
7 Data in this section is to end November 2017 from Bank of England, Bankstats G1.3 Average quoted household interest rates [accessed 14 December 2017] 8 FCA, Understanding the financial lives of UK adults, October 2017, Appendix 1, p175 9 FCA, Understanding the financial lives of UK adults, October 2017, p107 8 Financial Claims and Guidance Bill 2017-19- debates in Parliament
UK adults who have consumer credit products Excludes mortgages and those who pay off balances, e.g. credit cards, in full every month ("transactors")
Number % of age group holding product of people % of UK (millions) adults 18-24 25-34 35-44 45-54 55-64 65+
Any credit/loan (excl. transactors) 26.3 51% 64% 71% 67% 57% 43% 20% Overdraft (i.e. overdrawn) 12.9 25% 29% 36% 38% 30% 19% 7% Credit card (excl. transactors) 9.6 19% 9% 27% 30% 25% 16% 6% Personal loan 6.3 12% 5% 17% 19% 17% 12% 5% Retail finance (excl. transactors) 5.9 12% 9% 14% 18% 14% 11% 5% Student Loans Company loan 5.8 11% 36% 30% 10% 3% 1% 0% Motor finance 5.1 10% 7% 13% 12% 12% 10% 5% Loan from friends or family 3.6 7% 12% 13% 11% 6% 3% 1% High‑cost loan 3.1 6% 6% 9% 9% 6% 5% 2%
Mortgages
Residential mortgage 15.7 31% 6% 36% 56% 54% 25% 6% Buy‑to‑let mortgage 1.5 3% 0% 2% 5% 5% 4% 1%
Notes: Includes those who have held debt products at any time in the past 12 months Retail finance' includes store cards, catalogue credit and other credit from retailers; 'High-cost loans' include payday loans, short-term instalment loans, pawnbroking and hire purchase (excluding cars) Source: FCA (2017), Understanding the financial lives of UK adults , Appendix 1 Looking at specific products, while only 9% of those aged 18-24 have a balance on a credit card, 30% of the 35-44 age group do. Of all adults, 7% say they have borrowed from friends and family, while 6% (3 million people) have taken out a high-cost loan (which includes payday loans).
Box 1: A note on sources of personal debt statistics Data collated by the Bank of England and Office for National Statistics from financial institutions are the preferred sources of data for overall household debt statistics in the whole economy. However, these do not provide breakdowns for different groups of people, nor do they give much detail on those who are struggling to keep up with debt payments. For these figures, we must rely on surveys of individuals. As a result, the estimates of how much debt people have, whether they can afford certain payments and so on is self-reported by survey respondents. We are thus reliant on the accuracy of these responses and people’s interpretation of the questions that are posed to them. The accuracy of the survey results will also be dependent on the sample of people surveyed and whether the final weighted estimates are representative of the population and those who are in debt. Most of the statistics in this section come from the Financial Conduct Authority’s Understanding the financial lives of UK adults – an extensive survey of nearly 13,000 individuals carried out in early 2017. Other surveys such as the Office for National Statistics’ Wealth and assets survey also provide some estimates of debt among households and their ability to repay debt.
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How much debt do people have? On average, UK adults have outstanding non-mortgage debt of £4,960 including student loans (£3,320 without).10 However, if one only looks at people with debt, the average debt held is £12,500 per person including student loans and £9,600 without.11 The table below provides these figures by age group. Average debt levels excluding student loans peaks in middle age, with an average debt of £11,500 per person among 45-54-year olds.
Average personal debt outstanding by age group £ per person, excludes mortgages and those without any personal debt
All 18-24 25-34 35-44 45-54 55-64 65+
Including student loans 12,500 17,400 14,100 11,000 11,600 10,700 7,900 Excluding student loans 9,600 5,200 8,900 10,200 11,500 10,600 7,900
Note: Figures are mean averages Source: FCA (2017), Understanding the financial lives of UK adults , main table 373 & 376 Student loans make a big difference to the figures among the younger age groups. Average debt among 18-24-year olds with debts rises from £5,200 excluding student loans, to £17,400 when they are. Average personal debt outstanding by age group £ per person, excludes mortgages and those without any personal debt
18,000 Incl. student loans Excl. student loans
15,000
12,000
9,000
6,000
3,000
0 18-24 25-34 35-44 45-54 55-64 65+ All
Source: FCA (2017), Understanding the financial lives of UK adults, main tables 373 & 376
Statistics on over-indebtedness One measure of over-indebtedness devised by the Money Advice Service is people who either: • find keeping up with bills and credit commitments a heavy burden; and/or
10 FCA, Understanding the financial lives of UK adults, October 2017, pp114-5 11 FCA, Understanding the financial lives of UK adults, October 2017, weighted main data tables 373 and 376
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• have missed payments to domestic bills or debt repayments in any three of the past six months.12 By this measure, it is estimated that 16% of the UK adult population (8.3 million people) were over-indebted in 2017. By country, over- indebtedness was 16% for England, Scotland and Northern Ireland, while for Wales it was 18%.13 Older age groups are less likely to be over-indebted: 4% of those aged 65 and over, compared to 17% of 18-24-year olds, peaking at 23% of 25-34-year olds.14 Proportion who are over-indebted by age group Haven't paid bills in 3 or more of past 6 months or find paying a heavy burden
25% 23% 21% 20% 17% 16% 15% 15% 11% 10%
5% 4%
0% 18-24 25-34 35-44 45-54 55-64 65+ All
Source: FCA (2017), Understanding the financial lives of UK adults, main table 119
Of those who are already having difficulty making payments, an October 2017 survey by the FCA found that 8% of the UK adult population (4.1 million people) had not paid bills or debt repayments in at least three of the previous six months. The figure is higher for those unemployed (24%), compared to 8% of those in work.15 Older people are also less likely to miss payments: 1% of those aged 65 and over, compared to 11% of 18-24-year olds and peaking at 13% of 25-34-year olds.16
12 Money Advice Service, Over indebtedness in the UK 2017, September 2017 13 Characteristics of people more likely to meet this definition were found from a survey and then applied to a model built by data company CACI to estimate the number of over-indebted people by area and in the UK as a whole. 2017 estimates for local authorities are available from the Money Advice Service report Over indebtedness in the UK 2017 - statistics. Data for parliamentary constituencies are published for 2016 and available from MAS here. See also FCA, Understanding the financial lives of UK adults, October 2017, pp139-40, which came to a similar conclusion 14 Ibid, pp140-42 15 Ibid, weighted data table 82 16 FCA, Understanding the financial lives of UK adults, October 2017, pp140-42 11 Commons Library Briefing, 15 August 2018
Proportion who have missed bill payments by age group Have not paid bills in 3 or more of past 6 months
15% 13% 11% 11%
10% 9% 8%
5% 5%
1%
0% 18-24 25-34 35-44 45-54 55-64 65+ All Source: FCA (2017), Understanding the financial lives of UK adults, main table 82 Prevalence of low savings Having some level of savings can help protect individuals from unexpected shocks to their income (such as losing their job). Savings can make it easier to meet existing debt repayments and avoiding taking on additional credit, potentially with high costs.17
According to the FCA’s 2017 survey, approximately 13% (6.5 million people) of UK adults have no savings at all.18 A further 24%, or 12 million people, said they had less than £1,000 in savings. Savings includes money held in bank and savings accounts, cash ISAs and NS&I products. Unsurprisingly, the proportion of those with no savings is higher among those with lower incomes. Of people with personal incomes below £15,000 per year, 18% had no savings, while 11% of those with an income £15,000 to £30,000 per year were in the same position.19 A third of those unemployed had no savings, much higher than the 13% for those in work. Only 5% of retired people had no savings.20 Several surveys ask people some variant of the question “if you had an unexpected bill of £x would you be able to pay it from your savings?”. For example, a 2015 survey found that 68% of people would be able to pay a £300 bill from savings without cutting back. This figure fell to 39% of those unemployed.21 A June 2016 YouGov/The Times survey found that 38% of people would struggle to pay an emergency expense of more than £500 using money in their current or savings accounts.22
17 Joseph Rowntree Foundation, UK Poverty 2017, 4 December 2017, p6 18 FCA, Understanding the financial lives of UK adults, October 2017, pp118-19 and weighted data table 327 19 Ibid 20 Ibid 21 Money Advice Service, Financial Capability in the UK 2015, pages 15 and 54 22 YouGov, "One in three middle class Brits would struggle to pay a £500 bill", 8 June 2016 12 Financial Claims and Guidance Bill 2017-19- debates in Parliament
1.2 Pensions statistics Types of pension Saving for retirement scheme
Membership of workplace pensions has risen with the phased A defined benefit introduction from October 2012 of requirements on employers to auto- (DB) pension scheme is one that promises enrol workers into a workplace pension: to pay pension Seventy-eight per cent of eligible employees (16.2 million people) benefits based on participate in a workplace pension (2016), up from 55 per cent of salary and length of eligible employees (10.7 million) in 2012 before the reforms were service. introduced. Participation rates were highest amongst the largest employers, those employees earning the most, older employees A defined and were slightly higher amongst women when compared to contribution (DC) men. However, the biggest increases in participation have been pension scheme is amongst younger people, those with lower earnings and those one which pays out a working for smaller employers.23 sum or sums based on the value at The Government’s 2017 review of auto-enrolment set out proposals to retirement of the build on success to date, including reducing the minimum age for auto- member’s fund enrolment, increasing the band of earnings on which contributions are (which will depend on paid, and measures to increase engagement.24 factors including the contributions made to There are 15.1 million UK adults who have not currently retired and are it, investment returns not paying into a pension. According to the FCA’s Financial Lives Survey and any charges). 2017 this comprises around 38% of total non-retired adults:
Types of pension held by non-retired adults, UK
100%
80% No pension scheme
60% DB only Both DB and DC 40% DC only
20%
0% 18-24 25-34 35-44 45-54 55+ All UK adults
Around two-fifths of all non-retired UK adults have a defined contribution (DC) pension only; one in twenty have both a defined DC and a defined benefit (DB) pension they have not yet accessed. Having a pension increases with age: around 49% of 18-34-year olds have a pension, compared to 77% of 45-54-year olds. The proportion of non-retired adults with pension savings that they have yet to access is
23 DWP, Automatic Enrolment Review 2017: Analytical Report, December 2017 24 DWP, Automatic enrolment review 2017: maintaining the momentum, Cm 9546, December 2017; Library Briefing Paper CBP-6417 Automatic enrolment – 2010 onwards (January 2018)
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lower among non-retired adults aged 55+. This is because around 36% of non-retired adults aged 55+ have already accessed a pension.25 Retirement outcomes Individuals in DC pension schemes build up a pension fund using contributions, investment returns and tax relief. Before 6 April 2015, most people used their DC pension funds to purchase an annuity. The Coalition Government legislated in the Taxation of Pensions Act 2014 to give people aged 55 and over more flexibility about when and how they could use their DC pension saving, subject to their marginal rate of income tax in that year. This gave people more responsibility for the choices they made, raising concerns about how well equipped they are to make them. Before the pension freedoms, annuities were the most widely purchased product using savings from a DC pension scheme. In 2013, 90% of consumers purchased an annuity, 5% a drawdown and a further 5% withdrew their savings in full. In July 2017, the interim report of the FCA’s Retirement outcomes review found that pension freedoms had “fundamentally changed when and how consumers access their DC pension pots.” It found: • Consumers were accessing their savings early, often before retirement; • The most popular option had been to fully withdraw the pot; • Drawdown had become much more popular than annuities. 26 The FCA’s Financial Lives Survey 2017 report also showed the rise in popularity of accessing a DC pension before retirement. However, the report highlighted that “many who have already started to take an income from their DC pension are quite confused about what they have done” (i.e. whether they had taken an annuity, income drawdown or a cash lump).27 Eighteen per cent who had accessed their DC pension within the last two years, said they were not sure how:
25 Financial Conduct Authority; Financial Lives Survey 2017; pages 125-126 26 Financial Conduct Authority; Retirement outcomes review – interim report (July 2017); page 45 27 Financial Conduct Authority; Financial Lives Survey 2017; pages 88 14 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Decisions made by 55-64 year olds who have accessed their DC pension All who have Accessed their accessed their pension in the last pension two years Annuity 30% 19% Income drawdown 17% 23% UFPLS 10% 15% Total encashment 16% 28% Not sure 23% 18% None of these 10% 0%
Source Table 6.4 FCA Financial Lives Survey 2017
The FCA expressed concern that consumers do not always take advantage of the help and guidance on offer from either Pension Wise or their provider and it reviewed the effectiveness of measures to make use of the free guidance available from Pension Wise, The Pensions Advisory Service (TPAS) and their successor body.28 In the 2017 Survey, around 7% of all 55-64-year olds had used the Pension Wise service in the last 12 months and 13% of 55-64-year olds with a DC pension and planning to retire in the next two years had done so. Seventeen per cent of those planning to retire in the next two years had taken advice from TPAS; 17% advice from a money advice website; 17% from the media or newspaper and 23% from literature from a bank or pension provider. The most popular information sources were consumer/Government websites and services, such as the Money Advice Service, GOV.UK and Citizens Advice. In total, 36% of 55-64 years olds had accessed information or guidance; this included 48% of those who were planning to retire in the next two years and 54% of those planning to retire within two years with a DC pension.29
28 FCA, Retirement outcomes review interim report, MS 16/1.2, para 1.52 29 Financial Conduct Authority; Financial Lives Survey 2017; Table 6.5 15 Commons Library Briefing, 15 August 2018
Sources of information used by 55-64 year olds with a DC pension and planning to retire in the next two years
Workplace information
Pension Wise
The Pensions Advisory Service
Money advice websites
Media/newspapers
Literature from a bank or pension provider
Other government servicves
Any information
0% 20% 40% 60%
The final report of the Retirement Outcomes Review found that: • there are weak competitive pressures and low levels of switching. Most consumers choose the 'path of least resistance', accepting drawdown from their current pension provider without shopping around • one in three consumers who have gone into drawdown recently are unaware of where their money was invested • some providers were ‘defaulting’ consumers into cash or cash-like assets, but holding cash is highly unlikely to be suited for someone planning to draw down their pot over a longer period. • consumers might pay too much in charges. We found that charges for non-advised consumers vary considerably from 0.4% to 1.6% between providers, and are, on average, higher than in accumulation (where in some cases they are capped at 0.75%) • drawdown charges can be complex, opaque and hard to compare • so far, we have not seen significant product innovation for mass-market consumers.
1.3 The current financial guidance bodies There are currently three public organisations delivering advice, information and guidance on pension issues: • The Money Advice Service (MAS) is responsible for financial capability and education and for co-ordinating the delivery of debt advice; • The Pensions Advisory Service (TPAS) provides information and guidance to members of the public on pension issues; • Pensions Wise provides guidance to people aged 50 and over with defined contribution (DC) pension savings on the options for drawing on those pensions.
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Money Advice Service (MAS)
Key facts Set up in 2010, the Money Advice Service (MAS) has objectives to: • enhance the understanding and knowledge of the public about financial matters; • enhance the public’s ability to manage their own financial affairs; and • co-ordinate and provide debt advice. (FMSA 2000, s3S) It provides the secretariat for the Financial Capability Board, a cross sector group responsible for monitoring and aiding the implementation of MAS’ 10 year Financial Capability Strategy. Work under this strategy falls into key themes, covering different stages of the life-cycle and looking at retirement planning and people in financial difficulties. MAS is funded by statutory levies on financial services firms regulated by the Financial Conduct Authority. The framework for co-operation between MAS and the FCA is set out in a Memorandum of Understanding.
The Financial Services and Markets Act 2000 gave the then financial regulator - the Financial Services Authority (FSA) - a ‘public awareness’ objective to promote public understanding of the financial system.30In 2008, the Labour Government commissioned Otto Thoresen to look at ways to improve consumers’ financial capability. He recommended setting up an independent body to deliver a public financial guidance function. Reasons for taking the function away from the FSA were: • Focus – an independent body would be able to focus on just one issue, whereas the FSA would be distracted by its main regulatory responsibilities • Perceived conflicts of interest – its statutory duties as a regulator may conflict with it also being a consumer champion. A clear need was identified for the provider of financial guidance to partner with the financial services industry.31 The Labour Government legislated for a Consumer Financial Education Body in 2010.32 In April 2011, this was rebranded the Money Advice Service (MAS) and given responsibility for the co-ordination and provision of debt advice.33 The legislative basis for MAS is the Financial Services and Markets Act 2000 (s3S and Sch 1A). Review of MAS In November 2013, the Treasury Select Committee said it was unconvinced that MAS had adopted the right strategy or performed the correct role. It recommended an independent review to look at issues like whether it should be a coordinator, commissioner or direct provider of advice and how it worked with other organisations.34 In December
30 s4 31 HM Treasury, Public financial guidance: consultation, October 2015 32 Financial Services Act 2010 ; Library Briefing Paper RP09-84 Financial Services Bill 2009-10 pp31-34 33 s2 and Sch 1 34 Treasury Select Committee, Money Advice Service, 7th report of 2013-14, HC 457, para 77
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2013, the National Audit Office found that MAS had achieved value for money in its provision of debt advice but not in generic money advice.35 In 2014, the Government commissioned an independent review.36 In March 2015, the Independent Review of the Money Advice Service conducted by Christine Farnish broadly endorsed its work. It said MAS was well-placed to increase the supply of debt advice and to drive improvements in provision through the Debt Advice Strategy Group. On financial capability, MAS should facilitate and co-ordinate the work of others, stepping in where there were gaps. It should do more to support financial education in schools and help make the unregulated information and generic advice sector work better.37
MAS provides the secretariat for the Financial Capability Board, which monitors the implementation of the Financial Capability Strategy for the UK.38 The strategy includes a section on people in financial difficulties. Co-ordinating work on this is the responsibility of the Debt Advice Steering Group (DASG), chaired by MAS and drawing its membership from the senior staff of the major advice sector and creditor organisations across the UK. In July 2017, MAS launched a consultation on a strategy for commissioning debt advice for the following five years, over which period its responsibilities would transfer to the single financial guidance body and the governments of Scotland, Wales and Northern Ireland.39 Following consultation in 2012-13, it published a quality framework designed to raise standards in the debt advice sector.40
35 NAO, Helping consumers to manage their money, HC 879, 5 December 2013 and this should have the HC number and proper publication date 36 Government agrees to independent review of MAS, Treasury Select Committee press release, March 2004 37 Review of the Money Advice Service, March 2015 38 MAS, Financial capability: strategy for the UK, October 2015 39 MAS, A strategic advice to debt advice commissioning – 2018-2023, July 2017 40 MAS, Achieving consistent and high qualify Debt Advice – An approach to Standards and Quality Assurance for the debt advice sector: consultation response, 2013 18 Financial Claims and Guidance Bill 2017-19- debates in Parliament
The Pensions Advisory Service (TPAS)
Key facts The Occupational Pensions Advisory Service (OPAS) was founded in 1983, as a charity funded by the pensions industry to give individuals access to independent and impartial help on their pensions. OPAS became The Pensions Advisory Service (TPAS) in 2004. TPAS provides information and guidance to members of the public on pension issues; and helps members of the public who have a problem, complaint or dispute with their occupational or private pension arrangements. TPAS is a company limited by guarantee and an executive non-departmental public body of DWP and receives grant-in-aid funding from the DWP for its core services. The funding is recovered through the general levy on pension schemes collected by The Pensions Regulator (TPR). The bulk of its casework is undertaken by volunteers. (DWP, Triennial Review of Pensions Bodies – Stage 1: Options for delivery, 2014). Since April 2015, TPAS has been delivering the Pension Wise telephony service, for which it receives a grant from HM Treasury (HM Treasury, Public financial guidance: consultation, October 2015; HL Bill 131-EN para 16)
TPAS provides public information and guidance on pension issues. It also helps members of the public who have a problem, complaint or dispute with their occupational or private pension arrangements. It is funded by grant-in-aid from DWP (£3,674,000 in 2016/17), the funding for which is recovered from the general levy on pension schemes.41 It was not a creation of government and does not have any statutory powers: 48. TPAS was founded as the Occupational Pensions Advisory Service in 1983 and is a company limited by guarantee. It changed its name to TPAS in 2004 and was first classified as an executive NDPB in 2006. Unlike most NDPBs, therefore, it is not a creation of government nor, strictly, is it within the power of government to abolish it or even change its nature. DWP strengthened its influence over TPAS in 2010 through a framework document which gave the Secretary of State the power to appoint the Chairman. Other board members and the chief executive are appointed subject to the approval of the Secretary of State. 49. TPAS does not have any statutory powers, though schemes are obliged to inform their members that TPAS exists as part of their internal dispute resolution process. This means that in relation to complaints or dispute handling it can only effect a resolution through persuasion and conciliation. Where that approach has not succeeded or is judged unlikely to succeed, TPAS may suggest that complainants take their case to the Pensions Ombudsman.42 DWP’s 2014 review of pension bodies said, “the ethos of TPAS as a volunteer non-government service had contributed strongly to its reputation and perceived value.”43
41 TPAS Annual Report and Accounts for the year ended March 2017 42 DWP, Triennial Review of Pensions Bodies – Stage 1: options for delivery, January 2014; Paul Thornton, Review of Pensions Institutions, 2007 43 Ibid, para 51
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TPAS welcomed the Government’s recognition of the continuing need for public financial guidance but thought there needed to be better signposting to it, particularly given developments in automated advice and digital pensions information.44 Pension Wise
Key facts Pension Wise was set up under Part 4 of the Pension Schemes Act 2015 to provide ‘pension guidance’ to help people navigate the wider range of options for drawing on defined contribution (DC) pension savings following the introduction of the ‘pension freedoms’ under the Taxation of Pensions Act 2014. It was launched in April 2015 and, as well as online content, offers telephone guidance (through TPAS) and face-to-face appointments (through Citizens Advice). Unlike TPAS, Pension Wise only offers guidance to those aged over 50 with DC pensions and the guidance must follow a prescribed format to meet FCA standards. Pension Wise is funded by a separate statutory levy on certain FCA-regulated financial services firms (HM Treasury, Public financial guidance: consultation, October 2015).
