More than 18,000 people are set to get money back from HSBC after the lender “voluntarily” agreed to extend its redress scheme to customers who fell victim to punitive debt collection charges levied by two of its lenders, the City watchdog has announced. 

This is good news, and couldn’t we all do with some of that right now. But it also once again serves to expose the yawning gaps in the way lenders have been regulated. 

First the background. Between 2003 and 2009, customers who fell into arrears with either HFC Bank or John Lewis Financial Services – both of which are now part of HSBC – were referred to solicitors nominated by the firms. 

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As a result of this, they were walloped with a “debt collection charge” of 16.4 per cent of their balances. It was identified as unreasonable by the old Office of Fair Trading in 2010. The dogged efforts of a whistleblower, who took the Financial Conduct Authority (FCA) to the Complaints Commissioner, which had some fairly sharp words for the watchdog, led it to pick up the case.

A compensation scheme was duly set up that has so far paid out £4m to 6,700 people. It is this that has been extended. The next tranche could see £11m or more paid out. 

For a bank of HSBC’s size, that’s small potatoes and a sum worth paying to make the issue goes away, particularly given the scandals that have rocked this bank in recent years. 

But have you spotted the problem yet? After nearly a decade of toing and froing, it’s the word “voluntary”. 

Some would argue that all’s well that ends well and it wouldn’t happen today. 

But there are plenty of other places where gaps in regulation are still causing grave problems for vulnerable people in difficult situations. 

Take debt collection. Banks may no longer be able to enforce punitive charges. But what about when the bailiffs are sent in? Rules were imposed upon the sector in 2014 but there is no independent regulator to police them. Citizens Advice says they are regularly broken. In the year to the end of March 2019, it helped 40,000 people with almost 104,000 bailiff problems, a 16 per cent increase. In a recent report it described them as “a law unto themselves”.   

Caps are now applied to what payday lenders can charge, limiting total repayments to no more than £2 for every £1 borrowed. They were subsequently extended to the rent-to-own sector and then to so-called unauthorised overdrafts. 

However, they don’t apply across the board. They don’t cover credit cards or door-to-door lenders, for example. Earlier this week, the leaders of 28 anti-poverty charities and campaigning groups wrote an open letter to Treasury economic secretary John Glen complaining of a “lack of action on predatory lending” and urging an investigation. 

In response, the FCA said it wanted to take an evidence-led approach, tailoring its interventions because “simple caps won’t always deliver the right outcomes for consumers”. 

Trouble is, the charities say they are seeing signs of trouble in those sectors where the cap is absent. 

Gaps in regulation can create terrible problems. Sometimes they can only be solved through “voluntary” action which begs the question: what happens if an organisation decides it’s not in its interest to volunteer?  

Consumer debt levels have exploded in recent years. The New Economics Foundation says 8 million people pay out an average of a quarter of their incomes to lenders and that the cap could save households as much as £6bn a year were it to be extended

The FCA can’t close every gap. Creating a regulator to cover bailiffs, or bringing them under an existing one is, for example, in the gift of the government. 

But it can, and it should, act where it can. 

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