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Charles Hendry: What we are talking about is directly related to time orders because one could not apply for a time order without having first received a default notification, so the two are directly linked.
The Minister says that the method of distribution has not changed, and he is right, but the burden of proof has changed. It has shifted from the borrower having to show that something is unfair to the lender having to show that it is fair, so it has shifted fundamentally. If a case were to come to court and the lender said, ''I've got a letter in my file dated such and such, so it must have been sent,'' but the borrower said, ''I never received that,'' a lawyer would not advise the lending company that it could adequately prove that it acted fairly. The fact that the Bill changes the burden of proof means that there will be much greater pressure on companies to show that letters have been received by the people for whom they were intended.
Mr. Sutcliffe: We are getting dragged into later issues, such as the unfair credit test and the burden of proof. The burden of proof in relation to time orders and default notices has not changed. As the hon. Gentleman said, it has changed in relation to the unfair credit test, and we shall discuss the merits of that later. For the time order, however, the burden of proof remains the same. I understand that one has to get the default notice in order to apply for the time order, but one has to know what the time order means. That is the point that I was making. We will discuss
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the burden of proof and the unfair credit test later, and I anticipate that hon. Members on both sides will attempt to get me to make all sorts of definitions of that test. I look forward, Mr. Conway, to reaching those clauses.
2.45 pm
A specific request was made to ensure that people had the opportunity to apply for the time orders. Time orders may enable debtors or hirers to have more time to repay the sums owed under the agreement, and give them more time to remedy any breach of the agreement other than non-payment. Currently, the time order provisions of the Act are not often used. Few are applied for and fewer are granted. A large part of the problem is the lack of information. Debtors and hirers are not aware of the time order provisions, and we are working on ways of informing them about the orders. That will involve including information in arrears and default information sheets to be produced by the OFT.
Another part of the problem is that people cannot apply for time orders at appropriate times. The clause therefore amends section 129(1) of the 1974 Act to allow debtors or hirers to apply for a time order after they receive an arrears notice. That will ensure that the debtor or hirer has the opportunity to apply for a time order when the problem is still developing, not when it is too late.
It is a matter for concern that people will use the opportunity to apply for a time order simply to delay the inevitable. They may also apply simply because they can. We will therefore require people who want to seek a time order to go through certain steps. A debtor or hirer can make an application if he has notified the creditor or owner of his intention to apply for a time order, and in doing so gives details of his proposals; and if at least 14 days has passed since the notification was given to the creditor or owner.
The requirements should not be onerous in practice. It is important that we have simple criteria that can be met by debtors and hirers. Compliance should be simple. The clause encourages creditors and owners to seek to resolve payment problems early. In addition, new subsections (4) and (5) provide that, in Scotland, debtors making applications either for or concerning a time order may be represented by a person who is not a solicitor or an advocate. That means that Scottish debtors will be in the same position as those in England, Wales and Northern Ireland.
Notwithstanding the concerns expressed by hon. Members—I am sure that we will return to them—I hope that the clause will stand part.
Question put and agreed to.
Clause 16 ordered to stand part of the Bill.
Clauses 17 and 18 ordered to stand part of the Bill.
Clause 19
Unfair relationships between
creditors and debtors
Charles Hendry: I beg to move amendment No. 12, in clause 19, page 14, line 8, at end insert—
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'(1A) A relationship between the creditor and the debtor shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations, to the detriment of the debtor.'.
The Chairman: With this it will be convenient to discuss the following amendments: No. 13, in clause 19, page 14, line 8, at end insert—
'(1A) Regulations shall make provision to indicate the circumstances in which the relationship between the creditor and debtor may be regarded as unfair.'.
No. 14, in clause 19, page 14, line 10, after 'to', insert—
'(a) whether the relevant terms of the agreement, or of a related agreement, is in plain, intelligible language; and
No. 15, in clause 19, page 14, line 16, at end insert—
'(3A) If the court concludes that the relevant terms of the agreement were clear and intelligible when the agreement was made, then, notwithstanding the provisions of section 140B(11), it shall be for the debtor to prove that the relationship was unfair.'.