Since 6 April 2015, individuals aged 55 and over have been able to access their DC pension savings as they wish, subject to their marginal rate of income tax.45 They can:
• Take their pension savings as cash (in one lump sum or smaller amounts over time); • Buy an annuity (or other income generating guaranteed products); • Use drawdown (without restrictions that previously applied); or • Employ a combination of these.46 The Government said it recognised that there was a need to help consumers navigate the range of choices available, so that they could make good decisions which suited their needs and circumstances.47 It consequently published a consultation document Freedom and choice in pensions, which proposed introducing a new guarantee that all individuals with a DC pension would be offered free and impartial guidance “at the point of retirement” that covered their range of options.48 In October 2014 the Government announced that the new service would be delivered by TPAS (for the telephone channel), Citizens Advice (face-to-face) and MAS (for the digital element).49
44 TPAS insight paper 2017 45 FA 2004 as amended by the Taxation of Pensions Act 2014, s1 and Sch 1 46 FCA, Retirement reforms and the Guidance Guarantee, CP14/11; Library Briefing Paper SN-06891 Pension flexibilities: the freedom and choice reforms (October 2017) 47 HM Treasury, Freedom and choice in pensions, Cm 8835, March 2014, para 4.7-9 48 HM Treasury, Freedom and choice in pensions, Cm 8835, March 2014, para 4.11 49 HM Treasury Delivering pensions guidance: January 2015 update
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Providers are required to signpost people to guidance where they are “actively considering their options for accessing their pension savings”. They should do this between four and six months before the customer’s intended retirement date or if the customer contacts the firm saying they wish to access their pension fund.50 Similar signposting requirements apply to trust-based schemes (which are regulated by the Pensions Regulator).51 The new service was legislated for the Pension Schemes Act 2015.52 In July 2015, the Government announced that Pension Wise would be opened up to people from the age of 50 onwards.53 It also announced that responsibility for the service would move from HM Treasury to DWP.54 For more on the background, see Library Briefing Paper CBP7042 Pension Wise: the guidance guarantee (September 2017). Pension Wise in practice: take-up An October 2017 evaluation for DWP showed the experience of Pension Pension Wise Wise users to be positive. The majority (88%) of those who used the statistics service said it had improved their understanding of the options. A Pension Wise Appointments led to people taking positive action – such as talking to dashboard shows the their provider or shopping around for quotes.55 volume of transactions - face-to- However, take-up remains low. There is no target for this with both face, by phone and Government and FCA thinking this should be a matter of public choice. website. One of the delivery partners – TPAS – wanted to see a high level of take-up (75%) over time.56 In July 2017, the FCA said that the proportion of consumers accessing retirement income products without regulated advice had increased since April 2015, but that take-up of Pension Wise remained low: In the third quarter of 2016 143,752 consumers accessed their pensions but just 13,990 (or around 10%) had a Pension Wise appointment. However, consumers may also be accessing the information available on the Pension Wise website. Since launch, the website has received over 5 million visits.57
50 FCA, Retirement reforms and the Guidance Guarantee, CP14/11, 21 July 2014 para 4.5-11; FCA, PS14/17 Retirement Reforms and the Guidance Guarantee, including feedback on CP14/11, November 2014, para 4.31; The rules are in the Conduct of Business Sourcebook (Retirement Guidance Guarantee) Instrument 2015 (FCA 2015/4). 51 Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations 2015 (SI 2014/482); The Pensions Regulator, Communicating with members about pensions flexibilities, April 2015 52 Section 47 and Sch 3. For a guide to the debates, see Library Notes SN 7030 (Commons stages) (11 December 2014) and SN 7105 SN-07105 (Lords stages) (18 February 2015). 53 HM Treasury, Summer Budget 2015, HC 264, para 1.227 54 ‘Economic Secretary to the Treasury announces next steps for Pension Wise’, 16 September 2015 55 DWP Research Report No. 56, Pension Wise service evaluation, October 2017 56 PBC Deb 21 October 2014 Q35-6 [David Geale, FCA; Q75 {Michelle Cracknell, TPAS]; Q318 [Steve Webb] 57 FCA, Retirement Outcomes Review. Interim report, MS16/21, p 23 and para 3.33
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It said that many of those withdrawing their DC pot in full were motivated by a “lack of trust” in pensions. Although it did not think this was evidence that they were squandering their savings, mistrust could give rise to direct consumer harm – leading them to pay too much tax, miss out on investment growth, or miss out on employer contributions. The FCA promised to review the effectiveness of measures to encourage take-up of guidance.58 In response to concerns expressed by the Work and Pensions Committee in December 2017, the Government pointed to the Pension Wise website, which had received 5.7 million visits since it was launched. However, the Committee said the website, although a valuable resource, was “no substitute for a conversation with an expert”. It concluded that: 36. Far too many people are currently taking vital decisions in the dark, putting them at greater risk of suffering irrevocable financial detriment through scams or choices contrary to their interests. As ever greater numbers of auto-enrolled savers approach retirements during which they will rely on defined contribution pots for retirement income, the need to boost engagement with pension guidance will grow increasingly acute.59 In its response to the Work and Pensions Select Committee, published in February 2018, the Government argued that: 3.8 The Pension Wise service evaluation report showed that those who accessed Pension Wise information and guidance through the website saw almost as much benefit as appointment customers. The area where these small differences were most pronounced, was in how customers felt. For example, in their report the Committee highlight that 50% of customers who had completed an appointment felt “very well informed” about their options, compared to 32% of website users who felt “very well informed” about their options. 3.9 However, when it came to actual knowledge of the pension options, the difference between appointment customers and website users was shown by the service evaluation report to be minimal. 3.10 Customers and non-users were asked a series of questions to assess their factual knowledge of their pensions options. Appointment customers had a knowledge score average of 70%; just fractionally more than website customers who had a knowledge score average of 68%. Both cohorts compared favourably to non-users of the service, where the knowledge score average was 47%.60 It explained that Pension Wise was learning from experience how to target and co-ordinate advertising campaigns to get maximum awareness and engagement amongst the eligible audience. It was also working with providers on pilots to test innovative ways of referring
58 FCA, Retirement outcomes review interim report, MS 16/1.2, para 1.52 59 Work and Pensions Committee, Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill, HC 404, 3rd report of 2017-19, December 2017 60 Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill: Government Response to the Committee’s Third Report, 21 February 2018
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pension holder to Pension Wise.61 In June 2018, the Government said it would be taking steps to encourage more take up of Pension Wise, building on the requirements in the Financial Guidance and Claims Act.62
1.4 Plans for a single body On 12 October 2015, HM Treasury launched a consultation on public financial guidance, to run alongside the FCA’s Financial Advice Market Review (FAMR) which was looking at the definition and scope of financial advice and guidance and closing the gap between the two.63 The Government believed there was an ongoing need for public financial guidance but wanted to explore how this was best-targeted, delivered and funded. Reasons for consulting at that time were: • The need to identify a long-term home for Pension Wise (following a short-term move from HM Treasury to DWP); • The scope to consider a more joined-up relationship between Pension Wise and The Pensions Advisory Service; and • The need to conclude the independent review into the operations of the Money Advice Service (MAS).64 In addition, the existing bodies were funded by three different levies: […] the FCA levy to fund Pension Wise, the FCA levy to fund money guidance (MAS) and the grant awarded by DWP to fund pensions guidance (TPAS), which originates from a levy on the pensions industry. There was a risk that some organisations were providing contributions towards the same activity through different levies. There was also some overlap in the services provided.65 The Government thought there was room for improvement through rationalising provision, consolidating back-office functions and strengthening oversight.66 Initially, the Government proposed replacing the three existing organisations with two – one for money guidance, the other for pensions.67 However, in October 2016 it said it would consult on plans for a single body, responsible for delivering debt advice, money and pensions guidance.68 A single body would be better able to respond to the needs of consumers and: […] bring together pensions guidance, money guidance and debt advice in one place, delivering and commissioning specific services
61 Ibid, para 3.1 62 Pension freedoms: Government response to Committee’s Ninth Report, 10th Special Report of Session 2017-18, HC 1231, 22 June 2018 63 Gov.UK, Consultation: public financial guidance; HM Treasury, Public financial guidance: consultation, October 2015, para 1.5 64 Ibid para 1.6 65 Ibid para 3.32 66 Establishing a single financial guidance body. Impact Assessment, Mar 2017, para 7 67 DWP, ‘Public financial guidance review: proposal for consultation’, Gov.UK, March 2016; HC Deb 6 July 2016 c331WH 68 ‘New public body offering debt advice, money and pensions guidance to be setup’, DWP press release, 9 October 2016
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to ensure that as many consumers as possible receive high-quality, impartial financial guidance. The body will have a strategic function, focusing on ensuring that the market understands and meets consumer demand, delivers value for money, and scales up financial capability projects that have been proven to work. With the exception of debt advice, the new body will not fund regulated financial advice, but will signpost consumers to other providers to ensure that consumers’ guidance and advice needs are met.69 In July 2017, in its response to consultation on its proposals for a single body, the Government summarised its key proposals as follows: 1. the establishment of a new single financial guidance body to replace MAS, TPAS and Pension Wise 2. the provision of funding to the devolved authorities for the cost of their locally commissioned debt advice 3. the single financial guidance body will have four core functions: a) the provision of debt advice in England b) the provision of money guidance across the UK c) the provision of pensions guidance across the UK d) to work with others in the financial services industry, the devolved administrations, and the public and voluntary sectors to support the coordination and development of a national strategy in three key areas:
o to improve people’s financial capability o to improve the ability of members of the public to manage debt
o to improve the provision of financial education to children and young people 4. provision of debt advice in Scotland, Wales and Northern Ireland will be delivered through the devolved authorities and funded by a levy on the financial services industry 5. the single financial guidance body will be funded by levies on the financial services industry and pension schemes 6. the single financial guidance body will be a non- departmental public body sponsored by DWP 7. the single financial guidance body will be accountable to Parliament and, in line with the government’s transformation programme, a review of the body will be conducted at least once every Parliament to ensure it remains fit for purpose, is well-governed and is properly accountable for what it does.70 DWP’s 2017 review of pensions auto-enrolment said that the creation of a single body would “reduce confusion by removing artificial boundaries between different categories of guidance and create a more coherent offer for the general public.” It would mean:
69 HM Treasury, Public financial guidance review: consultation on a single body, December 2016 70 HM Treasury, Single financial guidance body: response to the consultation, July 2017 24 Financial Claims and Guidance Bill 2017-19- debates in Parliament
• a more coordinated strategic approach to improving financial education, financial capability and the ability of individuals to manage debt; • more coordinated use of research and evaluation to ensure a better understanding of what people need, where it is most needed and who is most in need; • for the first time an explicit statutory requirement to target those most in need, particularly those in vulnerable circumstances; • the removal of duplication, identifying gaps in provision and targeting those gaps – which could be a lack of quality or impartiality as well as not existing at all • using the savings it generates to improve services and maximise accessibility for our diverse user base; • ensuring greater consistency in delivering a quality standard of service; • raising those service standards through its own channels and those of its delivery partners; and • an opportunity to become an exemplar for industry and other sectors.71 In July 2018, the Government said the SFGB would launch in January 2019.72
1.5 Claims Management Companies Role Claims management companies (CMCs) provide support for individuals who wish to claim compensation for some loss and who do not wish to use one of the several alternative sources of help, such as an Ombudsman, or to take personal control of legal proceedings. They can cover claims for personal injury, financial products and services, employment, injuries and housing matters. The sorts of things they do include: • Advertising for, or seeking out (for example direct marketing) persons who may have a cause of action; • Advising a claimant or potential claimant in relation to their claim or cause of action; • Referring details of a claim/claimant or cause of action for a fee to another person; • Investigating or commissioning an investigation of a claim with a view to using results in pursuit of the claim; and • Representing the claimant.
71 DWP, Automatic Enrolment Review 2017: Maintaining the Momentum, Cm 9546, December 2017, p85-6 72 HL Deb 24 July 2018 c1601 25 Commons Library Briefing, 15 August 2018
In a 2006 policy statement on the Regulation of Claims Management Companies, the Government described the role of claims managers as follows: Claims managers gather cases either by advertising or direct approach. The claims manager then either acts for the client to pursue a claim or as an intermediary between the claimant and the lawyers who may represent them. Claims managers make money from several sources - referral fees from solicitors, commission on auxiliary services, after the event insurance and sometimes from loans to the client.73 Activity The CMC industry has grown significantly since 2000. Whereas historically the focus had been on personal injury claims (hence the pejorative term ‘ambulance chasers’) recent growth has largely been driven by financial scandals such as claims for mis-sold endowment mortgages, unfair bank charges and, most recently, PPI. The Better Regulation Taskforce’s 2004 report, Better Routes to Redress, gave reasons for the growth of the CMC sector following the removal of public funding for most personal injury claims: Although there were a few claims management companies around before 2000, the Access to Justice reforms shifted the burden of funding personal injury claims from the public to the private sector therefore increasing significantly the demand on private sector providers. This change, combined with the relatively slow response of solicitors’ firms to respond to the new market opportunities, created the conditions for a rapid growth in the claims management sector. In essence, a system was created where the client perceived no risk because their arrangements with the lawyer were "no win no fee" and their opponent’s costs would be covered by funding, and if they won, the defendant would pay their costs. Neither is there any incentive for the claimant to keep their own costs down. CMCs take advantage of this system by gathering accident cases by advertising or direct marketing, administering the cases, and then farming them out to solicitors up and down the country. The companies earn their money by non-transparent and complex systems of referral fees and charges. The losing side ultimately picks up their costs.74 In 2006, the Government estimated that there were approximately 500 companies operating in the sector and that the number would decline significantly once regulations under the Compensation Act 2006 were in force. However, the number of companies did not decline as expected but increased six-fold to a peak of 3,300 by 2011, falling to under 1,500 by 2016/17:75
73 Department for Constitutional Affairs, Regulation of Claims Management Companies Policy Statement, 2 March 2006, p4 74 Better Regulation Taskforce, Better of routes of redress, May 2004 75 MoJ, Claims Management Regulation Report 2013/14, 26 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Claims Management Regulator activity 2009/10 2012/13 2015/16 2016/17 Number of authorised CMCs 3,367 2,693 1,610 1,388 Applications refused 7 4 7 7 Authorisation cancelled 35 211 66 69 Authorisation surrendered 448 677 266 242 Financial penalties (number) na na 4 7 Warnings issued 140 285 247 196 Audits conducted na 129 306 369 Advisory visits na na 1,172 942 Source: Claims Management Regulation Annual Reports various Within this population, as the table below shows, there are many inflows of new companies as well as outflows – most companies surrendering their licences rather than being forcibly removed. The number of businesses also responds to emerging case judgements and issues; for example, successive ‘scandals’ have encouraged the growth of CMCs within financial services. However, it is the personal injury sector that has seen biggest growth in numbers as the table below shows:76 Claims management industry turnover, by sector Financial products Personal injury Employment Housing disrepair, Total and services industrial & criminal injuries £millions % £millions % £millions 2016/17 540.6 74% 182 25% 0.4 2.9 726 2015/16 532 71% 215 29% 2.0 2.6 752 2014/15 458 59% 310 40% 2.7 1.5 772 2013/14 453 65% 238 34% 3.8 3.3 698 2012/13 653 65% 354 35% 4.0 3.1 1007 Source: Claims Management Regulation Annual Report 2016/17 Activity in the sector is significantly affected by the surrounding legislative framework. For example, the ban on referral fees in 2013 resulted in over 1,000 CMCs who were unable to adapt or change their business models to comply, leaving the sector. This shrinkage made the personal injury sector comparable in size to the financial products and services sector for the first time since regulation began.77 However, within two years the industry had begun to adapt to the new rules: Despite the ongoing consolidation of the sector, a large number of small and locally operated CMCs have worked with solicitors to try and adapt their business models to make them compliant with the referral fee ban. For many of these CMCs, the main focus of their business is on providing services ancillary to personal injury. Other accident management activity including vehicle recovery, storage, repair and hire, has been proving more profitable than injury claim services. Some CMCs have actively diversified into these areas
76 Claims Management Regulation Report 2016/17 77 Claims Management Regulation Report 2013/14
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while those CMCs which are already doing so have seen these services become the primary income source.78 Up to date information about developments in the CMC regulatory sphere can be found in the MOJ’s regular Claims Management Regulation Annual Reports. Regulation Historically CMCs have been regulated by a specific Claims Management Regulator (CMR) within the Ministry of Justice. The legislative base is Part 2 of the Compensation Act 2006, supplemented, where applicable, by other consumer protection legislation and, depending on the activity, Financial Conduct Authority (FCA) Rules. The framework applies to England & Wales, there is no equivalent for Scotland. The framework is summarised in an MoJ guidance note. The 2006 Act covers the main areas and activities mentioned above. Areas of claims activity which remain unregulated are: (a) Legal practitioners (b) Persons providing claims management services that are already regulated activities under the Financial Services and Markets Act or who are exempt from the need to be authorised under that Act. This includes insurance companies. (c) Charities. (d) An individual acting otherwise than in the course of business […] provided it is not done for reward. (e) Trade unions certified as independent, (f) Independent complaints reviewers. (g) Student unions. (h) The Motor Insurers Bureau, the Medical Protection Society and medical defence unions.79 The CMR Annual Reports include descriptions of the regulation and enforcement work of the Regulator. The powers of the CMR were significantly expanded by the Financial Services (Banking Reform) Act 2013, which included new powers to fine CMCs (section 139). Although the Government had originally argued that CMCs were not best-placed to be regulated within the financial sector, it just happened that that was where there was most activity at the time. Announcing the Government’s change of view at the Bill’s Report Stage in the Lords, the Minister said: These amendments enable the Secretary of State to make regulations giving the claims management regulator the power to impose financial penalties on those CMCs guilty of misconduct, which will lead to tighter regulation of the industry and better outcomes for consumers and businesses. […] Bolstering the claims management regulator’s enforcement toolkit by giving it a power to fine those engaged in malpractice provides an additional means to deter speculative activity. Further, a power to fine could serve as a useful alternative penalty in cases where it
78 MoJ, Claims Management Regulation Report 2014/15 79 MoJ, Who needs to be authorised under the Compensation Act 2006 Guidance note 28 Financial Claims and Guidance Bill 2017-19- debates in Parliament
can be disproportionate to vary, suspend or cancel the authorisation of a CMC despite it not being compliant. Where a CMC’s authorisation is suspended or cancelled, for example, it can no longer act on behalf of its clients and this can lead to further consumer detriment. […] Not only will those who break these rules be subject to fines, the claims management regulator is also currently consulting on these rules in parallel to this amendment to further strengthen the consumer, business and third-party protections they offer. This ability to impose a financial penalty will be implemented by secondary legislation. It will be done by way of amendments to the existing regulations—the Compensation (Claims Management Services) Regulations 2006.80 In the Summer Budget 2015 the Government announced a review of CMC regulation (the Brady Review) and the possibility of a charge ‘cap’ on fees for work that could be decided by the Financial Ombudsman.81 It marked the acceptance by government of the argument that ‘compensation culture’ existed, was driven by the CMC industry and had bad effects on much of the population through rises in insurance costs and expenditure on, what it saw as, unnecessary CMC costs.82 The Brady Review The Independent review of claims management regulation – the Brady Review – was published in March 2016. Its main recommendations are summarised in Appendix 1. In the context of the Bill the most pertinent comments were those surrounding the transfer of regulation from the MOJ to the FCA. The Brady Review did not unambiguously recommend that regulation should be passed to the FCA. Its recommendation was more nuanced: On balance, given the wide range of reforms already underway in this area, and the expected turbulence and contraction in the market, the least disruptive option would be for responsibility to remain with MoJ. If, however, the Government wants a step change in the regulation of the sector, then the balance would shift in favour of the FCA.83 The Review started by saying that in principle, “the most suitable option would appear to be a new, a stand-alone, independent regulator focused solely on CMC regulation.” However, this was “unlikely to be accepted by Government, given its drive to reduce the number of public and arms-length bodies, and the fact that establishing an entirely new organisation is likely to be more expensive than other options.” Of the remaining options, strengthening the existing MoJ-based regulator and passing responsibility to the FCA were the most credible. The decision between the two was finely balanced - each had strengths and weaknesses.84
80 HL Deb 27 November 2013 c1476 81 HM Treasury Summer Budget 2015 82 Claims Management Companies and Financial Services Complaints; Ministry of Justice; FCA et al. 83 Independent review of claims management regulation; March 2016 84 Independent review of claims management regulation; March 2016 29 Commons Library Briefing, 15 August 2018
