§ 5.16 p.m.
§ Lord McIntosh of Haringey rose to move, That the draft regulatory reform order laid before the House on 16th December 2002 be approved [6th Report from the Regulatory Reform Committee].
§ The noble Lord said: My Lords, the Government support the valuable role that credit unions play in tackling financial exclusion and widening access to affordable credit. Their ethos of thrift and self-help, together with their ability to offer savings and affordable credit, particularly for those with modest means, have enabled them to extend the availability of basic financial services to parts of our society that are often ignored by other providers. I believe that this order will play a part in strengthening the position of credit unions into the future. This order also supports this Government's commitment to regulatory reform and reducing the burdens that firms face in financial and retail markets.
§ The order is designed to increase the operational flexibility of credit unions. I shall briefly outline the three separate proposals by which the order seeks to achieve this increased flexibility. First, it will allow credit unions to charge fees to their members for providing ancillary services. Existing legislation does not prevent credit unions from offering ancillary services to their members. However, there is an absence of explicit powers for them to charge for such services. The order will give legal certainty that credit unions can charge for certain ancillary services, such as direct debit and money transmission services.
§ We believe that the ability to recover costs of ancillary services will encourage more credit unions to offer such services—currently where they are offered, credit unions tend to spread the costs of providing this service across the whole membership. Greater provision of these services will increase choice for credit union members. I should also make clear that the order will only permit credit unions to charge a fee to cover the cost of providing the service in question; credit unions will not be able to make a profit from providing ancillary services.1316
§ Secondly, the order increases the range of combinations of common bonds. There is a requirement on credit union members to meet a specific qualification to be eligible to join and therefore form what is called a common bond. The legislation sets out some permitted common bond qualifications. The list has grown over the years and this amendment would facilitate certain combinations of common bonds that are currently not permitted. For example, it would allow credit unions to admit members linked by association (for example, belonging to the same organisation or living in the same neighbourhood) and certain other permitted qualifications. To give a precise example, the order would allow a credit union with a common bond based on membership at a particular church or place of worship to join forces and merge with one which served the local borough or community. The proposal allows new credit unions or credit unions which wish to merge to adopt a wider common bond of membership.
§ Finally, the order will also allow action to be taken against persons using the name "credit union" inappropriately. The 1979 Act sets out the rules governing the use of the name "credit union" which have never been brought into force because they would have had unintended consequences. For example, it would have prevented US credit unions from representing themselves at conferences or conventions in the United Kingdom without facing the risk of prosecution. The order aims to remove those unintended consequences so that provisions can be brought into force to protect the use of the name "credit union" and thereby protect the reputation of the movement.
§ The impetus for the order came from a package of seven deregulatory measures that the Treasury brought forward to complement the Financial Services Authority's new regulatory regime for credit unions, introduced on 2nd July 2002. The Treasury consulted widely on the seven proposals and received significant—in fact, almost unanimous— support for them. Four of the seven proposals have already been implemented through the Financial Services Authority's rule-making powers. The order is necessary to bring into force the remaining three proposals.
§ The Select Committee on Delegated Powers and Regulatory Reform concluded that, within the meaning of the Regulatory Reform Act 2001, the proposals would reduce the burdens that the Treasury had identified, maintain necessary protections, not prevent the continuing exercise of existing rights and freedoms, and achieve a fair balance. I thank the members of the committee for the time that they spent scrutinising the proposals, and for recommending the order to the House. I confirm that the order conforms with the European Convention on Human Rights.
§ The relevant committee in another place also considered that the proposals reduced burdens, and the order was unanimously approved there. I commend the order to the House.1317
§ Moved, That the draft regulatory reform order laid before the House on 16th December 2002 be approved [6th Report from the Regulatory Reform Committee].—(Lord McIntosh of Haringey.)
§ 5.21 p.m.
§ Baroness Wilcox
My Lords, I thank the Minister for his detailed description of this proposal for the order. New to the Front Bench as a shadow Treasury spokesman, I now have my first opportunity to respond to a proposal for a draft regulatory reform, so I am delighted to speak on credit unions, a subject that I know well and on which I am passionately keen.
While chairman of the National Consumer Council, whose job it is to represent consumers with a special brief to represent the voice of the disadvantaged consumer, I was privileged to lead its campaign in the 1990s to encourage the formation of credit unions. We wanted to popularise them in this country as a means of saving and loans, particularly for people on very low incomes who often had no access to credit, other than loan sharks who charged huge interest rates that they often could not meet, which caused misery and despair.