The Review argued that there was likely to be a “spike” in activity in the run up to the deadline for making a PPI complaint. It said there was a strong argument for retaining experienced and knowledgeable staff. Keeping the Claims Management Regulation Unit (CMRU) within MoJ provided a high degree of certainty that standards would not slip during transition to the new regime. However, the scale of the reorganisation meant this option was contingent on substantial support from the FCA: The FCA already has well developed and relevant expertise that could be applied since more than 99% of CMC turnover is directly or indirectly related to financial services, such as PPI and packaged bank accounts (60%) or the insurance aspect of personal injury claims (40%). Furthermore, it may afford FCA a broader perspective on any future financial services mis-selling scandals and a wider range of powers.85 Brady thought the choice was between retaining regulation within an experienced but narrowly-focussed MOJ and the broader expertise of a better resourced FCA: Comparatively, there may be more disruption in the short term if regulation is transferred to the FCA due to the complexities of transferring responsibilities between organisations at the same time as bolstering the regime, but the FCA is likely to be able to deliver a more ambitious reform package overall.86 In the Spring Budget 2016 the Chancellor announced that responsibility for regulating CMCs would transfer to the FCA: 1.206 The government is clamping down on the rogue claims management companies (CMCs) that provide bad service and bombard customers with nuisance calls. Alongside action to cap the amount that CMCs charge, Budget 2016 announces that the government accepts the recommendations of the independent review into the regulation of CMCs. The new regime will be tougher and will ensure CMC managers can be held personally accountable for the actions of their businesses. In order to ensure that the new regulatory regime is implemented effectively, the government intends to transfer responsibility for regulating CMCs to the Financial Conduct Authority.87
85 Independent review of claims management regulation; March 2016 86 Ibid 87 HM Treasury, Budget 2016, HC 901, March 2016 30 Financial Claims and Guidance Bill 2017-19- debates in Parliament
2. The Bill: overview 2.1 Overview The Financial Claims and Guidance Bill [HL] 2017-19] was given First Reading in the House of Lords on 22 June 2017 and had its Second Reading debate on 5 July 2017. The Bill then had four sittings in Committee on: 19 July, 6, 11 and 13 September 2017. Report Stage was on 24 and 30 October and Third Reading on 21 November 2017. The Bill as introduced to the House of Commons on 22 November 2017 was Bill 131. Second Reading was on 22 January 2018. The Public Bill Committee had three sittings – two on 1 February 2018 and one on 6 February 2018. Details of the debates are on the Parliament website. The Bill as amended in Public Bill Committee was HC Bill 160. The Bill had its Third Reading and Report Stage on 12 March and 204 April and Ping Pong on 1 May. The Financial Guidance and Claims Act 2018 received Royal Assent on 10 May 2018. Impact assessments were produced for the debates: • Financial Guidance and Claims Bill – Impact Assessment. Summary of Impacts, January 2018 (see also the • Claims Management Regulation – Consultation Response (November 2017); • Summary Impact Assessment (June 2017); • Establishing a single financial guidance body (April 2017); • Transferring regulation of Claims Management Companies (CMCs) to the FCA (March 2017). Letters written by Ministers in response to questions raised in the debate are also on the Parliament website – here. Territorial extent The Single Financial Guidance Board (SFGB) will deliver its pensions function, money guidance function and strategic function UK-wide. The SFGB’s debt function will only apply to England.88 When the Bill was first issued the intention was that the FCA would regulate CMCs in England and Wales only. With respect to Scotland the impact assessment explained: 100. When the Compensation Act 2006 and accompanying secondary legislation was developed, MoJ received advice stating that claims management services were probably devolved and open to Scotland and Northern Ireland to legislate on if they wish. This view, combined with the policy position of the devolved administrations at the time and the lack of evidence of CMC activity outside England and Wales, resulted in the current regulatory scope. Following recent engagement with the devolved administrations, both the Scottish Government and the Northern
88 Bill 131-EN, p6 31 Commons Library Briefing, 15 August 2018
Ireland Executive have reviewed whether they wished to introduce regulation and concluded that it is neither necessary nor proportionate at this time. This view has been confirmed by the relevant ministers. […] 102. Legislating on this issue in England and Wales does not preclude bringing forward further legislation in future, should ministers or the devolved administrations require.89 Following the review mentioned above by the Scottish Government, the Bill was amended in the Lords to extend the scope of regulation to Great Britain.90 Detail of the territorial extent is in Annex A of the Explanatory Notes. Legislative Consent Resolutions are on the Parliament website – here. Regulation-making powers The Government has set out its intentions towards the making of regulations in Delegated Powers memoranda on the Parliament website. In its July 2017 report, the Delegated Powers and Regulatory Reform Committee expressed concerns on some points, to which the Government responded: • The Committee said it was inappropriate to delegate the power to name the new body to Ministers and that it should be on the face of the Bill.91 The Government disagreed, saying it was concerned that this could provide opportunities to fraudsters. Its proposed approach had also been used in respect of National Employment Savings Trust Corporation or NEST.92 • The Committee said that guidance and directions issued by the Secretary of State to the SFGB should be “subject to Parliamentary scrutiny, with the negative procedure providing an appropriate level of scrutiny.” The Government said that guidance was likely to be informal and would relate to how to interpret government policy, best practice and so on. In this context, Parliamentary scrutiny would represent an unwarranted degree of oversight.93 • The Committee said it was inappropriate to confer on Ministers a power to abolish the SFGB, particularly when it was “unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016.”94 The Government amended the Bill at Committee stage to ensure there would be consultation before this happened (see below).
89 Transferring Management of CMC regulation to the FCA – Impact Assessment, March 2017 90 HL Deb 21 November 2017 c96 91 DPRRC, Financial Guidance and Claims Bill [HL], 1st report of 2017-19, 13 July 2017 92 Financial Guidance and Claims Bill [HL] – Government response, 2nd Report of Session 2017-19, 14 September 2017 93 Financial Guidance and Claims Bill [HL] – Government response, 2nd Report of Session 2017-19, 14 September 2017 94 DPRRC, Financial Guidance and Claims Bill [HL], 1st report of 2017-19, 13 July 2017 32 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Financial implications The Government said it expected the creation of the SFGB and the transfer of the regulation of claims management companies (CMCs) to the FCA to have minimal impact on public expenditure: Single Financial Guidance Body 157 The creation of the single financial guidance body will have a negligible impact on public expenditure. The transition between three services to the single financial guidance body will create short-term costs, which are provisionally anticipated to total £4.49m, excluding costs arising from digital transition and from redundancy, which have not been estimated. 158 Subject to legislative changes, these transitional costs will be met by the financial services and general levies which currently fund the existing services. 159 The financial implications of cold-calling and the debt respite scheme are not yet known. Impact assessments will be written and published on the Bill website in due course. Claims Management Company Regulation 160 The measures effecting the transfer of claims management company regulation to Financial Conduct Authority will have a minimal effect on public expenditure, as it is intended that all costs arising as a result of the transfer will be borne by the claims management company market. The provisions relating to fee restrictions will also result in a cost to industry, however the equivalent benefit will be felt by consumers.95
2.2 Second Reading - Lords Baroness Buscombe opened the Second Reading debate on 5 July 2017 by describing the Bill as “relatively and deliberately small,” focusing on two separate but important issues: • The first part would “create the framework for a single financial guidance body, ensuring that people have access to the information and guidance they need to make the important and effective financial decisions that we all have to make at some point in our lives.” • The second part would “enable the transfer of claims management regulation from the Ministry of Justice to the Financial Conduct Authority, ensuring that there is a tougher regulatory framework in place and that people have access to high-quality claims handling services.96 With respect to the financial guidance part of the Bill, responses from trade organisations, charities and the industry had been: […] very positive and supportive of the Government’s proposals, and clearly expressed a wish to see the body focus on filling gaps in the current financial guidance provision.97 With respect to the CMCs she said:
95 Bill 131-EN 96 HL Deb 5 July 2017 c904 97 Ibid c905 33 Commons Library Briefing, 15 August 2018
By transferring the regulatory responsibility for CMCs to the FCA, the Bill sends a clear message to CMCs, providing a stronger framework that ensures that individuals are accountable for the actions of their businesses, and it will provide the FCA with fee- capping powers to protect consumers from excessive fees.98 Responding for the Opposition, Lord McKenzie of Luton said his party supported both strands of the Bill, although it was “too timid” with respect to the promotion of the importance of financial education and inclusion.99 He concluded by saying that: In evaluating the Bill, especially the single financial guidance body, we need to determine whether what is on offer is essentially just a reordering of what we have at the moment, with some efficiencies built in, or a step change in our approach to enhancing financial capability. We should want it to be the latter and will seek to strengthen it to that effect where we can.100 The Liberal Democrat spokesman, Lord Sharkey, gave the Bill a mixed welcome, saying that it contained “some welcome and timely provisions” but also contained “some surprising gaps and some rather vague and ambiguous drafting.”101 Omissions from the Bill included a ban on cold-calling: We do not allow cold calling for mortgages; we should not allow cold calling for pensions, we should not allow cold calling for debt management companies or claims management companies, and we should not allow these companies to use contacts generated by third-party or arm’s-length cold calling. The Bill is silent on this.102 Also missing was a provision for a debt respite scheme (or “breathing space”) before debt recovery started: The idea has long been championed by StepChange and is strongly supported by other interested parties, such as R3, the insolvency practitioners. R3 has pointed out in its briefing to Peers that the moratorium or breathing space was proposed in both the Conservative and Labour 2017 manifestos. But it is not in this Bill and it should be. We will want to put that right, too.103 Conservative Peer Lord Hunt made the point that even though financial services regulation is reserved, the CMC part of the Bill only applied to England & Wales, even though Scottish residents received “even more nuisance calls than elsewhere in the UK”: The failure to include Scotland should be addressed. The remit of the FCA extends to Scotland, as does the rest of this Bill. Measures are currently before the Scottish Parliament to enable solicitors there to charge success fees—to take a proportion of their clients’ damages as part of their charges. At the same time, claims farmers in Scotland can operate without any regulation whatever.104
98 Ibid c908 99 Ibid c909 100 Ibid c911 101 Ibid c911 102 Ibid c912 103 Ibid c912 104 Ibid c918 34 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Former Pensions Minister Baroness Altmann focused on the technical difference between ‘advice’ and ‘guidance’. She was concerned that the title of the Bill would prolong the misconception that financial advice was free: In the past, of course, it often was apparently free because so- called advisers were being remunerated by a financial company for selling its products. They were not really advisers; they were salesmen. This commission-driven culture caused many scandals, and it incentivised behaviour that was not in the customers’ best interests. Rightly, the regulator has tried to clamp down on such practices. It now insists on a stark differentiation between what can be called “advice” in personal financial services and what is merely guidance, information or sales. This is not a minor technical point; it is a fundamental issue. Indeed, we need a proper definition of what constitutes guidance, which I do not believe we yet have. The new single financial guidance body will look at pension guidance, money guidance, a national strategy to improve financial education, and debt advice. In fact this debt advice does not even have to be regulated but in some cases can be delivered by unregulated bodies. That is worrying. The word “advice” is a hangover from past thinking. It is the last vestige of an old system that needs updating. You cannot give what is called “advice” in a personal financial sense without being regulated […] At last there is an opportunity to address some of the confusion in the context of financial help for individual citizens. Guidance, help, information, education and counselling can be available for free, but advice is not.105 She was concerned about how debt advice would take account of auto- enrolment: Nowadays, with auto-enrolment into workplace pensions and with pension freedoms available to people over 55, focusing only on the debt part will make any so-called debt advice incomplete and thus not holistic. However, if the debt help or counselling takes account of pension matters—as it should, especially given auto-enrolment—then the new service from the single financial guidance body could fall under regulated financial advice rules and would stray beyond pension guidance.106 Responding to the debate, Baroness Buscombe said regarding the debt breathing space: A breathing space scheme could help people affected by serious debt by stopping creditor enforcement and freezing further interest and charges on unpaid debt. However, breathing space legislation would be lengthy and complex. […] and Treasury Ministers will outline further details in due course.107 On pension cold-calling: the Government launched a consultation in December 2016 looking at three potential interventions to tackle this issue, including a ban on cold calling in relation to pensions to help stop fraudsters contacting individuals. The Government plan to publish
105 Ibid c929 106 Ibid 107 Ibid c942 and on
35 Commons Library Briefing, 15 August 2018
their response to the consultation shortly, setting out our intended next steps. It is a complex area that requires careful and detailed consultation […] As such, we do not propose to include a cold-calling ban in the Bill at this time.108 On CMC cold-calling: We believe that strengthening the regulation of claims management services should reduce the number of nuisance calls made by CMCs, as they will have to comply with the FCA’s tougher regulatory rules on marketing and advertising. […] The Information Commissioner’s Office—the ICO—also enforces restrictions on unsolicited direct marketing calls, and the upcoming data protection Bill will include updated powers and sanctions for the ICO.109 On the potential confusion over guidance and advice, she said she would consider Baroness Altmann’s points before Committee stage. Finally, as regards why the CMC part of the Bill applied to England and Wales only: We have engaged with both the Scottish Government and the Northern Ireland Executive at ministerial and working levels. Both have confirmed that they do not want the regulation to extend to Scotland or Northern Ireland as there is limited evidence of malpractice, they say, in these regions. The Bill gives the Treasury a power to define when a person should be treated as carrying on claims management activity in England and Wales. This gives government the flexibility to adapt the definition should the CMC market change.110 The Bill received a Second Reading without a vote.111 The debates at the Committee, Report and Third Reading stages are discussed in relation to the individual clauses.
2.3 Second Reading – Commons The Bill had its Second Reading on 22 January 2018. Opening the debate, Secretary of State for Work and Pensions Esther McVey reflected on the passage of the Bill through the Lords, she said: There was overwhelming support in the other place for the measures originally contained in the Bill. The amendments in the other place sought to include a Government manifesto commitment—a debt respite scheme—because noble Lords were concerned about legislative space. Some amendments made explicit in the Bill what was always implicit in policy, including making it clear that the single financial guidance body’s services are free at the point of use, and ensuring that the information, advice and guidance are impartial. Other changes were more substantial, but none the less welcome. These ranged from the inclusion of a clause making it a criminal offence to impersonate the body to safeguarding clauses for its wind-up and requiring the FCA to create rules on signposting individuals to the body. Further additions include an interim fee
108 Ibid 109 Ibid 110 Ibid 111 Ibid c948
36 Financial Claims and Guidance Bill 2017-19- debates in Parliament
cap for PPI claimants, which will ensure that CMCs charge fair and proportionate fees in relation to financial services claims during the interim period between Royal Assent and the introduction of the FCA’s fee cap, and making provision for the establishment of a debt respite scheme, which I will expand on shortly.112 The Government had committed to ban cold-calling from CMC’s: The Government have been clear that we will not stand for unlawful, persistent cold calling made by companies in the claims management sector. Cold calling is already illegal under certain circumstances. Under the privacy and electronic communication regulations, we have forced companies to display their numbers when they call, made it easier to take action against those involved in making the calls, and strengthened the powers of the Information Commissioner Office to impose fines. That being said, a number of companies continue to act disreputably, so it is only right that the Government continue to take steps to further regulate the sector. That is why the Government committed in the other place to introduce measures to tackle those issues. The Department for Digital, Culture, Media and Sport is currently working through the details of an amendment to prohibit CMCs from making live, unsolicited calls unless the receiver has given prior consent. That step, combined with the Government’s previous actions in this area, should act as a warning to those acting unlawfully that we will not rest until the problem has truly been eradicated.113 Regarding pension cold-calling, she said: We remain committed to protecting savers from pension scams. We have already announced that we are banning pensions cold calling, tightening HMRC’s rule to stop pension scammers and fraudulent schemes, and preventing the transfer of money from occupational pension schemes into fraudulent ones. The Government are currently reviewing the alternative proposals for banning cold calling under the Bill. We have also listened to the concerns about the risks of not receiving sufficient guidance or advice prior to taking advantage of the pensions freedoms, and we are currently considering the amendments recommended to ensure that members of the public are aware of the importance of receiving guidance.114 Regarding the debt respite scheme: Hon. Members will also be interested in the addition of the provision for a debt respite scheme, which includes a breathing space period and a statutory debt repayment plan. We understand the valuable additional support that the scheme could provide for thousands of vulnerable individuals and want to implement a breathing space scheme as quickly as possible. The Government are pressing on with policy development. We have already set out a firm timetable for consultation and are continuing to work closely with a wide range of stakeholders. The call for evidence on breathing space was published in October last year and has now closed. After responding to that call for evidence, we will consult on a single policy proposal. The Bill gives us an enabling power to lay regulation to establish the scheme
112 Ibid c42 113 Ibid c43-4 114 Ibid 37 Commons Library Briefing, 15 August 2018
after receiving advice from the single financial guidance body on the design and certain aspects of the scheme. It is important that we take time to get this right. The scheme will achieve its intended benefits for indebted individuals only if it is properly designed.115 And the pensions dashboard: Hon. Members will no doubt be aware that in October the DWP took on responsibility from the Treasury to work with regulators, the industry and other sectors to create a pensions dashboard. That digital interface would allow individuals to see all their pension savings in one place by collecting information about pensions held with different providers. We are conducting a feasibility study to explore the key issues and determine a path towards implementation. We expect to be able to report on that in March. The Government believe that the needs of the consumer must be at the heart of the dashboard’s design. We want to maximise people’s engagement with their pensions while maintaining their trust. We will ensure that people’s interests are properly safeguarded and their information protected. As part of the study, we are also considering what role, if any, the single finance guidance body may have in relation to the dashboards.116 Shadow Work and Pensions Secretary Debbie Abrahams welcomed the amendments that had been made in the Lords: The Bill is a high-level framework Bill that, thanks to our colleagues in the other place, is now in much better shape. We particularly welcome the Government’s assurances that the SFGB will work closely with the FCA and the Treasury on issues of financial inclusion. Given, however, that the Work and Pensions Select Committee, of which I was a member at the time, raised concerns nearly three years ago about the inadequacy of Government measures to protect pension savers, and given also the difficulties that have arisen since, I am bound to ask why it has taken so long to recognise these failings. 117 She asked for more specifics on the delivery channels to be used: It is vital that the SFGB has the autonomy and resources to make itself truly visible to the public. Given the failings in other parts of the Secretary of State’s Department, and given the complex needs and limited resources of the people who will most need its services, “digital by default” is not a mantra we want to hear from the SFGB or its sponsoring Department. She referred to some of the significant challenges that the single financial guidance bodies would face: The SFGB will have to cope with an increasingly complex pensions sector. The growth of auto-enrolment brings more and more people within the scope of occupational pensions. The other major change has been the introduction of pension freedoms. In that context, we welcome the Government’s commitment in the other place to the delivery of the pensions dashboards. However, given the increasing issues that pension scheme members face—
115 Ibid 116 Ibid c45 117 Ibid c47
38 Financial Claims and Guidance Bill 2017-19- debates in Parliament
including those of British Steel, and now Carillion —in addition to a much tougher pension regulation framework, I want the Government to tackle the appalling abuse perpetrated by opportunistic financial scammers, who have targeted BSPS and Carillion pension members.118 She agreed that issues regarding CMCs needed to be addressed and the move to the FCA seemed like the right decision.119 Areas where the Opposition wanted the Bill strengthened were: • Pension-cold calling, where the scope was too narrow and the clause “not nearly urgent enough.” • Stronger measures to improve take-up of Pension Wise – by requiring people to actively opt-out. • A solution to high fees from claims management companies that would allow consumers to keep 100% of PPI compensation; • Ensuring the debt breathing space scheme had certain fundamental tenets (including a legal freeze on interest and charges, collections and enforcement action) and was implemented as quickly as possible.120 For the SNP, Neil Gray asked for reassurance that the creation of the SFGB would not “dilute the overall service in any way, in terms of either output or quality” and how decisions would be taken on funding. To improve take-up of Pension Wise, he suggested an opt-out system.121 He was pleased that the Scottish Government had “secured an improved allocation in terms of the proposed funding formula for devolved levy funding for debt advice provision.” On the debt respite scheme, he asked: Does the Minister agree that the breathing space scheme should cover all a person’s debts, including—this point has already been made—debts owed to the public sector? Does he agree that it would be unhelpful to the scheme’s success to have creditors outside the scheme undermining people’s ability to stabilise their finances? Could he also please clarify what powers will be conveyed under clause 21(7), which allows the Secretary of State to amend any provision made by an Act of Parliament, an Act of the Scottish Parliament, a Measure or Act of the National Assembly for Wales, or legislation of the Northern Ireland Assembly? That seems rather far reaching to me, so I would appreciate some guidance on the reasoning behind that provision.122 On CMCs, he asked about fees and the transfer timetable to the FCA: Have the Government looked widely at the claims being brought by CMCs, and can they provide an assurance that customers are not potentially being exploited with exorbitant fees for other types of claims?
118 Ibid c48 119 Ibid c49 120 Ibid c52 121 Ibid c60 122 Ibid c61
39 Commons Library Briefing, 15 August 2018
I am also concerned that the Financial Conduct Authority should take ownership of this from the Ministry of Justice as quickly as possible, to ensure that people are not exploited in between times. We must bear in mind that, with a deadline for PPI claims set in the next 18 months, the CMCs will be rather busy trying to muster business in that period. We want to ensure that we can protect vulnerable people as much as possible.123 Overall, the Bill had the “right intentions and moves us in the right direction.”124 For the Liberal Democrats, Stephen Lloyd supported the Bill: I support its key purpose of merging the Money Advice Service, the Pensions Advisory Service and Pension Wise into a new, single financial guidance body. The current landscape for free financial advice and guidance is unnecessarily complex, convoluted and often difficult to access, with several different agencies providing support. […] I believe that the FCA, with its powers to cap the charges of claims management companies, will be a much tougher regulator than the Ministry of Justice has been.125 The Bill had, he said, been improved by amendments in the Lords, for example on cold-calling and the debt respite scheme. Areas in which he would like to see improvement included giving the SFGB statutory powers to promote financial awareness and education.126 The Bill was given its Second Reading without a vote.127
123 Ibid c61 124 Ibid c61 125 Ibid c68 126 Ibid c69 127 Ibid c102 40 Financial Claims and Guidance Bill 2017-19- debates in Parliament
3. Part 1 – financial guidance
This section aims to give an overview of the provisions in the Act and the main issues debated in Parliament. Text from the Act is shown in italics.
3.1 Establishment of the single financial guidance body The Government said that the single financial guidance body (SFGB) would be set up as an arm’s-length body, accountable to Parliament, and sponsored by the Department for Work and Pensions (DWP).128 Section 1 of the Act establishes the SFGB, the actual name of which is to be determined by regulations made by the Secretary of State, subject to the negative resolution procedure.129 Schedule 1 makes further provision, for example, regarding the appointment of non-executive and executive members. Schedule 2 makes provision for the transfer of staff, property, rights and liabilities: a) from the Secretary of State and the Pensions Advisory Service Limited to the single financial guidance body; (b) from the consumer financial education body to the single financial guidance body. Debate Governance In Lords Committee on 19 July 2017, Lord McKenzie asked about the framework under which the SFGB would operate and the scale of operations: Will SFGB have to commence within a funding envelope that reflects the existing arrangements? When will the SFGB levy components be set and how will they be consulted on? To what extent is it planned that efficiency savings arising from the amalgamation will be made available to the new body or applied to a reduction in the levies?130 For the Government, Baroness Buscombe responded that, like other DWP arms-length bodies, the SFGB would be required to produce corporate strategies covering three years and a detailed business plan for the first year, updated regularly after that. The framework document
128 HM Treasury and DWP, Creating a single financial guidance body: response to the consultation, July 2017, Para 2.3 129 Negative procedure is a type of procedure that a statutory instrument can go through. A statutory instrument under the negative procedure will automatically become law without debate unless there is an objection from either House. Conversely affirmative procedure refers to a procedure where a statutory instrument must be approved by both the House of Commons and the House of Lords to become law. 130 HL Deb 19 July 2017 c1643
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would be developed in the run-up to launch. Board members would be appointed as soon as the legislative process allowed.131 Exactly what the new body would look like would be a matter for the new Board, following consultation with stakeholders. The Minister hoped it would be “much more efficient and […] practical, particularly for the consumer than what we have at the moment.” The money held in reserve when the Money Advice Service (MAS) closed down could be used for some of the set-up costs if necessary.132 At Commons Committee stage, Shadow Pensions Minister Jack Dromey argued for the importance of the SFGB being accountable to Parliament but independent and free from government interference. Pensions Minister Guy Opperman responded that the Government had been conscious of this in designing the new body. The SFGB would be “at arms’ length from Government.” Nevertheless, there was a sponsoring Minister who remained accountable to Parliament for its activities. One of the criticisms of MAS was that it had lacked accountability to Parliament and a respective Minister. There would need to be clarity about expectations and the approaches to accountability. The correct way forward was to have a framework document, setting out the partnership arrangements so that there is accountability to Parliament, while at the same time allowing the body to get on with its job.133 Name Despite the reservations of the Delegated Powers Committee, the Government decided against placing the name of the SFGB in legislation. It was concerned that this would enable fraudsters to impersonate the body before it was set up and said there was a precedent for its approach in relation to the National Employment Savings Trust (NEST) established under section 75(2) of the Pensions Act 2008. Furthermore, it said that MAS does not use the name on the face of its enabling legislation (i.e. the consumer financial education body).134 The Government made a technical amendment at Commons Committee stage to extend the power to make transfer schemes under Schedule 2 to devolved authorities.135 Detailed responses to issues raised in debates in both Lords and Commons are in a letter from the Pensions Minister dated 31 January 2018 and from Baroness Buscombe on 17 October 2017.
3.2 Objectives The Bill as initially presented to Parliament would have provided for the new body’s functions and objectives in one clause.136 However, at Third
131 Ibid c1645-6 132 Ibid c1649 133 PBC Deb 1 February 2018 c8-9 134 Financial Services and Markets Act 2000, s6A (as amended by Financial Services Act 2010, ss 2 (5), 26 (1) (b)) 135 PBC Deb 1 February 2018 c5 136 clause 2 of HL Bill 1
42 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Reading in the Lords, the Government amended the Bill to separate them – placing the objectives in clause 2 and the functions in clause 3. This was intended to emphasise the objectives and aid wider public understanding. 137 The Government also amended the objective of ‘ensuring availability of information, guidance and advice to those most in need’, to specify that this should consider “in particular the needs of people in vulnerable circumstances.”138 Section 2(1) of the Act now provides for the SFGB’s objectives: a) to improve the ability of members of the public to make informed financial decisions, b) to support the provision of information, guidance and advice in areas where it is lacking, c) to secure that information, guidance and advice is provided to members of the public in the clearest and most cost-effective way including having regard to information provided by other organisations), d) to ensure that information, guidance and advice is available to those most in need of it (and to allocate its resources accordingly), bearing in mind in particular the needs of people in vulnerable circumstances, and e) to work closely with the devolved authorities as regards the provision of information, guidance and advice to members of the public in Scotland, Wales and Northern Ireland. Section 2(3) of the Act outlines the meaning of ‘Information, guidance and advice’: a) Information and guidance on matters relating to occupational and personal pensions; b) Information and advice on debt; and c) Information and guidance designed to enhance people’s understanding and knowledge of financial matters and their ability to manage their own financial affairs. Debate Definitions - debt counselling and advice In the Lords, Baroness Altmann argued that the public was often understandably confused about the difference between guidance (which is free) and financial advice (which is not). There was, more Definitions fundamentally, confusion at the regulatory level, which was reflected in For more on the the wording of the Bill. She thought the term “debt counselling” (rather meaning of’ guidance’ 139 than debt advice) should be used as this was the regulated activity. and ‘advice’ see Appendix 2 Baroness Buscombe explained why the Government thought “debt advice” was the appropriate term to use:
137 HL Deb 21 November 2017 c79 138 Ibid c80 139 HL Deb 19 July 2017 c1650; FCA, PERG 17.2 – debt counselling 43 Commons Library Briefing, 15 August 2018
First, “debt advice” reflects a broader set of activities than “debt counselling”, and this broader set of activities is precisely what the new body will have a duty to deliver. For instance, while “debt advice” can be said to cover providing recommendations for individuals about which debt solution they should pursue, as well as adjusting individuals’ debts through a debt management plan, “debt counselling” can be said to cover only the first of those activities. Secondly, I should note that, like financial advice, debt advice is an activity regulated by the FCA. It involves advisers offering a personal recommendation to an individual which steers them towards a particular course of action. Under FCA rules, in giving this recommendation the adviser is required to make it clear that they are giving a consumer regulated advice. Only those providers who have been authorised by the FCA to deliver this service or who are exempt from the requirement can provide this advice […] “Guidance” in this context refers to the provision of generic information about money matters without the inclusion of a personal recommendation. Authorisation is not required for guidance, so using a term such as “debt guidance” would, we believe, be equally misleading. The second reason why I do not believe that we should amend the term “debt advice” brings me back to the underlying purpose of ensuring that the language we use is clear, accurate and consistent.140 She also said that the Financial Advice Working Group had concluded that there was no value in changing the terms. Those delivering the service would, of course, need to ensure that people were clear whether they were being advised to take a course of action or given a range of options. They would also signpost people to the best source of advice and guidance for them.141 Debt advice would take account of an individual’s broad situation, including their pension, but would not provide specific recommendations about which pension options to pursue (for example, whether to opt out).142 Meeting the needs of vulnerable customers At Commons Committee stage, Mhairi Black argued for the importance of the new body being as accessible as possible for all people, regardless of their circumstances. She moved an amendment that would require that specially trained advisers and guidance was made available to people in vulnerable circumstances and provide “an indicative list of what vulnerable circumstances might include.”143
Guy Opperman explained that a Government amendment in the Lords (to ensure that the body’s “information, guidance and advice is available to those most in need…bearing in mind in particular the needs of people in vulnerable circumstances”) had created a statutory framework that would give “clear direction to the new body to support
140 HL Deb 19 July 2017 c1659; See also HC Deb 11 September 2017 c2273 141 Ibid 142 Ibid c1659 143 PBC Deb 1 February 2018 c9
44 Financial Claims and Guidance Bill 2017-19- debates in Parliament
people in those circumstances.” Beyond that, the Government did not want to be too prescriptive.144 Mhairi Black’s amendment was defeated on division by 9 votes to 1.145 Provision for self-employed people In the Commons Committee, Jack Dromey said that as self-employment had increased, so had demand for advice about business-related debts. For self-employed people, personal and business debts were often bound up together. He proposed that the SFGB should be required to provide them with information, advice and guidance about both business-related and personal debt and finances, with a focus on those most in need. The Minister recognised that this was not a simple issue with no precise dividing line. MAS made specific provision for the self- employed and this should continue. The SFGB would not operate in a vacuum. There was online business advice provided by MAS and BEIS. It was important to avoid duplicating a pre-existing government service. He would go away and consider the matter before Report and Third Reading.146 In a letter on 13 February 2018 Pensions Minister Guy Opperman said the Bill allowed the SFGB to continue to support organisations such as the Business Debtline, which allows for support to be provided on personal debts including where they are incurred providing support to a business.147 Definitions Mhairi Black proposed that within three months of being established, SFGB should be required to define the terms information guidance and advice. The distinctions between them were not well-understood, although the implications were important.148 Mr Opperman responded that the FCA had done a lot of work to clarify the definition of financial advice. Introducing a new definition was unnecessary and potential duplication. Furthermore, the existing bodies that were being merged to form the new body did not want the terms defined. They wanted a degree of latitude, as at present.149
3.3 Functions The Government intended the SFGB to have four functions: • the provision of debt advice in England • the provision of money guidance across the UK • the provision of pensions guidance across the UK • to work with others in the financial services industry, the devolved authorities and the public and voluntary sectors to
144 Ibid c10 145 Ibid c11 146 PBC Deb 1 February 2018 c13-5 147 Letter to Craig Mackinlay 13 February 2018 148 Ibid c16 149 Ibid c19
45 Commons Library Briefing, 15 August 2018
support the co-ordination and development of a national strategy in three key areas: ─ to improve people’s financial capability ─ to improve the ability of members of the public manage debt ─ to improve the provision of financial education to children and young people.150 A fifth – the consumer protection function - was added by an opposition amendment at Report Stage. The purpose was to allow the introduction of a ban on cold-calling.151 As a result, section 3 (1) reads: (1) The single financial guidance body has the following functions: • The pensions guidance function; • The debt advice function; • The money guidance function; • The consumer protection function; • The strategic function. Debate Impartial and free at point of use Section 3 (4) and (6) provides for the SFGB’s pensions guidance, debt advice and money guidance functions to be “free and impartial.” This phrase was added to the Bill as a Government amendment at Lords Report Stage, having been raised first in Grand Committee by Baroness Drake. She argued that it was important for the Bill to be clear on these points, particularly in view of the FCA’s Retirement Outcomes Review, which had found that mistrust of pensions could lead people to take poor decisions. The Minister agreed in principle.152 Baroness Buscombe returned to the issue at Report Stage, inserting the terms “public” and “free and impartial” into the clause: […] The existing organisations already provide free services and we are clear that this should not be any different when those services transfer to the new body. We agree that guidance from a provider with a vested interest in the decision a customer makes carries a greater risk of being partial. Impartiality—ensuring that the person or organisation giving the information, guidance and advice has no vested interest, whether that be the single financial guidance body itself or its delivery partners—should be central to the new body’s ethos. This amendment provides certainty on these two important matters.153
150 DWP, Creating a single financial guidance body: response to consultation, July 2017, para 2.5 151 HL Deb 24 October 2017 c849-64 152 HL Deb 19 July 2017 c1671-2 153 HL Deb 24 October 2017 c872
46 Financial Claims and Guidance Bill 2017-19- debates in Parliament
In response to a question from Baroness Cousins, the Minister provided information about how the service would work for the self-employed.154 Pensions guidance function – pension dashboard Section 3 (4) of the Act states that: “The pensions guidance function is to “provide, to members of the public, free and impartial information and guidance on matters relating to occupational pensions” In Lords Committee debate, Baroness Drake proposed adding “matters relating to the state pension.” She said: I do not seek to interfere or intervene in the role of the Government’s Pension Service. My focus is on the ability of the new body to give holistic guidance in helping members of the public. For many, the state pension will be the most important risk-free element of their income in retirement.155 Baroness Buscombe responded that DWP was responsible for policy and administration of the State Pension and offered “a range of information and guidance through a variety of contact channels for people wanting to know about their state pension.” The SFGB would be able to “provide general guidance on the state pension in the same way as the existing services do now, for example, as general information on its website or as part of discussions with people.”156 To this, Baroness Drake responded that: The Bill is silent on the state pension. It would be welcome if there were some clarification—even if it is a sort of future banking—of what the function can embrace, in a way that is acceptable to the Government and the Government’s Pension Service guidance embracing the state pension.157 Baroness Drake also proposed extending the pensions guidance function to include the pensions dashboard: a digital interface where individuals will, in future, be able to “see all the information on their state pension and their different pension savings pots.” She said the dashboard was currently being developed by providers under the auspices of the Treasury but that there was a “huge governance challenge”: Near-universal coverage raises the governance bar on protecting consumers from bad behaviour by providers, unregulated providers and scammers, when all their pensions and savings data can be identified and drawn down into one place, accessible through a digital identity. Those with a fiduciary duty, such as trustees, will not release their members’ data to the dashboard unless they have confidence in the governance. Moreover, it is necessary to address providers that are reluctant to put all relevant data on to the dashboard, such as for customers holding higher- charge legacy pension products.158 Research had shown consumers had a “clear preference for the single- destination model for the dashboard and an anticipation or implicit
154 HL Deb 19 July 2017 c1670 155 Ibid c1708 156 Ibid c1710 157 Ibid c1712 158 Ibid c1708
47 Commons Library Briefing, 15 August 2018
assumption that it would be run by the Government or a government- backed service.”159 Baroness Buscombe responded that the drafting of the function as it stood would be wide enough to cover a number of operational options, including hosting a dashboard.”160 Baroness Drake returned to the issue on Report, saying that the potential scale of the dashboard raised the issue of “public control over its implementation and rollout” and that the Government needed to give clarity on the consumer benefits and public policy outcomes that the dashboard is expected to deliver.161 Baroness Buscombe responded that the Government is committed to the delivery of the pension dashboard project and is working with industry and others on the “complex issues still to be addressed”.162 Baroness Drake welcomed the fact that a report on the dashboard to be published in Spring 2018 would enable further scrutiny.163
The issue was revisited at Commons Committee stage where Jack Dromey proposed that the SFGB should be required to provide a pensions dashboard as part of its pensions guidance function. The data of millions would be accessible through the dashboard, so high standards, tough regulation and sound governance would be required to ensure there was no abuse of a mechanism that was crucial to helping people plan their future.164
Mr Opperman responded that although it was very possible that the SFGB would ultimately run the dashboard, he did not want to commit to that in the Bill. DWP was currently undertaking a feasibility study on which he hoped to brief the House before the end of term. There were many complexities to consider: There are a considerable number of complexities with the dashboard: the retention of a huge amount of different types of data, whether from state pension data or private pensions; who has access to that data; who controls it; and whether that is something that should be done by the Government, as ultimately the most trusted provider—regardless of whether one trusts or does not trust any particular Government—or by a relatively independent quango such as the single financial guidance body. There is an issue about what body would take it forward and hold the data, and the extent to which the data is accessible, to whom and in what way. The objective was to launch the dashboard by May 2019.165
In a report published on 5 April 2018, the Work and Pensions Committee said the “case for a publicly-hosted pensions dashboard is clear cut.” It recommended that the Government introduce a “single
159 Ibid c1708 160 Ibid c1710-2 161 HL Deb 24 October 2017 c874 162 Ibid c878-9 163 Ibid c879 164 PBC Deb 1 February 2018 c21 165 Ibid c23
48 Financial Claims and Guidance Bill 2017-19- debates in Parliament
pensions dashboard, hosted by the forthcoming new single financial guidance body, funded by the industry levy and in place by April 2019.”166 In July 2018, the Government said it would publish its feasibility report in due course: The Government shares the Committee’s belief that the interests of consumers must be at the heart of a pensions dashboard. The importance of trust is a theme that runs throughout the user research surrounding dashboards. The Government’s review of existing user research found that users were wary of being sold to or having their data misused and expressed a preference for government involvement in a dashboard. The existing research also found that the idea of multiple dashboards confuses users, and that it was unclear how their data could be kept secure in this scenario. The Government’s own user research echoed these findings, but in addition found that some people might trust a dashboard service if it were offered by their own bank. The Government is considering how a dashboard service can meet the various needs of a range of consumers. The Government will set out its conclusions on this as part of its feasibility report to be published in due course.167 The Committee also recommended that the Government “mandate all pension providers to provide necessary information to the pensions dashboard.”168 The Government said it would consider coverage and legislation in its feasibility report: The Government agrees with the Committee’s view on phasing in scheme participation to enable, for example, smaller legacy DB schemes sufficient time to get their data in order. User research and international evidence present a strong case for comprehensive coverage and compulsion. The Government will consider coverage and legislation in the feasibility report.169 Debt advice function Section 3 (5) of the Act requires the SFGB “to provide free and impartial information and advice on debt in England“.
Lord Stevenson proposed requiring the SFGB to commission the provision of “sufficient debt advice services, which are to be free at the point of use, to meet the needs of people in financial crisis in England.”170 The Government agreed it was important to ensure sufficient funding for debt advice. The SFGB would submit a business plan for approval by the Secretary of State, which will then form the basis on which the Secretary of State will instruct the FCA to raise funds from its levy.171
166 Work and Pensions Select Committee, Pension Freedoms, HC 917, 5 April 2018, para 48-50 167 Pension freedoms: Government response to the Committee’s Ninth Report, HC 1231, June 2018 168 Work and Pensions Select Committee, Pension Freedoms, HC 917, 5 April 2018, para para 50 169 Pension freedoms: Government response to the Committee’s Ninth Report, HC 1231, June 2018 170 HL Deb 19 July 2017 c1714 171 Ibid c1717-8 49 Commons Library Briefing, 15 August 2018
Money guidance function Section 3 (6) of the Act outlines the money guidance function: “This is to “provide, to members of the public, free and impartial information and guidance designed to enhance people’s understanding and knowledge of financial matters and their ability to manage their own financial affairs”.