I am heartened to note that between 650 and 700 credit unions are registered in Britain. Last year, membership exceeded 325,000 people. The Conservative Party wishes to do all it can to encourage valid credit unions and the self-help service that they mutually provide. Therefore, along with the Select Committee on Delegated Powers and Regulatory Reform of this House and the Select Committee on Regulatory Reform in another place, we want to support the order.
As we understand it—the Minister described it so well—the order will enable credit unions to charge for the provision of services such as bill payments on a cost-recovery basis. It will increase the range of combinations of the common bonds, and will establish appropriate regulation on the use of the name "credit union", thereby enabling action to be taken against persons using the name inappropriately. We, and I especially, support the regulatory reform.
§ 5.24 p.m.
§ Lord Newby
My Lords, I begin by welcoming the noble Baroness, Lady Wilcox, to Treasury debates. We look forward to many further speeches from her on similar occasions. I join her and the Minister in underscoring our support for the good work undertaken by credit unions. Recent publicity about the levels of interest charged on loans to extremely vulnerable members of society by bodies other than credit unions has demonstrated how difficult it is in many cases for those who do not have bank accounts and credit cards to get credit on a fair basis. The credit unions offer an alternative that is more satisfactory in virtually every way.
I have watched at some distance the attempts to create a credit union in Lambeth. From that, I know that creating one is extremely difficult. The rules are 1318 complicated, and the requirements strict and inflexible. Although that is sensible and good in many respects, when one gets into the financial affairs of people, there is always a risk that those who are unscrupulous will try to take advantage of it. At present, however, the balance is almost too heavily weighted towards prudence. The changes, especially the first two and possibly in the range of combinations allowed within the meaning of "credit union'', will be welcomed by people who are trying to fit their group of people who want to form a credit union into a "credit union" straitjacket.
I have only one question for the Minister. I know that the FSA and the Treasury have looked at slightly loosening the straitjacket, and several measures that he mentioned will be very welcome. However, I wonder whether the order is the end of the process? Is there a sense that the balance is now right, or will the FSA keep the question under review? Despite the ever-increasing proportion of the population that has access to conventional bank accounts and credit, credit unions will clearly continue to play a major part for the vulnerable and poorer sections of society well into the future. I would welcome any comment that he might have about whether the order is the end of the process, or whether there may be a further look to see whether it might be even more straightforward to set up such estimable organisations.
§ 5.27 p.m.
§ Lord McIntosh of Haringey
My Lords, I am grateful to both noble Lords for the way in which they received the order. I am particularly glad that the noble Baroness, Lady Wilcox, is on the Opposition Front Bench dealing with Treasury questions. She may be new to that position but she certainly knows more about credit unions, I should think, than anyone else in the House. Her support for the order is very welcome.
I was trying to cut down on what I was saying so I did not go into the four aspects of the regulation of credit unions which were dealt with last year using the rule-making powers of the Financial Services Authority. Those were: allowing credit unions to borrow money from existing sources other than authorised banks and other credit unions; allowing credit unions to differentiate between certain accounts by paying dividends at different rates and to pay dividends more than once a year; changing the minimum coverage requirements for fidelity bonds; and allowing credit unions to offer up accounts that may be held in the name of more than one member. Those are significant reductions which the FSA was able to do off its own bat, so to speak, without requiring parliamentary approval.
My point in response to the noble Lord, Lord Newby, is that credit unions have not yet started to take up the changes that were made last July. That does not mean that those changes are not welcome and will not be taken up, but credit unions must change their own rules first. The Association of British Credit Unions and other promoting bodies are encouraging them to do that. That means that we perhaps need a short pause to allow all of the seven deregulatory 1319 measures to take effect before we introduce further changes. We do not really want a permanent revolution, in the Trotskyite sense, in the credit union movement.
We do not see this approach as the end of the process. We will continue to talk to the movement to see whether we can help it. If the group of people from Lambeth to whom the noble Lord, Lord Newby, referred would like to write to the Treasury about the matter, I am sure that that could be taken into account in any coming round of further deregulation. The noble Lord and the noble Baroness, Lady Wilcox, 1320 were entirely right to say that these credit unions provide something that is particularly important in these days, when loan sharks are only too common. One only has to read otherwise reputable newspapers to see the sort of offers that are being made. Even with the rules about advertising credit, some people are still clearly exploiting the vulnerable, and credit unions can help to prevent that. On that basis, I commend the order to the House.
§ On Question, Motion agreed to.
§ House adjourned at half-past five o'clock.