Lord McKenzie thought that the activities under this function should be spelt out on the face of the Bill. Baroness Buscombe responded that: Under money guidance, the single financial guidance body will provide information and guidance on all money matters, including budgeting and saving, insurance, financial advice, bank accounts, protection from fraud and scams, planning for retirement, and debt solutions. This information and guidance will be provided to all members of the public mainly through a central website and call centre, but the body will also be able to delegate this function to external providers. It will also fund financial capability initiatives, designed to help people manage their finances better and gain the confidence, skills and knowledge to engage with the financial services sector.172
The Bill would allow the SFGB to provide money guidance itself or to ensure its provision through commissioning from external providers (see Section 6 below).173
A holistic service Section 3 (8) provides that the SFGB or a delivery partner, when providing information, guidance or advice to an individual under one function must consider if that person would benefit from receiving it under any of the other functions: (8) Where the single financial guidance body provides information, guidance or advice to a person in pursuance of one of the functions mentioned in subsection (1) (a) to (c), it must consider whether the person would benefit from receiving information, guidance or advice in pursuance of any other of those functions (and it must ensure that SFGB delivery partners are under a similar duty). In debate, Baroness Buscombe said that this would facilitate the “bringing together of expertise to address the difficult and sometimes interrelated financial issues that people experience in terms of budgeting, savings, retirement planning and problem debt,” which was a cornerstone or the policy of the SFGB.174 This was an issue that had been raised by Peers - including Lord Stevenson and Baroness Altmann - at Committee stage.175 In response to Baroness Altmann’s point that debt advisers needed to be able to
172 Ibid c1719-20 173 Ibid 174 HL Deb 21 November 2017 c80 and 93 175 HL Deb 6 September 2017 c2012-14 50 Financial Claims and Guidance Bill 2017-19- debates in Parliament
consider whether that person should opt out of a workplace pension, Baroness Buscombe had said: The point, notwithstanding that it is becoming one body, is that we do not expect a situation in which someone receives all the information from one individual. When someone is in problem debt, for example, and worried about bailiffs, the initial outcome of the debt advice session has to be on stabilising the situation. That may be followed with more in-depth support to understand the root causes of the debt problem and how to address them. […] We want it to be as seamless as possible and provide a more seamless customer journey, but it will not be perfect given that advice is regulated and guidance is not.176 The strategic function Section 3 (9) provides that: the SFGB’s strategic function is to develop and co-ordinate a national strategy to improve: (a) the financial capability of members of the public, (b) the ability of members of the public to manage debt, and (c) the provision of financial education to children and young people. Issues raised by Peers in debate included: • Whether the SFGB should be specifically required to provide financial education to care leavers. Baroness Buscombe responded that there would be a national strategy to enhance financial capability, building on the work done by MAS.177 • Whether financial education should be added to the primary school curriculum.178 In its response to the Lords Select Committee on financial exclusion, published in November 2017, the Government said that the new national curriculum introduced in 2014 had made financial literacy statutory for the first time as part of the curriculum for 11 to 16 year olds. However, it was important that the national curriculum gave teachers “far greater flexibility to innovate in how they teach, and to develop new approaches that will engage children in their education more effectively.”179 • Whether the SFGB should have a duty to improve financial inclusion.180 The Government took the view that it should not. The FCA already had responsibility for and powers to intervene when the financial services market failed to supply affordable products and services.181 The SFGB would be required to develop
176 Ibid c2018-9 177 HL Deb 19 July 2017 c1722-3 178 Ibid c1725-6; House of Lords Select Committee on financial exclusion, Tackling financial exclusion: A country that works for everyone, HL Paper 132, March 2017, summary of recommendations, para 6 179 HM Government, Government response to the final report of the Lords Select Committee on financial exclusion, Cm 9524, November 2017, para 4.7 180 HL Deb 6 September 2017 c1975 181 HM Government, Government response to the final report of the Lords Select Committee on Financial Exclusion, Cm 9524, November 2017, para 5.69-73; FCA, Ageing population and financial services, on 21 September 2017
51 Commons Library Briefing, 15 August 2018
a strategy to improve financial capability and should not be distracted from that.182 • Whether there should be a review of the impact of the Welfare Reform Act 2012 on financial inclusion. 183 The Government rejected the idea, saying that evaluation mechanisms were already in place.184 • Whether the SFGB should be required to produce a report advising the Secretary of State on how government departments might “best assess the impact on financial inclusion, financial capability and household debt of any proposals for a change to public expenditure, administration or policy.”185 Lord Young responded that this would expand the remit of the SFGB “far beyond what was originally envisaged.” The financial impacts on individuals and families were considered as a normal part of policy-making.186 Baroness Drake did not agree – arguing that a lot of the groundwork had already been done by MAS.187 • How to ensure front-line activities had priority for resources.188 Baroness Buscombe said this was on objective. Governance arrangements would be set out in a framework document, including “requirements for preparing, securing approval for and publishing its corporate and annual business plans.”189
Jack Dromey returned to the issue of financial education in schools at Commons Committee stage. Guy Opperman responded that the curriculum was ultimately a matter for the Department for Education.190 In response to arguments that the SFGB needed to provide financial guidance relevant to the modern labour market, the Minister said he agreed that the body needed to be “future proof and flexible, to meet the challenges that an evolving modern economy might bring.”191 3.4 Pensions guidance function Section 4 requires the SFGB to provide the pensions guidance currently provided by Pension Wise – in particular to help people“to make decisions about what to do with the flexible benefits that may be provided to the member or survivor.”192
182 HL Deb 6 September 2017 c1983-5; For the difference between financial inclusion and capability, see Government response to Lords Select Committee final report on financial exclusion, Cm 9524, November 2017, para 2.4 183 House of Lords Select Committee on financial exclusion, Tackling financial exclusion: A country that works for everyone, HL Paper 132, March 2017, summary of recommendations, para 22 184 HL Deb 6 September 2017 c1985 185 Ibid 1988-90 186 Ibid c1992-5 187 Ibid c1884 188 Ibid c2007 189 Ibid c2009 190 PBC 1 February 2018 c33 191 Ibid c32 192 HL Bill 131-EN, para 66; HL Deb 6 September 2017 c2044; Pension Schemes Act 2015, s47 and Sch 3
52 Financial Claims and Guidance Bill 2017-19- debates in Parliament
An opposition amendment –– at Lords’ Report stage- to increase take up193 was removed at Commons Committee stage and replaced by government amendments as discussed below.194 Advice on equity release Baroness Greengross proposed that the SFGB should provide guidance on other sources of retirement income, including housing wealth, to enable members of the public to make fully informed decisions about pensions and retirement income. Because some people felt unable to afford advice, or were unwilling to pay for it, it was important that impartial guidance was available to enable pension income and housing wealth to be considered together.195 Baroness Kramer expressed support, saying that given the complexity of equity release products, people needed to be directed to financial advice through the guidance mechanism.196 Lord Young responded that: As part of its pensions guidance and money guidance functions, the body will provide general information and guidance to members of the public about the benefits of saving towards retirement, and the range of products available to provide income in retirement.197 These services are already provided by MAS and TPAS. With the establishment of the SFGB, they would be provided in a more joined-up way. The SFGB might provide general information on equity release and sign-post people to regulated advisers as appropriate.198
3.5 Delegation to delivery partners Section 5 enables the SFGB to delegate functions to delivery partner organisations. Lord Stevenson proposed that these operations should be restricted to “companies which are established for charitable or not-for-profit purposes” – although he said this was a second order issue, provided the advice was free. Lord Young responded that “any help funded by the new body will be free at the point of use.”199
193 clause 5 (2) of HL Bill 131; HL Bill 131-EN 194 PBC Deb, 1 February 2018, col 5 195 HL Deb 6 September 2017 c2040 196 Ibid c2043 197 Ibid c2044 198 Ibid c2045 199 HL Deb 6 September 2017 c2059-60 53 Commons Library Briefing, 15 August 2018
3.6 Debt respite scheme Provision for a debt respite scheme (section 6 and section 7) was added by the Government at Third reading in the Lords, following practice in Scotland where a Debt Arrangement Scheme (DAS) has been in place since 2007. Background In Scotland, a person heavily in debt has three main options: • Protected Trust Deeds (broadly equivalent to Individual Voluntary Arrangements (IVAs) in England and Wales); • Bankruptcy – formally known as sequestration; or • Debt Arrangement Scheme (DAS), which is a statutory form of debt repayment that provides a debtor with an extended time to pay off their debts in full. The first two (protected trust deeds and bankruptcy) are insolvency options. They involve an insolvency practitioner taking control of, and usually selling, all the debtor’s assets and distributing the proceeds to creditors. Under both insolvency options, if there are insufficient assets, the debts will be written off once a debtor has complied with their legal requirements. In contrast, a DAS is more akin to a statutory debt management plan. The intention is that most debtors will repay their debts in full because of their participation in the scheme. A key advantage of the statutory DAS is that it is possible to compel a creditor to comply.200 How the DAS works In brief, the DAS allows someone to pay off their debts over an extended period through a debt payment programme (DPP) based on their disposable income. The DPP can be for any amount of money and can last for any reasonable length of time. There is no need to attend a court, but the debtor must receive advice from an approved money advisor before applying for a DPP.201 Creditors must consent – or be deemed to consent – to the application, or the DAS administrator must agree that the repayment proposal is “fair and reasonable”. Creditors are required to accept repayment proposals which have been agreed by the DAS administrator and cannot take enforcement action against the debtor. Once a DPP has been approved, debtors are required to make one monthly payment towards their debts which is then distributed to their creditors. Crucially, interest, fees and charges on included debts are frozen from the date of application, provided the debtor commits to the DPP and makes all their repayments. It is possible for debts included in a DAS to be written off in some circumstances. The debtor can apply for “write off” if they have made
200 The legislative background to the DAS is set out in Appendix 3 201 A DPP is not available to anyone who has already been sequestrated (gone bankrupt) or signed a trust deed 54 Financial Claims and Guidance Bill 2017-19- debates in Parliament
repayments for 12 years and have repaid at least 70 per cent of their original debt.
Key features of the DAS in Scotland202 • A moratorium on debt enforcement - Under the scheme a debtor is given time to get advice on their debt situation, free from the threat of formal enforcement action from creditors. It includes freedom from things like seizing money in a bank account or goods belonging to the debtor but allows informal enforcement action such as phoning or writing to a debtor to demand payment. However, a creditor taking informal enforcement during the moratorium lacks the ability to threaten formal action to back up their demands. Debtors applying for the DAS are required to get money advice from an approved money adviser. As part of that process, the adviser can apply for a six-week freeze on debt enforcement while the debtor considers their options. Only one application can be made in any 12- month period, to protect the interests of creditors. Provisions in the Bankruptcy and Debt Advice (Scotland) Act 2014 extended the option to apply for a moratorium on debt enforcement to debtors considering bankruptcy or a protected trust deed. This is linked to requirements to seek advice from an insolvency practitioner or approved money adviser before applying for these options. • The DAS Register - Accountant in Bankruptcy (Scotland’s Insolvency Service) is responsible for maintaining the DAS register (which contains all the relevant details of DPPs). • Uptake - The number of debtors using the DAS in Scotland has remained lower than expected despite later enhancements to make the scheme more attractive (see Appendix 3). For those heavily in debt, the requirement for debtors to be able to repay their debts in full to participate in the scheme means that it is not a suitable option.
The Act Section 6 requires the Secretary of State to seek advice from the SFGB on the establishment of a debt respite scheme within three months of that body being established and for the SFGB to provide the advice within 12 months of its establishment.
A debt respite scheme is designed to do one or more of the following: • Protect indebted individuals from further interest and charges; • Protect indebted individuals from enforcement action from their creditors, or • Ensure that debtors and creditors can devise a plan to repay some or all of their debts affordably.203 Section 7 requires the Secretary of State to consider whether to make regulations for the establishment of a debt respite scheme ‘as soon as is reasonably practicable’. After receiving advice from the SFGB on the scheme’s design, operation and implementation. Subsection 4 allows the Secretary of State to make regulations: to provide for a scheme which would apply to England only, a combination of England and
202 This section was written by Abigail Bremner, SPICe, Scottish Parliament 203 Explanatory Notes, para 69 55 Commons Library Briefing, 15 August 2018
Wales or Northern Ireland, or for the regulations to apply across England, Wales and Northern Ireland. Subsection 5 would allow the Secretary of State to make regulations to provide for a scheme which would apply to different geographical areas, and for different purposes. Lords debate The establishment of a debt respite scheme was raised by Peers on several occasions during the Lords debates.204At Report Stage, Lord Stevenson moved an amendment to require the SFGB to operate a debt respite scheme whereby authorised debt providers, who approached the SFGB for advice or guidance in relation to a specific case, could receive statutory protections for their clients for the period during which advice or guidance was being sought. He argued that: In my experience most people with unmanageable debt and sufficient resources, most of whom want to repay their debts, can be brought on to a formal repayment plan which ensures that their creditors will receive more of their outstanding debt – and in a shorter timeframe than if those creditors had resource to legal action. But it is abundantly clear that this whole process is enhanced if the person with unmanageable debts can be given some time to sort out what their actual financial situation is; to work out with advice what constitutes a sustainable budget; and to sign up to a formal debt-management plan.205 Baroness Buscombe said the Government agreed with the aim but was concerned that the amendment might jeopardise the effectiveness of a ‘breathing space’ and the operation of the SFGB.206 Responding to the amendment though, the Government proposed its own amendment to enable the introduction of a ‘breathing space’ Lords Third Reading stage … the amendment provides the legislation that will allow us to implement [a breathing space scheme] … it provides for details of the scheme to be set out once more detailed policy design has taken place. This is crucial, given that the Government are committed to listening to expert views put forward in the call for evidence. It also requires the Government to receive advice on the design of the scheme from the single financial guidance body, which will be important given the body’s expertise and central role in supporting indebted consumers.207 The amendment would enable the SFGB to be involved in the scheme design: The Government plan to complete an extensive policy development and consultation process over the next year. As set out previously, we published a call for evidence last month on this topic, and intend to consult on a specific policy proposal in the first half of 2018. Through this process we will have established a
204 HL Deb 6 September 2017 c2011; HL Deb 11 September 2017 c2301 205 HL Deb 31 October 2017 c1284-6 206 Ibid c1291 207 HL Deb 21 November 2017 c85
56 Financial Claims and Guidance Bill 2017-19- debates in Parliament
robust blueprint of a breathing space scheme, informed by the expert views of the sector.208 The SFGB would be asked to provide advice within 12 months on specific issues. Clause 8 would enable, but not require the SFGB to introduce such a scheme in Wales and Northern Ireland.209 The amendment had cross-party support.210 Commons debate At Public Bill Committee stage, Jack Dromey proposed that the Secretary of State should be required to “set up a debt respite scheme within 6 months of this Act coming into force.”211 Economic Secretary to the Treasury John Glen responded that this would not be possible. The Government hoped to lay regulations as soon as possible in 2019: Members of all parties agree that creating a breathing space scheme will have significant benefits for thousands of the most vulnerable families. However, it will need to be designed properly and implemented in partnership with the debt advice sector and creditors. Creating a scheme will ensure that vulnerable consumers have time to assess their financial situation and begin to deal with their debts. The Government are committed to establishing a scheme as quickly and effectively as possible, including through the passage of the Bill […] The Government are clear that it will not be possible to conclude that process within six months of Royal Assent, which is what the amendment would require. […] My officials are currently working hard to analyse responses to the Government’s call for evidence on the scheme, which closed on 16 January. Following that process, we will consult on a single policy design proposal this summer. In tandem, we will ask the new body for advice on specific aspects of the scheme that it is well placed to advise on, to ensure the scheme is rolled out smoothly and embedded in the practices of the debt advice and creditor sectors. We will seek that advice immediately after the body is established, and it will be very tightly framed to ensure that the process does not delay the scheme’s introduction. Throughout the period, my officials will be drafting regulations to introduce the scheme and I can confirm that they will be laid as soon as possible in 2019.212 The call for evidence on the breathing space ran between 24 October 2017 and 16 January 2018. The Government published its response on 18 June 2018.213
208 Ibid c85-94 209 Ibid c86 210 Ibid c87-89 211 PBC Deb 1 February 2018 c52 212 Ibid c55-7 213 HM Treasury, Breathing space scheme: call for evidence response, June 2018 57 Commons Library Briefing, 15 August 2018
3.7 Guidance and directions Section 8 provides for the Secretary of State to issue guidance and give directions to the SFGB about the exercise its functions. The directions must be published and the SFGB must “have regard to guidance and comply with directions.”
The Delegated Powers and Regulatory Reform Committee recommended that the guidance should be subject to Parliamentary scrutiny because people required by statute to have regard to guidance “will normally be expected to follow the guidance unless they have cogent reasons for not doing so.”214
In debate in Lords Committee stage on 6 September 2017, Lord McKenzie proposed that the Secretary of State should be required to publish the guidance as well as the directions.215 Baroness Buscombe said the SFGB could seek guidance concerning government procurement rules and how they should be interpreted and that it would be important that it could do so in a “straightforward and candid manner.” It would be “disproportionate to expect a statutory instrument to be drafted and for Parliament to scrutinise it.”216
Lord McKenzie was concerned that the Government had not taken into account what the Committee had said on the distinction between “guidance that the recipient is free to disregard and guidance to which the recipient must have regard and must follow.”217
3.8 Setting standards Section 9 requires the SFGB to set standards from time to time which must be complied with by those who deliver its functions. In debate, Lord Stevenson asked what this standard-setting would involve. He raised the question of whether there would be an overlap with the existing regulatory framework operated by the FCA, potentially adding to the costs on providers. He asked the Government to make it clear that the SFGB’s powers would be “moderated by some sort of framework.”218 Baroness Buscombe responded that the body would be required to obtain FCA approval prior to finalising the standards. This would ensure that they complemented the FCA’s debt advice authorisation process. In developing and updating the standards, it would be expected to “work closely with a range of stakeholders, including delivery partners.” The standards would play an “important role in enabling members of the
214 DPRRC, First Report of 2017-19, Financial Claims and Guidance Bill, 13 July 2010, HL Paper 10 215 HL Deb 6 September 2017 c2063 216 Ibid c2265 217 Ibid c2266; DPRRC – First Report of 2017-19, Financial Claims and Guidance Bill, 13 July 2010, HL Paper 10 218 HL Deb 11 September 2017 c2267
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public to have confidence in the services provided by or on behalf of the body.”219
3.9 Monitoring and enforcement of standards Section 10 requires the SFGB to monitor and ensure compliance with the standards and requires the FCA to review and assess the body’s standards and its monitoring and enforcement regime at least once every three years.220 Lord Stevenson asked what the enforcement would involve.221 Baroness Buscombe responded that: Where the FCA has carried out a review of the body’s monitoring and enforcement of the standards, we would expect the body’s annual report to cover any recommendations made by the FCA and how the body has responded to them. In addition, the Secretary of State has the ability to issue a direction to require the body to include such information in its annual report if necessary.222
3.10 Funding of the SFGB The funding arrangements for the SFGB are: • Section 11 allows the Secretary of State to pay grants, make loans or provide other forms of financial assistance to the SFGB to meet expenditure in connection with its establishment and for the purpose of enabling it to carry out its functions; • Section 12 amends the Pension Schemes Act 1993 to allow the Secretary of State to make regulations imposing levies to meet specified types of expenditure; • Section 13 amends the Financial Services and Markets Act 2000 (FSMA) to allow the Financial Conduct Authority to make rules to recover a proportion of the Secretary of State’s funding for the SFGB from the Financial Service Levy; and • Section 14 amends FSMA to make rules to recover expenses incurred or expected to be incurred by the devolved authorities in connection with debt advice from the Financial Service Levy. In the Lords Committee stage on 11 September 2017, Lord Stevenson asked how the case for funding the SFGB would be made and what accountability for funding received there would be.223 Lord Young responded that accountability and governance matters would form the basis of the framework document agreed between DWP and the SFGB. The SFGB would be required to prepare annual business plans setting out its planned activity and the proposed budget
219 Ibid c2270-1 220 HL Bill 131-EN, para 87 221 HL Deb 11 September 2017 c2278 222 Ibid c2282 223 Ibid c2292
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requirements. In preparing its plans, it would work closely with stakeholders.224 With regard to the levy: Each year, the Secretary of State will instruct the FCA to collect the financial services levy to meet the costs of debt advice as well as specific pensions guidance provided by Pension Wise. It will recover expenses for general pensions guidance from funds collected under the levy on pension schemes. Amounts to be collected under both levies are consulted on.225 He explained why the Government had decided to leave responsibility and funding for debt advice with the devolved authorities: … decisions on the use of funds for debt advice are best made locally, so that local knowledge is captured in decision-making. The devolved authorities currently deliver, among a broad range of things, guidance on housing and welfare reform. Leaving responsibility for debt advice with the devolved authorities will create opportunities for them to deliver joined-up services that reflect the needs of people in Scotland, Wales and Northern Ireland. This is a change from the existing arrangements but it has been welcomed by the devolved authorities, placing decision- making and accountability for the delivery of debt advice locally in each country. HM Treasury officials and Ministers are working closely with their counterparts in the devolved Administrations to ensure that the devolved authorities will be appropriately resourced to provide for the delivery of debt advice in their nations. The Government expect to reach an agreement with the devolved authorities on the funding mechanism shortly.226
3.11 False claims about the provision of information The Government amended the Bill at Lords Report Stage to make it an offence to impersonate the SFGB. Section 15 makes it an offence: […] for a person to create the impression that they are providing information, guidance or advice on behalf of the SFGB when this is not the case. There is a defence available to those who took reasonable steps to avoid committing the offence.227 Section 16 is designed to make it easier to prosecute responsible individuals where the offence is committed by an organisation.228
At Lords Committee stage on 11 September 2017, Baroness Drake proposed making it a criminal offence for a person to behave in a way which indicated that they were giving advice and guidance on behalf of the SFGB when they were not. It is already a criminal offence to impersonate Pension Wise. A deterrent was necessary because: […] the human cost of receiving fraudulent, wrong, conflicted or partial guidance from organisations or persons who win people’s
224 Ibid c2294 225 Ibid c2293 226 Ibid c2296 227 Explanatory Notes para 95 and 96 228 Ibid para 97
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trust by misleading them into believing they are acting under an authorised government initiative can be dreadful, leading to irreversible financial losses, life-changing losses, debt and more.229 In Committee, Lord Young said that the Government had decided that the existing range of offences was sufficient.230 However, at Report Stage Baroness Buscombe indicated that the Government had decided to create a new bespoke offence after all: The amendments will make it a criminal offence for someone to hold themselves out as providing information, guidance or advice on behalf of the single financial guidance body when that is not the case. It will prohibit the impersonation of the body itself, in phone calls or via webpages, and of the body’s delivery partners if the impersonator claims to be providing services on behalf of the body. The provisions are designed to make it easier to prosecute individual members of organisations where the offence is committed by an organisation. As with the existing offence for Pension Wise, the new offence is summary only. It proposes a maximum sentence of 51 weeks in England and Wales although, until the commencement of Section 281(5) of the Criminal Justice Act 2003, the maximum sentence is six months. The maximum sentence in Scotland will be 12 months and in Northern Ireland six months. The offence also allows the courts to impose fines—an unlimited fine in England and Wales, and a maximum fine of £5,000 in Scotland and Northern Ireland. Criminal justice is a devolved matter in Scotland and Northern Ireland; that is the reason for the differences in sentences and fines. The new offence will provide an additional deterrent to existing criminal offences such as fraud. […] Unlike fraud, there is no need to prove intent to make a gain or to cause a loss for this offence. However, where scams and fraud are particularly serious, the offence does not limit in any way the ability to prosecute the criminals with offences that attract higher sentences—for example, fraud, which carries a maximum custodial sentence of 10 years.231
3.12 Requirements on pension schemes to recommend guidance Following the debates in the Lords, two new clauses were added to the Bill as Government amendments at Commons Committee stage. Section 18 requires the FCA to make rules requiring trustees or managers of personal and stakeholder pension schemes to check whether members have either received guidance or advice or have opted out of receiving it before accessing or transferring their pension assets. Section 19 makes equivalent provision for occupational pension schemes.232
229 HL Deb 11 September 2017 c2284 230 Ibid c2286 231 HL Deb 31 October 2017 c1311 232 PBC Deb 6 February 2018 c88-91 61 Commons Library Briefing, 15 August 2018
Debate in the Lords At Lords Committee stage, Lord Sharkey referred to FCA findings that take-up of Pension Wise was low. It had “consistently identified DC pension customers’ poor awareness of their options and the distrust, disinclination or inertia that can so easily lead to poor decisions” and vulnerability to scams and fraud.233 He proposed requiring people to have had guidance from Pension Wise or advice before they could access flexible pension saving.234 In response, Lord Young gave an update on usage, arguing that this “clearly demonstrates that the work we and the industry are doing to promote Pension Wise guidance is working.” The FCA had found that take-up was low but had highlighted mitigating factors – for example that the vast majority of pots that had been fully withdrawn were small. He said that the right way forward might be to “wait for the full report of the FCA and consider its recommendations.”235 Baroness Drake later moved an amendment that would require the FCA to set rules requiring effective signposting to the SFGB to increase take- up.236 Baroness Buscombe said the FCA had already committed to “updating its current measures and, where appropriate, will look into creating new rules to increase uptake of the new body’s services”.237 Lord Sharkey returned to the issue at Report stage. His amendment would: […] require the FCA to change its rules to make possible the provision of last-minute information and guidance to those who have not already had it and who are about to access or transfer their pension assets. The FCA would be required to write into its rule book a requirement for trustees or pension managers to ask members, or their survivors, at the point at which they require access to or transfer of their pension assets, if they have received the information and guidance mentioned in Section 3 of this Act. If they say no, the FCA may require the trustee or manager to provide access to such information and guidance before proceeding.238 He was supported by Baroness Altmann and Lord McKenzie.239 Baroness Buscombe responded that such decisions should be made on the basis of the fullest information available, ensuring that any intervention went to the “heart of addressing any weakness in the system”. The FCA would produce the final report of its retirement outcomes review in the first half of 2018. In the meantime, there were already requirements on providers to give retirement risk warnings and to include information in ‘wake-up’ packs.240 Additional protections applied in the case of individuals requiring a transfer of ‘safeguarded
233 HL Deb 6 September 2017 c2047 234 Ibid c2047 235 Ibid c2049-50 236 HL Deb 11 September 2017, c2288 237 Ibid c2291 238 HL Deb 31 October 2017 c1294 239 Ibid c1296 240 Ibid c1303
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benefits’ (with an element of guarantee).241 The Lords voted to accept Lord Sharkey’s amendment by 283 votes to 201.242 Debates in the Commons In a report published in November 2017, the Work and Pensions Committee said the amendment fell short of ensuring guidance was a default and proposed an alternative: 7.We recommend that Clause 5(2) of the Financial Guidance and Claims Bill be strengthened to ensure that an individual receives or expressly refuses guidance before being granted access to a pension pot. The details of what constitutes a choice not to receive guidance should be set out in Financial Conduct Authority rules, following public consultation. So too should the details of appropriate exemptions in instances where: • the pot concerned is of low value; • the individual has already received guidance or advice; or • the transfer in question is a routine consolidation of pots. The Government should use its existing powers to place equivalent requirements on trust-based defined contribution pension schemes. These measures would establish a proportionate system of default guidance on pension freedoms, promoting shopping around, better-informed decision-making and protection against scams. Our proposed amendment is shown at the end of this report. (Paragraph 46)243 The report included draft legislation – new clause 2: default guidance. At Public Bill Committee stage, Shadow Pensions Minister Jack Dromey proposed an amendment that would: strengthen the provision in the Bill for requiring members of pension schemes to be given access to guidance in specified circumstances, so as to ensure that guidance was actually received or expressly refused.244 He was concerned that many people were “entering into transactions without proper prior knowledge of their options and the consequences”. His amendment would mean that scheme members would need to “either indicate that they have received the appropriate guidance before accessing the pension assets, or explicitly state that they do not wish to receive it.”245 Pensions Minister Guy Opperman argued that the Government’s proposed approach was an improvement on both the Lords’ amendment and that of the Work and Pensions Select Committee: The Government amendments are specifically in keeping with the intent of the Work and Pensions Committee, and go further. They make provision for all schemes providing flexible benefits, including all defined-contribution schemes regardless of whether
241 Ibid c1304 242 Ibid c1305 243 Work and Pensions Select Committee, Protecting against scams: priorities for the Financial Claims and Guidance Bill, Conclusions and recommendations, Third Report of 2017/19, HC 404, para 3 244 PBC Deb 1 February 2017 c41 245 PBC Deb 1 February 2017 c42 63 Commons Library Briefing, 15 August 2018
they are personal, stakeholder or occupational pension schemes, including in Northern Ireland […] The Government amendments will ensure that there is what we consider proper consideration and co-operation between the Financial Conduct Authority, the Secretary of State and the single financial guidance body so that the FCA rules and regulations are effective, workable and consistent. This is a discrete, important point […] The proposal is that there regulations should be informed by consultation. I think all parties agree on that but suggest different mechanisms to get there [...] I have set out new clause 1, which is the effective replacement of clause 5(2). The specifics are that we believe that there are greater criteria and tests in the Government amendments than there are in the Work and Pensions Committee amendment.246 Under the Government’s approach: The provider will be required to ask members and other beneficiaries looking to access or transfer their pension benefits if they have received either pensions guidance or independent financial advice. If the member indicates that they have not received guidance or advice, the provider will have to recommend that they seek it. The provider will also have to ask the member whether they want to wait while they access guidance or advice, or, crucially, to confirm that they want to proceed without receiving it. That will do two things from a behavioural nudge perspective—I suspect we will talk about behavioural nudges at great length. First, asking the scheme member if they would like to wait before accessing their pensions benefits so that they can receive guidance will give a clear steer that receiving guidance is the default option. Secondly, asking people to confirm that they want to access their pension without first receiving guidance ensures that the scheme member has to take an active decision to opt out. We believe that that strikes the right balance. It ensures that people are encouraged to take guidance without removing the element of personal choice. It also does not inconvenience those who have already accessed appropriate guidance or independent financial advice.247 The amendments would provide a framework. There would be consultation on the detail of how it would work, including: […] how the interaction between the scheme and the member will take place, including how the questions and recommendations in individual cases are phrased, so as to make the nudge as effective as possible. Within that framework, the FCA and the Department will, for example, require schemes to provide members with a separate letter expressly recommending that they either take pensions guidance or indicate in writing that they do not want that guidance. The amendments will also provide scope for the FCA and the Department to update rules on technology and customer needs as they change over time.248 He was happy to go away and assess the nature of the debate and try to provide more detail on Report or Third Reading.249
246 Ibid c44 247 Ibid c46 248 Ibid c47 249 Ibid c47
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Craig Mackinlay said some people still needed advice – which for people with small pots was simply not available in the market.250 Jack Dromey said the Government’s proposed wording was not yet good enough: Ultimately, we seek an outcome in the Bill that puts it beyond any doubt that the individual can be shown to have made a conscious decision and to have decided not to access that guidance. The Minister has referred to a nudge, which has its place but, frankly, a nudge alone, in the traditional sense of the word, is not enough at this stage. We need a strong statutory obligation and entitlement […] To be frank, there is no flesh on these bones to show what needs to be done at the next stage.251 The Opposition amendment was defeated on division by 8 votes to 6. The Government amendment to remove the relevant Lords amendment (then clause 5 (2)) was made.252 The Government’s amendments to add the two new clauses (now sections 18 and 19) were also made.253 Government amendment at Commons Report stage In its response to the Select Committee in February 2018, the Government said its amendments closely aligned with the recommendations of the Committee and, it believed, improved upon the Select Committee’s draft.254 However, it made further amendments at Report Stage.255 Presenting the revised provisions to the House of Lords, Baroness Buscombe explained that they placed new duties on managers and trustees of all DC pension schemes, building on the amendments made by the House of Lords and proposed by the Work and Pensions Committee. Discussions on the issues had brought out two key issues: The first was that any requirements should be based on the presumption that people have not already accessed Pension Wise guidance. The second was that, if people are to opt out of accessing such guidance, it might be desirable for that opt-out decision to be made and communicated to a body other than their own pension scheme.256 She said the Government’s amendments provided a workable way to achieve the consensus position reached in those discussions: When an individual seeks to access or transfer their pension pot, these duties will ensure that members are referred to Pension Wise guidance, that members receive an explanation of the nature and purpose of that guidance, and that before proceeding with an application, subject to any exceptions, schemes must ensure that members have either received Pension Wise guidance or have explicitly opted out.
250 Ibid c50 251 Ibid c51-2 252 Ibid c52 253 PBC Deb 6 Feb 2018 c87-91 254 Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill: Government Response to the Committee’s Third Report, 21 Feb 2018, para 3.5 255 HC Deb 24 April 2018 c836 256 HL Deb 1 May 2018 c1995-6 65 Commons Library Briefing, 15 August 2018
Rules and regulations must specify how, and to whom, the member must confirm that they are opting out. This allows for the opt-out process to be separated from schemes. Rules and regulations will set out the detail of the opt-out process based on evidence of what helps people take up Pension Wise guidance. This approach is completely aligned with the Select Committee in another place. The committee recommended that the details of how an individual could expressly turn down the opportunity to receive guidance should be set out in FCA rules following public consultation. It is important that new requirements introduced in this area are operationally deliverable for schemes and the new guidance body. Detailed rules and regulations should be based on evidence of what delivers the outcome we all want: more people taking up Pension Wise guidance and a robust opt-out process. These amendments provide scope to test what works best and to update the approach as the pensions landscape, technology and the needs of the users change. This might be through direct hand- off of the member from the scheme to Pension Wise, including for the purpose of conducting an opt-out process, or through providers booking Pension Wise appointments for their members. Further, these clauses also require the FCA, the Secretary of State and the new body to work together to develop and deliver these new requirements. As is customary, before making the rules and regulations the FCA and the Secretary of State will need to consult, providing the proper opportunity for public scrutiny of proposals before they are commenced.257 Labour Peer Baroness Drake said the rules should “not give administrative control to the providers particularly of the opt-out process, given that providers will not be impartial because they have a direct interest in retaining the consumer as a customer for their product.”258 Former Pensions Minister Baroness Altmann did not think the provisions went far enough. Instead of being strengthened, the default guidance provisions added by noble Lords have been replaced with clauses that merely require pension providers to refer savers to guidance if they have not yet done so. This introduces no new requirement for providers beyond what is already required by FCA rules. The new clauses also leave open the possibility that savers may opt out of guidance by their scheme provider.259 Baroness Buscombe responded that the effect of the Government amendments would be to deliver a “strong final nudge.” Mandating guidance would not be right. There would be consultation on rules and regulations before they were commenced.260 Following the new guidance requirements, section 20 of the Act requires the FCA to make general rules requiring specified authorised persons (those giving guidance) to signpost persons specified in the
257 Ibid 258 Ibid c1997 259 Ibid c1998 260 Ibid c2001 66 Financial Claims and Guidance Bill 2017-19- debates in Parliament
rules to financial guidance. The FCA must consult the Secretary of State, the Treasury, and the SFGB before publishing these rules. In the report of its Retirement Outcomes Review published in July 2018, the FCA said it would consult with the new Single Financial Guidance Body before publishing new rules in this area: 1.34 The Bill has now become the Financial Guidance and Claims Act 2018 (the Act). The Act requires us to make rules providing that, before proceeding with an application to access or transfer a consumer’s pension savings, firms must ensure that the consumer has either received appropriate pensions guidance or opted-out of receiving it. 1.35 The Act gives the FCA discretion in certain areas. For example, the Act says we may make rules specifying what constitutes appropriate pensions guidance, and to potentially exempt some consumers, such as those with small pots. This gives us the opportunity to consider how guidance can best be delivered to maximise take-up and impact, and whether some consumers might benefit from an alternative approach. Further, the Act says we may make rules about how, and to whom, a consumer indicates they have received or opted-out of pensions guidance. Therefore, we need to consider whether the consumer should indicate their decision to opt-out to the SFGB or their pension provider. 1.36 The Act requires us to consult with the SFGB before consulting on rule changes. We will be discussing these issues with the SFGB once it is formed. In the meantime, working with Government, we will look to test various approaches in order to ensure that our rules support consumers effectively. 1.37 Once we have consulted with the SFGB we will be saying more, but our aim will be to ensure consumers get consistent, high-quality guidance.261
3.13 Pensions cold-calling Section 21 enables the Secretary of State to “make regulations banning unsolicited direct marketing (or cold-calling) in relation to pensions.” Section 22 enables the Secretary of State to keep under review whether banning cold-calling in relation to consumer financial products and services would be appropriate. These provisions replaced an Opposition amendment in the Lords to enable the Secretary of State to ban cold- calling on the advice of the SFGB. 262 Debate in the Lords Peers, including Baroness Altmann, had expressed concerns that there was no ban on pension cold-calling in the original Bill. Baroness Buscombe initially responded by saying that work was underway to develop a ban that would be robust, and that the Government had committed to bringing forward legislation when parliamentary time allowed.263
261 FCA, Retirement Outcomes Review, July 2018 262 Clause 4 HC Bill 60 263 HL Deb 6 September 2017 cc2052-5
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Lord Starkey returned to the issue at Report Stage, proposing the amendment that was clause 4 of the then Bill.264 Baroness Buscombe responded that several measures were already in place to restrict unsolicited marketing.265 She said that although the proposed amendment would give the Secretary of State the power to ban cold- calling, it would not give him power to enforce it. She said the Government had already committed to ban cold-calls relating to pensions and intended to publish draft legislation for scrutiny in early 2018.266 Lord Sharkey’s amendment was accepted by 253 votes to 205.267 In a report published on 11 December 2017, the Work and Pensions Select Committee welcomed clause 4 but said it was “flawed, because it ties that ban to the establishment of a new financial guidance body”, which could delay a ban until 2020. It proposed an alternative clause 4 which would require the Government to introduce a ban by June 2018 at the latest but would enable it to set out the details in regulations: This will allow outstanding issues to be resolved without being tied to a lengthy parliamentary process. Importantly, it will also mean the ban will be future proof: capable of being adapted as scams evolve. The regulations should specify the scope of the ban, including: • the forms of communication, services and products to which it applies; • what constitutes an unsolicited communication; and • exemptions for legitimate business contact.268 The report included draft legislation – new clause 1: pensions: ban on cold-calling. At Second Reading on 22 January 2018, Work and Pensions Secretary Esther McVey said the Government was reviewing alternative proposals for banning pension cold calling under the Bill.269 In its response to the Committee on 21 February 2018, the Government said it agreed in principle and would bring forward its own amendment.270 Government amendment in the Commons The Government tabled its own amendments in advance of Report Stage on 24 April 2018. Economic Secretary to the Treasury, John Glenn explained: I am pleased to present new clause 9, which builds on and improves the clause proposed by the Committee. The Government’s new clause has a wide scope, which means that we can ban all pensions-related calls. Crucially, we do not need to
264 Hl Deb 24 October 2017 c850 265 Ibid c860-1 266 Ibid c862 267 Ibid c868 268 Work and Pensions Select Committee, Protecting against scams: priorities for the Financial Claims and Guidance Bill, Conclusions and recommendations, Third Report of 2017/19, HC 404, para 3 269 HC Deb 22 January 2018 c44 270 Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill: Response to the Committee’s Third Report 21 February 2018 68 Financial Claims and Guidance Bill 2017-19- debates in Parliament
wait for advice from the guidance body before we implement a ban, so we can make good on our commitment to ban pensions cold calling quickly. I hope that the fact that I will have to lay a statement before both Houses if we have not laid regulations before Parliament by June will reassure hon. Members on that point. I turn to new clause 4. It is clear to me that, too often, significant consumer detriment arises because of cold calling. If we find evidence that people are experiencing detriment as a result of cold calling regarding consumer financial products, we will not hesitate to use this power to protect consumers. I am pleased to be able to confirm the final part of our approach to protect consumers from cold calling by means of amendment 10. The amendment expands and improves on the consumer protection function. It gives the body powers to publish regular assessments of consumer detriment resulting from cold calling, and to advise the Secretary of State on where further bans should be implemented. The change clarifies the consumer protection function and gives the body a clear mandate to support the Government in preventing harm that results from cold calling. In fact, the Bill has been agenda-setting in relation to cold calling. The amendments that we are discussing will give the Government new powers to ban cold calling in some the areas that are the most pressing when it comes to protecting consumers.271 Shadow Pensions Minister Jack Dromey welcomed the fact that the Government had taken the powers to ban cold-calling for pensions. He thought a duty of care should apply across all financial service providers: At present, the Financial Services and Markets Act 2000 requires that the FCA must have regard to “the general principle that consumers should take responsibility for their decisions”. Frankly, that is not good enough. The Financial Services Consumer Panel told the Lords Financial Exclusion Committee that consumers could reasonably be expected to take responsibility for their decisions only if firms had exercised a duty of care towards them. It suggested that such a duty would oblige financial services providers to avoid conflicts of interest and act in the best interests of their customers. The panel proposed amending the law to require the FCA to make rules on a duty of care, arguing that the introduction of such a duty would lead to a much-needed cultural change in the banking sector and the financial sector more generally.[…] A specific requirement therefore needs to be explicitly stated to ensure that all financial institutions do their best by the most vulnerable people in society.272 Frank Field, chair of the Pensions Committee, raised two points: First, not only should cold calling become unlawful, but any information that arises from it should not be used for commercial purposes—that is, in respect of pension savings. Secondly, would it not be sensible to use the opportunity presented by this Bill to add the Financial Conduct Authority to the list of bodies in the Government’s policing arm to counter activities that unlawfully
271 HC Deb 24 April 2018 c784 272 Ibid c788
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undermine people’s pension savings by trying to persuade them to move their assets in one way or another?273 John Glen said they would continue the dialogue on the issue.274 The Government’s new clauses were added to the Bill.275 When the Bill returned to the Lords for consideration of Commons amendments, Liberal Democrat Peer Lord Sharkey proposed amendments aimed at “removing the period of offshore cold calling.”276 Baroness Buscombe said the government expected the SFGB “to respond promptly as and when evidence of consumer detriment in relation to cold calling is available.” The measures in the Bill would be complemented by existing and forthcoming data protection legislation – which would prohibit further use of data obtained through an unlawful cold call. The Information Commissioner had arrangements with international regulations to enable enforcement action where companies operating wholly abroad make calls into the UK that would appear to be unlawful if made in the UK.277 On 12 July 2018, the Government made a statement on pensions cold- calling as required under the Act: Pensions cold calling is an important and complex issue. Pensions scams can have devastating consequences and cold calling is the most common method used to initiate pensions scams, so the government has taken the time to ensure the ban works for consumers. The government will imminently publish a consultation seeking views on a set of draft regulations to ban pensions cold calling. Once we have considered all responses to the consultation, in the Autumn we intend to lay regulations under the affirmative procedure and subject to parliamentary approval bring the regulations into force as soon as possible thereafter.278 A consultation on draft regulations was published on 20 July 2018.
3.14 Minor and consequential amendments Section 25 and Schedule 3 provide for minor and consequential amendments. In debate in the Lords, Baroness Altmann proposed removing paragraph For more 33 of Schedule 3, the purpose of which was to cancel provision made information, see by the Bank of England and Financial Services Act 2016 (s32) to ensure that Pension Wise could provide guidance to people wanting to sell the Library Briefing Paper CBP-07707 Secondary income stream from their annuity. Since that legislation had been annuities market, passed, the Government had decided to cancel plans for a secondary August 2018 annuities market because of concerns around consumer detriment.279
273 Ibid c795 274 Ibid c815 275 Report stage proceedings, 24 April 2018 NC4 and NC9; HC Deb 24 April 2018 c815 276 HL Deb 1 May 2018 c2005 277 Ibid c2007=8 278 HCWS854 12 July 2018 c854 279 HM Treasury press release, 18 October 2016
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She argued that the provision did not need to be explicitly removed, it could either be considered redundant or to relate to an existing, but little-known provision under which people could sell existing annuities if they were under £10,000.280 Baroness Buscombe said that it did not make sense to mandate guidance on a market that no longer existed and therefore that it was far better to revoke the legislation. However, the broad remit of pensions and money guidance gave the SFGB the option to provide guidance on this if it thought it appropriate.281
3.15 Power to dissolve the SFGB Section 23 requires the Secretary of State to “keep under review the question of whether the SFGB should be dissolved” and, if so, enable it to be dissolved by regulations, subject to a public consultation and the affirmative resolution procedure (i.e. the passing of a motion by both Houses of Parliament).282 The Delegated Powers and Regulatory Reform Committee had said it was inappropriate for the Bill to confer on Ministers a power to abolish the SFGB, particularly unaccompanied by the sorts of procedural safeguards found in the Public Bodies Act 2011 and the Enterprise Act 2016.283 The Government responded that the clause was in line with Cabinet Office guidance relating to the setting up of arms-length bodies.284 However, the Government amended the Bill at Lords Third Reading to add safeguards to the procedures for dissolving the body should that be necessary in future. This would put it beyond doubt that public consultation would be required before the Government could lay any draft regulations to dissolve the SFGB.285
3.16 Interpretation (sponsor department) The SFGB will deliver guidance which spans HM Treasury and DWP’s policy areas. In its response to a consultation in July 2017, the Government said: Whilst the DWP will be the sponsor department, both DWP and HM Treasury have responsibility for ensuring the body receives the support it needs to deliver its statutory functions in an effective and efficient manner.286 Section 26 defines key terms, including what is meant by the Secretary of State:
280 HL Deb 11 September 2017 c2305 281 Ibid c2307 282 HL Bill 131-EN, para 108 282 HM Treasury press release, 18 October 2016 283 DPRRC – First Report of 2017-19, Financial Claims and Guidance Bill, 13 July 2010, HL Paper 10 284 HL Deb 11 September 2017 c2308 285 Ibid c1320-1 286 DWP, Creating a single financial guidance body: response to consultation, July 2017, para 2.24-5
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(2) In this Part, other than in section 1 (7) (a) and paragraph 1 (1) of Schedule 2, references to the Secretary of State are to be read as references to the Secretary of State or the Treasury. The specific responsibilities of ministers in the Department for Work and Pensions and the Treasury would be “set out in a published memorandum of understanding.”287
On 7 March 2018, Chair of the Treasury Select Committee, Nicky Morgan wrote to Economic Secretary to the Treasury John Glen, questioning the rationale for making DWP the sponsor department on grounds that the work of the SFGB was “more integrated with the work of the Treasury and its associated bodies, and that integration will only grow over time.” She said she would welcome a commitment to:
• Re-examine the decision to allocate responsibility for the SFGB to DWP and provide a full explanation if that decision is left unchanged • Commit to regularly review the allocation, especially in the light of changes in the market • Publish the memorandum on the division of responsibilities between DWP and HMT as soon as possible and before the final stages of the Bill.288
In response, Mr Glen explained the Government’s approach: The Government decided that DWP was best placed to be the lead department for the SFGB. DWP has dedicated resources, including an in-house sponsorship team with experience in managing a portfolio of similar arm’s length bodies and a project management team that has been running the project to set up the SFGB. This decision does not change departmental policy responsibilities, neither does it mean that the Treasury will not have an important role in setting the SFGB’s direction. Indeed, policy for the single financial guidance body has been developed jointly by DWP and the Treasury. Once the body is established, DWP and the Treasury will have a common responsibility in ensuring the body is adequately supported to deliver its statutory functions in an effective and efficient manner. Clause 25 of the Bill defines key terms and is clear that all references made in Part 1 to the “Secretary of State” mean either the Secretary of State or the Treasury [other than the references in section 1(7)(a) and the first subparagraph of paragraph 1 of Schedule 2]. The Treasury will retain its existing policy responsibility over financial capability, financial inclusion and consumer debt and expects to work closely with the SFGB on these issues. DWP will be responsible for the day-to-day operational delivery of money guidance and debt advice by the body and its partners, but the Treasury will retain responsibility for the development of a national strategy to improve financial capability, people’s ability to
287 Bill 131-EN, para 114 288 Letter from chair of the Treasury Select Committee to Economic Secretary to the Treasury, 7 March 2018 72 Financial Claims and Guidance Bill 2017-19- debates in Parliament
manage debt, and financial education for children and young people, as described in the body’s strategic function. Key elements of the SFGB’s accountability and governance arrangements are set out in the Bill. However, the details of the relationship between the SFGB and DWP will be set out in a published Framework Document and the details of the respective role of DWP and Treasury Ministers will be set out in a Memorandum of Understanding between departments. The Bill has yet to finish its progress through Parliament and the SFGB will be established no earlier than Autumn 2018. A joint programme of work is underway with the Treasury and DWP developing plans for transition from the existing organisations to the new body. The Memorandum of Understanding will be developed as part of this programme and published when the new body is established.289
289 Letter from Economic Secretary to the Treasury to chair of the Treasury Select Committee, 15 March 2018 73 Commons Library Briefing, 15 August 2018
4. The Bill: part 2 – Claims Management Services
4.1 Transfer to FCA of regulation of claims management services Section 27 transfers regulation of claims management services (CMS) to the overall financial services regulator - the Financial Conduct Authority (FCA). It would also define what CMS comprised. As well as ‘advice or other services in making a claim’. Section 27 (11) defines CMS activity to include: (a) financial services or assistance, (b) legal representation, (c) referring or introducing one person to another, and (d) making inquiries290 Ever since the current system of financial regulation was set up in 2000 the Regulator’s scope has expanded with more and more services coming within its ambit. The previous largest expansion came when consumer credit was passed from the Office of Fair Trading to the FCA in 2014. There was broad support for the change in oversight to the FCA. In Grand Committee on 13 September 2017, Lord Wirral moved amendments to add to the CMS list of activity defined in the clause to include “temporary replacement motor vehicles”. After outlining the complaints against the sector, Lord Wirral explained that his amendments had a specific aim. They would: … extend regulation to all involved in the personal injury claims food chain. In such claims, the claimant is required to obtain and serve a medical report. It might be thought that this would simply involve the claimant’s solicitor contacting—as I used to—a reputable medical specialist and commissioning a report direct. Unfortunately, in the world of high-volume, low-value personal injury claims, this is now a long way from the truth. A whole market has developed for intermediaries to organise the provision of medical reports for solicitors. The solicitor will contact one of these medical reporting organisations, known as MROs, which will have contracts with medical experts all around the country. The MRO then manages the medical appointment, vets the report and invoices the solicitor. These are commercial organisations which take a fee from the system for what they do. That has led to considerable concerns as to their independence and the quality of reports generated. Some solicitor firms have even set up or required their own MROs.291
290 Explanatory Notes, para 191 291 HL Deb 13 September 2017, c2459 74 Financial Claims and Guidance Bill 2017-19- debates in Parliament
Box 2: Credit hire of replacement vehicles Many commentators have pointed to car hire as being an obvious example of the complexity and lack of competition that plagues the insurance industry. The Transport Committee have investigated it292 and the OFT referred the market to the Competition Commission (CC) following a long review. The CC published its Report in December 2013 but failed to suggest meaningful new measures to address the specifics of this problem. The CC (by then the Competition and Markets Authority) found that ‘cost separation’ between the party which typically manages the provision of post-accident services to the non-fault driver and the party which pays for those services (the insurer of the at-fault driver), in combination with various practices in the industry, cause inefficiencies which lead to higher premiums. The amount which at-fault insurers must pay for temporary replacement cars is significantly more than the cost of providing those services. However, it concluded that there was no effective and proportionate remedy.
He continued: Since going live in April 2015, MedCo has had to deal with many attempts to wriggle round the controls imposed by the system. One more serious issue was the creation of shell companies by the big MROs to ensure that they featured more regularly in search results. In November last year, MedCo had to suspend 134 of these shell companies. MedCo now finds itself obliged to attempt to regulate the activities of these MROs without possessing the necessary regulatory powers.293 There was broad support for the amendments. Responding for the Government, Lord Young said that a government review of measures to reduce claims for whiplash was due to be published and that the subject of the amendment would be part of that. He said: … credit hire is the supply of a like-for-like replacement hire vehicle on a credit basis to a not-at-fault vehicle owner following a road traffic accident. This can, of course, be part of the overall insurance claim process, but it is not in itself a claims management activity.294 Lord Wirral withdrew his amendments. Lord Holmes then introduced a new clause which would “create a duty of care on claims management services to act for all customers”. He hoped this could be extended in time to all financial companies.295 There was broad support for the application of a ‘duty of care principle’ to be applied across all financial services. Replying, Lord Young pointed out that FCA rules already reflect (or even replicate) the wording that
292 Transport Select Committee, The Cost of Motor Insurance, Fourth Report 2010-11, HC 591 293 HL Deb 13 September 2017, c2459 294 Ibid c2463 295 Ibid c2465
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the amendment suggested would comprise a ‘duty of care’. 296 As a result Lord Holmes withdrew his new clause. At Lords Report stage, Lord Hunt argued that regulation of ‘claims farmers’ (middleman who encourage people to make compensation claims and who then sells these claims on to a lawyer) should be extended to “include those responsible for offering replacement vehicles on so-called credit hire; and, secondly, to those arranging medical reports.” He argued that the compensation industry was a chain of activity and if one part of that chain was left unregulated, the worst aspects of practice would gravitate towards that weak point.297 His second amendment would have required the FCA to impose a cap on the fees claims farmers can charge in relation to personal injury claims. Responding for the Government Lord Young said that since claims farmers were not the actual CMCs the Bill was not a suitable place to act against them. On the charge cap, he wanted to: remind noble Lords that the duty on the FCA to cap fees—to protect consumers from being charged excessive fees—is specifically in relation to financial services claims for a good reason. As I explained in Committee, different types of CMCs manage claims in different ways. Those dealing with personal injury claims, such as holiday sickness claims, tend to focus on marketing activities. Those in the financial services claims sector, on the other hand, tend to represent clients all the way through the claim process. It is telling that, in 2015/16, 95% of consumer complaints about CMCs related to financial services claims, compared to only 2% that were related to personal injury.298 Consequently, the FCA had little locus to act against purely marketing activity. The amendment was withdrawn. At the Commons Committee stage, two small government amendments were made to the clause “so that the financial promotions regime, which deals with advertising and marketing by regulated firms, applies to claims management activity. Government amendments 3 and 4 will ensure that the financial promotions regime can function effectively.”299 The amendments were not objected to. The Opposition moved a new clause to introduce a duty of care requiring CMCs to act with the customers’ best interests in mind.300 Mr Dromey argued that this was particularly important in respect of the treatment of individuals who were suffering from cancer or other illnesses. Many of his remarks echoed a campaign by the MacMillan Cancer Charity. The Minister, John Glen, responded cautiously “there is huge uncertainty about how a potential duty of care would impact on firms and consumers” and the amendment was withdrawn.301 Further technical amendments were made to Schedule 5 to extend the FCA’s data gathering powers to Scotland.
296 Ibid c2470 297 HL Deb 31 October 2017 c1324 298 Ibid c1327 299 PBC; HC Deb 6 February 2018 c67 300 PBC HC Deb 6 February 2018 c72 301 PBC HC Deb 6 February 2018 c76 76 Financial Claims and Guidance Bill 2017-19- debates in Parliament
4.2 Power to restrict claims management charges Section 28 gives the FCA the power to make rules covering charges made by CMCs.302 It inserts into the existing legislation (Financial Services and Markets Act 2000) the following: The rules must be made with a view to securing an appropriate degree of protection against excessive charges for the provision of a service which is, or which is provided in connection with, a regulated claims management activity. Whereas section 27 would bring CMCs within scope of FCA regulation, this clause would direct what the FCA must focus upon. It would give the FCA the opportunity to set a cap on charges. A price cap has already been imposed on charges made by high cost credit companies (payday loans).
Box 3: CMC charge cap The Ministry of Justice (MoJ) consulted on restrictions on charges made by CMCs in 2016: Claims Management Regulation - Consultation Cutting the costs for consumers – Financial Claims. In the Response to the Consultation,303the MoJ said that consultation responses had “assisted us in gaining a better understanding of the differing business models” and that its original proposals “to restrict completion fees for PPI and PBA claims to 15% (inc. VAT) and to 25% (inc. VAT) for all other financial claims would not be financially viable for many businesses. This was not the aim of the proposals.” The proposed (revised) new measures in the Consultation Response included: All financial services claims • CMCs will be required to ensure that all cancellation charges are reasonable and to provide consumers with an itemised bill setting out details of what the charges relate to • A ban on any charges to a consumer where it is identified that the consumer does not have a relationship or relevant policy with the lender • A ban on any upfront fees being charged to a consumer The following measures will not be made mandatory through the Conduct of Authorised Persons Rules, but are indicative and we encourage CMCs to adopt them: • Payment Protection Insurance (PPI) claims only: a completion fee of 20% (Excl. VAT) of the net amount of the final compensation awarded per individual PPI claim • All other financial claims (including Packaged Bank Account (PBA) claims): a completion fees of 25% (Excl. VAT) of the net amount of the final compensation awarded per product for all other claims in the financial services sector (including PBA claims) The new measures and caps are not part of the current Bill but will be introduced by changes made to the FCA’s rules.
302 Clause 25 of Bill 131 303 Ministry of Justice Claims Management Regulation – Consultation Response; November 2017 77 Commons Library Briefing, 15 August 2018
In the Lords Committee stage, Baroness Altmann moved an amendment under which, a company that lost a case brought by a CMC would pay the CMC charges rather than the CMC customer. She said: If providers were required to pay the CMCs directly rather than customers funding them, there would be an incentive for providers either to proactively contact customers to offer compensation or to make the process of applying for compensation much simpler, thereby encouraging more people to claim directly and saving the extra costs to the provider.304 Lord Young said that such a measure would be an option for the FCA to consider, but it would only apply to FCA regulated firms. Like all other rules it was being considered.305 The amendment was withdrawn. Another amendment drew attention to the fact PPI claims - the principal business of CMCs at present – were subject to a cut-off point (August 2019). Many observers expect there to be a final push by CMCs to extract the most they can from this very lucrative market. At Lords Report stage, Lord Kirkwood moved a new clause to enable the FCA to introduce interim controls on charges which CMCs could levy in PPI cases. The provisions in this clause allow for the FCA to devise a general charge cap, but the (statutory) process of consultation and implementation of such caps can be lengthy and any restrictions might come in too late for the August deadline. The Government accepted the intention behind the amendment and said it would introduce its own amendment on Third Reading.306 On Third Reading, introducing the promised new clause, Baroness Buscombe said: As noble Lords are aware, this Bill already puts a duty on the FCA to cap fees charged in respect of financial services claims. This will ensure fair and proportionate prices for consumers using these services. However, as we have previously discussed, the implementation of the new regulatory regime and an effective, robust cap will necessarily take some time. This is a particular concern, given that the FCA’s PPI claims deadline may have passed by the time the FCA’s fee cap is in place. That is why the Government are introducing an amendment to set a fee cap at 20%, excluding VAT, of the claim value. The interim fee cap will apply to both CMCs and legal services providers that carry out claims management services in relation to PPI claims, to be enforced by the relevant regulators. It will be enforced by relevant regulators from two months after the Bill receives Royal Assent, until the FCA is in a position to implement its own cap. This cap will complement the range of measures in relation to PPI and other financial claims that the claims management regulation unit has announced. These include banning upfront fees and banning charges, where it is identified that the consumer does not have a relationship or relevant policy with the lender, as well as ensuring that all cancellation charges are reasonable and that consumers are provided with an itemised bill setting out details of what they relate to. This package of measures will support the Government’s
304 HL Deb 13 September 2017, c2472 305 HL Deb 13 September 2017, c2472 306 HL Deb 31 October 2017 c1333
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aim to ensure that the claims management sector works in the interests of consumers by protecting them from excessive fees.307 The proposal was welcomed as an excellent example of co-operation from all sides. In Committee in the Commons the substantive clause was agreed to with almost no debate.
4.3 PPI claims and charges for claims management services: general Sections 30 to 32 were inserted at Third Reading in the Lords and establish an interim scheme of restrictions on charges CMCs and other relevant legal service providers can make for regulated services provided in connection with PPI claims.308 The Brady Review had argued that there was likely to be a “spike” in CMC activity in the run up to the deadline for making a PPI complaint and the interim scheme is the way chosen to establish a cap on fees ahead of a general price cap scheme to be devised by the FCA for all CMC activity. The maximum fee cap that applies during the interim period has been set at 20% of the amount recovered for a claimant in satisfaction of their PPI claim. There was a minor amendment to the clause in Committee in consequence of extending the cap on fees to ‘legal practitioners ordinarily regulated by bodies other than the FCA. PPI claims: interim restriction on charges before transfer of regulation to FCA Section 30 inserts general provisions relating to the interim restrictions on charges CMCs and other relevant legal service providers can make for regulated services provided in connection with PPI claims.309 The maximum fee cap that applies during the interim period has been set at 20% of the amount recovered for a claimant in satisfaction of their PPI claim. In the Commons Committee stage, the opposition moved amendments which would mean that firms would be required to pay CMC costs for PPI claims where the firm is found to be at fault and the consumer has used a CMC rather than claim direct. It would only apply for the interim period until the new FCA regulations come into force, or until August 2019 which is the deadline for making PPI claims, whichever is sooner. This issue had been raised in the Lords’ stages too. The effect of the amendment would be that successful claimants would keep all their compensation. Mr Dromey explained why he thought the proposed cap did not go far enough: The FCA estimates that the average payout for PPI mis-selling is around £1,700 which means that a CMC would, on average, charge a successful claimant £476 plus VAT.
307 HL Deb 21 November 2017 c96 308 It was clause 26 of Bill 131 309 It was clause 27 of Bill 131 79 Commons Library Briefing, 15 August 2018
Although the proposed fee cap will reduce the amount that consumers have to pay to CMCs, it would still mean an average charge of £340, with VAT on top. If the Government want to take meaningful action to protect consumers from high fees, they should propose a solution that allows consumers to keep 100% of their PPI compensation. They should require firms to pay CMC costs for PPI claims—capped at 20% and VAT—when they are at fault and the consumer has used a CMC rather than claiming directly.310 The logic behind the amendment (and that in the Lords) was that it would ‘nudge’ at-fault firms to improve their claim process such that CMCs would be less attractive. The Minister thought, however, that it would simply multiply speculative claims: However, it could encourage more speculative and unmeritorious claims, adding waste to the redress system, to the detriment of consumers and the industry. The amendment also has the potential to allow CMCs to charge consumers directly when they are unsuccessful in pursuing a PPI claim. This would serve only to add to the incentives for taking forward speculative claims, and I am not sure that that is the Opposition’s intention. I also do not believe that the measure is necessary. The FCA is already taking direct action to ensure that firms do not make it difficult for consumers to claim compensation, and there have been significant improvements in the handling of PPI complaints by firms.311 The amendment was withdrawn and the clause agreed to. PPI claims: interim restriction on charges after transfer of regulation to FCA Section 31 deals with the application and enforcement of the interim fee cap by the FCA after it assumes responsibility for CMC regulation.312 It mirrors the provisions in the previous clause and was agreed to in Committee without debate. PPI claims: interim restriction on charges imposed by legal practitioners after transfer of regulation Section 32 was introduced by Government amendment during the Commons Committee stage.313 The Minister, John Glen, said: These amendments ensure that legal services regulators can continue to impose fee restrictions for PPI claims from the point at which the transfer of regulation of CMCs to the FCA takes place. This will be effective in the case of the Law Society of England and Wales until it implements its own rules on fee capping and, in the case of the General Council of the Bar and the Chartered Institute of Legal Executives, until 29 April 2020. […] The amendments will ensure that consumers are equally protected from excessive fees when using a legal services provider to make a
310 PBC HC Deb 6 February 2018 c81 311 PBC HC Deb 6 February 2018 c82 312 It was clause 28 of Bill 131 313 New clause 3
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claim for mis-sold PPI, and that there is continuity of coverage for the fee cap throughout the transfer of regulation. This is similar to the existing provisions in the Bill in relation to the FCA.314 The notes to the proceedings state that This new clause requires the Law Society of England and Wales, the Bar Council and the Chartered Institute of Legal Executives, after the transfer of regulation from the Claims Management Regulator to the FCA, to enforce a fee cap in respect of charges by lawyers for certain claims management services provided in connection with a PPI claim until, in the case of the Law Society, the Society has made its own rules about charges for PPI claims, and in any other case, 29 April 2020.315
4.4 Legal services regulators’ rules: charges for claims management services Section 33 was introduced by Government amendment during the Commons Committee stage.316 The notes to the proceedings state that This new clause makes provision about rules prohibiting charges for claims management services which may be made by the Law Society of England and Wales, the General Council of the Bar, the Chartered Institute of Legal Executives and (where the claim concerns financial products or services) the Law Society of Scotland, and imposes a duty on the Law Society of England and Wales to make such rules in relation to claims concerning financial products or services.317 This clause and the related ‘Section 34: Extension of power of the Law Society of Scotland to make rules’, another Government amendment, were discussed together.318 Introducing them the Minister said: New clauses 4 and 5 place a duty on the Law Society of England and Wales to cap fees in relation to financial service claims management activity, and give the Law Society of Scotland a power to restrict fees charges for that activity. The clauses also give some legal services regulators in England and Wales a power to restrict fees charged for broader claims management services, and give the Treasury a power to extend the Law Society of Scotland’s fee-capping power to broader activity in the future. As I am sure hon. Members are aware, claims management services are carried out not only by claims management companies, but sometimes by legal service providers as well.319 As mentioned earlier, the decision to include provisions on CMCs to Scotland was taken after a review by the Scottish Parliament, but after the Bill was first published. Commenting on the Scottish aspect the Minister said: Although the Government are of the view that the regulation of claims management activity is reserved, we have worked in a spirit of co-operation with the Scottish Government to ensure that the
314 PBC HC Deb 6 February 2018 c78 315 PBC HC Deb 6 February 2018 c91 316 PBC HC Deb 6 February 2018 c92 (new clause 4) 317 PBC HC Deb 6 February 2018 c94 318 PBC HC Deb 6 February 2018 c94 319 PBC HC Deb 6 February 2018 c94
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provisions are fit for purpose in Scotland, and that Scottish consumers have the same high standards of protection when using claims management services as consumers in England and Wales. I hope Members agree that the new clauses collectively provide for the best protection of consumers across Great Britain.320
4.5 Cold calling about claims management services Section 35 was introduced by Government amendment during the Commons Committee stage.321 It reflected Government commitments given in earlier proceedings to stop CMCs from ‘cold calling’ individuals about real or fictitious incidents. As outlined by the Minister the amendment sought to: […] ban cold calls made for the purposes of direct marketing in relation to claims management services, except where the person called has given prior consent to receiving such calls. The new clause will insert a provision into the Privacy and Electronic Communications (EC Directive) Regulations 2003, which govern unsolicited direct marketing.322 The Committee also considered an Opposition new clause which had similar intent but it would also ban the use of any data obtained by cold calling.323 Together, these provisions would make cold calling for CMCs illegal and cut off the revenue stream to cold callers, by preventing CMCs using their data. The FCA would set the appropriate penalties for any breach of either of these bans which would come into effect with the passing of this Bill. For the Opposition, Mr Dromey spoke at length about the harm cold calling does. He mentioned, in particular, employees of Tata the steel company who have been mis-advised regarding their pensions and the incidence of claims for ‘food poisoning’ amongst British holidaymakers, some of whom face significant bills from insurance companies fighting back against unjustified claims. He said he would support the Government’s amendment but thought it did not go far enough: [It] inserts a provision into the European Union’s privacy and electronic communications directive, which prohibits unsolicited telephone calls for the purposes of direct marketing, in relation to claims management services, except when the person called has given prior consent to receiving such calls. The provision will treat the telephone numbers of everyone cold called about claims management as if they were listed on the telephone preference service register. In 2017, the ICO received 11,805 reports of unsolicited direct marketing calls about claims management from people already on the TPS register, in addition to reports of 17,112 calls and texts for which absence from the register was not deemed to represent consent. The Government amendment
320 PBC HC Deb 6 February 2018 c95 321 PBC HC Deb 6 February 2018 c95 (new clause 6) 322 PBC HC Deb 6 February 2018 c97 323 New clause 9
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will simply add more cases to the yearly total—28,917 in 2017— and will do little to stop the scourge of cold calling.324 Ellie Reeves (Lab) said the Government’s amendment would create confusion: It would ban cold calling unless someone has given consent. What amounts to consent in this context may not always be clear and people, especially the most vulnerable, may struggle to understand that they have consented to being cold called or may not appreciate what they have consented to. My hon. Friend the Member for Harrow West has raised concerns about the elderly and infirm. The Minister has not today been able to give any comprehensive answer on how those fears will be dealt with. Put simply, new clause 6 does not go far enough to ban the scourge of cold calling.325 Responding for the Government, John Glen said that the Opposition amendment would give “the FCA a duty it cannot enforce under its current regime” by contrast, under Government’s amendment the Information Commissioner: as the regulator responsible for the enforcement of the regulations. It has considerable powers and can issue fines of up £500,000. Under the incoming general data protection regulation, the unlawful use of personal data can attract fines of up to £17 million or 4% of annual turnover. The ICO is committed to enforcing the sanctions in the Privacy and Electronic Communications (EC Directive) Regulations 2003 and has issued nearly £3 million in monetary penalties for breaches of direct marketing since January last year. We have worked with the ICO in developing the new clause, and it is confident that it will be able to enforce it in conjunction with the FCA.326 The Government’s amendment (new clause 6) was agreed to after a division (8 votes to 9). The Opposition amendment (new clause 9) was defeated (9 votes to 8). The Minister wrote to Committee Members on 23 February 2018 to confirm how consent would work in relation to the clause.327
4.6 Extent The Single Financial Guidance Board (SFGB) would deliver its pensions function, money guidance function and strategic function UK-wide. The SFGB’s debt function will only apply to England.328 When the Bill was first issued the intention was that the FCA would regulate CMCs in England and Wales only. With respect to Scotland the impact assessment explained: 100. When the Compensation Act 2006 and accompanying secondary legislation was developed, MoJ received advice stating that claims management services were probably devolved and open to Scotland and Northern Ireland to legislate on if they wish. This view, combined with the policy position of the devolved
324 PBC HC Deb 6 February 2018 c101 325 PBC HC Deb 6 February 2018 c102 326 PBC HC Deb 6 February 2018 c103 327 Letter to Committee members from John Glen 23 February 2018 328 Clause 29 of Bill 131; Bill 131-EN, p6 83 Commons Library Briefing, 15 August 2018
administrations at the time and the lack of evidence of CMC activity outside England and Wales, resulted in the current regulatory scope. Following recent engagement with the devolved administrations, both the Scottish Government and the Northern Ireland Executive have reviewed whether they wished to introduce regulation and concluded that it is neither necessary nor proportionate at this time. This view has been confirmed by the relevant ministers. […] 102. Legislating on this issue in England and Wales does not preclude bringing forward further legislation in future, should ministers or the devolved administrations require.329 However, a subsequent review by the Scottish Government (envisaged at the time the Bill was first drawn up) concluded that they wanted the FCA remit to extend to Scotland. Baroness Buscombe explained that: […] the situation in Scotland has changed since this issue was first discussed earlier this year. Legislation is currently progressing through the Scottish Parliament that will allow Scottish solicitors to offer increased funding options to clients on a no-win no-fee basis. As a result of these changes, Scottish solicitors will no longer need to set up CMCs to offer damages-based agreements to clients, and the CMC landscape is expected to change significantly. To ensure that CMCs are not able to take advantage of this potential gap in regulation by targeting Scottish consumers, the UK and Scottish Governments have now agreed that FCA claims management regulation should extend to Scotland. This will ensure that there are appropriate regulatory standards in place to deal with CMC practices across Great Britain. […] The Scottish Government have confirmed that they will seek the legislative consent of the Scottish Parliament for the CMC provisions as part of the wider legislative consent Motion for this Bill.330 The full detail of the territorial extent and whether a legislative consent motion is needed is in Annex A of the Explanatory Notes.331 In the Commons Committee stage, this clause was amended to reflect the effect of Government amendments, so that Section 27 (transfer of CMC regulation to FCA) would extend to England and Wales only, and Section 35 (cold-calling to E&W, Scotland and Northern Ireland.
4.7 Commencement There was an “ingenious” intervention from Gareth Thomas (Lab) on this clause, but which asked specific, but more general questions. Various amendments were made to the clause to reflect earlier changes to the Bill.332
329 Transferring Management of CMC regulation to the FCA – Impact Assessment, March 2017 330 HL Deb 21 November 2017 c96 331 Financial Guidance and Claims Bill – Explanatory Notes, para 20-1 332 It was clause 30 of Bill 131 84 Financial Claims and Guidance Bill 2017-19- debates in Parliament
5. Appendix 1 – Brady Review of CMC regulation
The Independent review of claims management regulation – the Brady Review – was published in March 2016. Its main recommendations are summarised below: On the Claims Management Regulation Unit (CMRU) itself: • The CMRU has built up an unrivalled level of knowledge and expertise about claims management, and therefore every effort should be made to retain existing staff. • The CMRU should appoint an independent Chair, and broaden its range of non-executive board members to include other regulators who operate within the market such as ICO, SRA and with wider regulatory experience such as the FCA. • The CMRU’s website should be optimised to help consumers choose a service appropriate for their needs and the CMRU Accountability: • There is widespread concern about CMCs simply not complying with existing procedures and requirements. The regulator should therefore undertake to re-authorise all CMCs who wish to continue trading under a robust new process, tailored to the specific sector in which they operate. • Persons wishing to perform controlled functions for a firm regulated by the CMRU should be required to pass a fit and proper persons test and be held personally accountable for rule breaches for which they are responsible. Several recommendations concerned the day to day interaction between CMCs and their clients: • Existing rules require CMCs to disclose key product information but to be effective it needs to be easily understood and recognisable to consumers. A standardised disclosure document for each claims management sector could combine the smarter communications tools identified by the FCA to help consumers to be better informed when signing a contract with a CMC. • Better signposting to alternative claim resolution channels would help to enhance consumer awareness and help them make fully informed decisions. • CMCs should therefore be mandated to record all calls with clients and retain them for a minimum of 12 months following the conclusion of a contract with that client. Several recommendations focussed on enforcement by the CMR: • CMRU should seek to make wider use of warrants and seizure powers, and support to encourage compliance rather than 85 Commons Library Briefing, 15 August 2018
enforcement through greater use of regulatory roadshows, workshops, and training support. • The regulator should consider whether smaller fines or mandatory training may have a complementary effect as a credible deterrent by showing that the regulator will not tolerate persistent or deliberate rule breaches. • Establishing a stronger regulatory regime will increase incentives to avoid regulation entirely. It is therefore possible that there is an increase in unauthorised activity. It is imperative that the regulator is alive to this risk and should take tough enforcement against unauthorised activity and publish on its website as a deterrent. • A proportion of receipts from enforcement activity (i.e. fines) should be used to subsidise enforcement activities. • On balance, given the wide range of reforms already underway in this area, and the expected turbulence and contraction in the market, the least disruptive option would be for responsibility to remain with MoJ. If, however, the Government wants a step change in the regulation of the sector, then the balance would shift in favour of the FCA. 86 Financial Claims and Guidance Bill 2017-19- debates in Parliament
6. Appendix 2 – guidance and advice
Debate in the Lords highlighted that there can be some confusion over key terms – such as the difference between guidance and advice, financial inclusion and financial capability. This appendix defines the key terms. Regulated financial advice Regulated financial advice is an activity specified in article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO). Only firms authorised by the FCA may provide regulated advice. The Government amended this definition in 2017 to the effect that a person has only received financial advice when they receive a personal recommendation. Financial advisers are required to carry out a ‘fact find’ where they ask detailed questions about the individual’s circumstances, goals and how they feel about taking risks with their money. They may recommend specific products. Advice comes with a series of guarantees and consumer protections. The FCA explains: In general, where a firm provides a personal recommendation to a client in the UK, it must take reasonable steps to ensure that its recommendation is suitable for its client. If a firm fails to meet this obligation and provides unsuitable advice and a consumer suffers financial harm as a result, the consumer may complain and seek redress. As a rule of thumb, the firm should put the client back into the position they should have been in had they not provided the unsuitable advice. If the client is dissatisfied with how the firm has dealt with the complaint, the client may be able to refer the complaint to the Financial Ombudsman Service. If the firm has gone out of business, the consumer may be able to seek compensation from the Financial Services Compensation Scheme (FSCS) – or another EU scheme if the adviser is authorised elsewhere and their home state compensation scheme covers unsuitable advice. The cost of compensation paid by the FSCS is paid from levies on authorised financial services firms.333 There is generally a fee for advice which must be paid by the recipient. However, for consumers with relatively straightforward financial needs or small amounts to invest, the cost of regulated advice may outweigh the benefits. Financial Advice Market Review (FAMR) suggested that they might benefit from high quality and more specialised and detailed guidance services. However, firms were reluctant to offer this, for fear of inadvertently straying into the provision of regulated advice without meeting the higher regulatory requirements. Part of the problem was uncertainty about the definition of financial advice, stemming from the fact that UK firms face two definitions – one in the EU Markets in Financial Instruments Directive (MiFID), and the other in the RAO. FAMR recommended creating a single definition, based upon the MiFID
333 FCA, FAMR – call for input, October 2015, p23
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definition, to the effect that people would only receive financial advice if they got a personal recommendation.334 Following consultation, the Government made the necessary changes to the RAO definition by statutory instrument.335 In August 2017, the FCA consulted on how it proposed to amend its handbook for firms affected by the RAO amendment (CP17-28). In December 2017, it confirmed that it would proceed largely on the basis it had proposed (PS17/25). Pensions guidance In contrast, guidance is free to the consumer and aims to inform them about the pros and cons of different types of financial products and services. It does not involve making specific product or provider recommendations, which should be handled by an authorised financial adviser. Ultimately, consumers will be responsible for the decisions they make.336 In connection with the introduction of the pension freedoms in April 2015, the Government introduced Pension Wise to ensure individuals had access to guidance on the wider range of retirement options that would now be available to them. Pensions Guidance is defined in the Pension Schemes Act 2015 as: […] guidance given for the purpose of helping a member of a pension scheme, or a survivor of a member of a pension scheme, to make decisions about what to do with the flexible benefits that may be provided to the member or survivor.337 For more information, see Library Briefing Paper CBP-07402 Pension Wise: the guidance guarantee (September 2017). Debt counselling Debt counselling is defined in the FCA handbook as follows: (1) It is advice given to: (a) a borrower about the liquidation of a debt due under a credit agreement; or (b) a hirer about the liquidation of a debt due under a consumer hire agreement; (see PERG 17.3 for more about what the advice must be about). (2) The advice must relate to a particular debt and debtor (see PERG 17.4). (3) It covers the giving of advice. It does not cover just giving mere information. This is explained in PERG 17.5. (4) If an exclusion applies, the activity is not a regulated activity (see PERG 17.6).338
334 HM Treasury, Amending the definition of financial advice, February 2017; FCA, FAMR Final Report, March 2016, p9, recommendation 2 335 SI 2017/500 and SI 2017/488 336 PBC Deb 4 November 2014 c283 337 Section 47 and Schedule 3 338 FCA Handbook, PERG 17.2 – the basic elements of debt counselling 88 Financial Claims and Guidance Bill 2017-19- debates in Parliament
7. Appendix 3 –Debt Arrangement Schemes in Scotland
This section provides an overview of the development of DAS in Scotland. In Scotland, there are a few ways that debtors can be made to pay after a court order has been made. The most common forms of court enforcement (or “diligence”) are: arrestment, earnings arrestment and attachment.339 The Debtors (Scotland) Act 1987 introduced two forms of so-called “diligence stoppers” (either to prevent court action to enforce payment of overdue debts or to stop the operation of existing diligence). These were: time to pay directions; and time to pay orders. The difficulty, however, was that these “diligence stoppers” were only available from the courts and only applied to single debts; they did not help people who were heavily in debt. In 2002, the DAS was introduced by the Debt Arrangement and Attachment (Scotland) Act 2002 and brought into force by the Debt Arrangement Scheme (Scotland) Regulations 2004. In effect, a DAS acts as a third “diligence stopper”, the scheme allows individuals with two or more debts to get help without having to go to court. Under a DAS, a debtor commits to a debt payment programme (a DPP). Under a DPP, the debtor repays their debts by “affordable” instalments based on their disposable income. In 2007, a number of amendments to the DAS were introduced by the Debt Arrangement Scheme Amendment (Scotland) Regulation 2007, including a provision to freeze interest, fees, penalties and charges in respect of a debt for the duration of the DPP. On 1 July 2011, the Debt Arrangement Scheme (Scotland) Regulations 2011 came into force. They consolidated existing DAS regulations, revoked all previous DAS regulations and introduced a number of new provisions, including allowing debtors with a single debt or those who have granted a trust deed which has failed to become protected, to apply for a DAS. Further changes to the DAS were introduced by the Debt Arrangement Scheme (Scotland) Amendment Regulations 2013, which came into force on 2 July 2013. These changes include the earlier freezing of interest on a debt. Interest, fees and charges in respect of a debt are now frozen from the date that the money adviser (or DAS administrator) submits the application to creditors for approval. Other changes include enabling couples who are each liable for a debt which may be included
339 Other less common ways of enforcing court orders in Scotland include inhibition and adjudication 89 Commons Library Briefing, 15 August 2018
in a DPP, to apply for a joint DPP if their relationship falls within a specified criterion. Importantly, debtors committed to a DPP are also able to apply for a payment break for a period of up to 6 months (with the period of the DPP extended for an equal period), where circumstances specified below have resulted in a reduction in the debtor’s disposable income by 50 per cent or more. Permissible circumstances for the purposes of a payment break are: • a period of unemployment or change in employment; or • a period of leave from employment for maternity, paternity, adoption or to care for a dependent; or • a period of illness of the debtor; or • divorce, dissolution of civil partnership or separation from a person to whom the debtor is married or the civil partner; or • death of a person with whom the debtor shared care (financial responsibilities or otherwise)
About the Library The House of Commons Library research service provides MPs and their staff with the impartial briefing and evidence base they need to do their work in scrutinising Government, proposing legislation, and supporting constituents. As well as providing MPs with a confidential service we publish open briefing papers, which are available on the Parliament website. Every effort is made to ensure that the information contained in these publicly available research briefings is correct at the time of publication. Readers should be aware however that briefings are not necessarily updated or otherwise amended to reflect subsequent changes. If you have any comments on our briefings please email [email protected]. Authors are available to discuss the content of this briefing only with Members and their staff. If you have any general questions about the work of the House of Commons you can email [email protected]. Disclaimer This information is provided to Members of Parliament in support of their parliamentary duties. It is a general briefing only and should not be relied on as a substitute for specific advice. The House of Commons or the author(s) shall not be liable for any errors or omissions, or for any loss or damage of any kind arising from its use, and may remove, vary or amend any information at any time without prior notice. BRIEFING PAPER The House of Commons accepts no responsibility for any references or links to, or the content of, information maintained by third parties. This information is Number 8033 provided subject to the conditions of the Open Parliament Licence. 15 August 2018