Charles Hendry: The clause is without doubt one of the most important in the Bill. It determines the thrust of what we are trying to achieve—a better, fairer and more responsive system for consumers. On Second Reading, Members on both sides of the House expressed their support for the new unfair relationship test that will be instigated under the clause. We all accept that the current extortionate credit test is outdated and does not work. It offers little or no protection for consumers and it is biased in favour of the credit companies. The fact that it has hardly been used in more than 30 years is evidence of its unsatisfactory nature. We have to address that imbalance.
Notwithstanding my support for a new unfair test, the Minister will be aware that most hon. Members who spoke on Second Reading have serious reservations about the way in which the clause is worded. In particular, concern was expressed about the lack of definition of what will be deemed fair and unfair under the new legislative framework. Although the two sides of the House may be seeking to achieve quite different ends from the new test, at present none of us can be certain that it will deliver what we hope for. It is a chasm that, left unfilled, would prove damaging to lenders and consumers.
On Second Reading, the right hon. Member for Leeds, West (John Battle) talked eloquently of people's concerns about going to court. Even people who are not used to court recognise that they are up against a huge wealthy corporation with enormous resources; and without a thorough understanding of their chances of success, consumers will be deterred from pursuing cases that, if unsuccessful, would not only add to their financial difficulties but cause them tremendous stress. That view is held by the credit lenders and the consumer organisations.
Without a thorough understanding of what lending practices will be considered inappropriate, the credit industry remains unaware of the changes it may need to make to ensure that its consumers are protected. As a consequence, the industry will become more cautious in its lending practices, and that will hit the most vulnerable the hardest. That will do more than
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anything else to drive those people to loan sharks. Moreover, the vagueness of the provisions gives rise to concern about their compatibility with human rights legislation. We spoke about that on Second Reading.
I hope that the Minister will agree that the approach to tackling unfairness in lending must be targeted and consistent. Lenders must be certain from the outset that their contracts are secure, and consumers with genuine cases must be clear about where they stand. The amendments that we have tabled are aimed at providing that certainty.
Amendment No. 12 gives greater clarity to the balance in the relationship between the lender and the debtor by introducing the concept of consumer detriment. For too long, consumer credit law has been biased in favour of the credit industry, and it is important that the emphasis is shifted back to the consumer.
Mr. Alan Reid (Argyll and Bute) (LD): I support the general thrust of the hon. Gentleman's argument, but I am concerned by the word ''significant'' in Amendment No. 12. The amendment states that the relationship will
''be regarded as unfair if . . . it causes a significant imbalance''.
I am concerned that that word would work too much in favour of the creditor. Will the hon. Gentleman explain why he included ''significant''?
Charles Hendry: I am grateful to the hon. Gentleman for his intervention. There has to be some measure of imbalance. We could debate for hours a slight imbalance moving one way or the other. In order for our proposal to be relevant, there has to have been a change of some significance. Again, the courts would have to decide that issue, but there must be some measure of how far the imbalance has gone.
Mr. Edward Vaizey (Wantage) (Con): I may be able to help my hon. Friend, and I hope that I shall be able discuss this issue shortly when we debate the amendments. ''Significant imbalance'' is a legal term that is used generally to define unfairness in all precedents. That is why when the Minister considers the force of the arguments from the Opposition in Committee, he will perhaps see that considerable case law and legal texts on the definition of unfairness appear to be absent from the Bill.
Charles Hendry: I am grateful to my hon. Friend, whose intervention shows yet again what an embarrassment of riches of legal expertise we have on the Opposition Benches.
Amendment No. 13 builds on the point further, by clarifying what is meant by an unfair relationship test to be provided by regulation. Representatives on both sides of the argument have called for more detail, and they need the amendment if this part of the Bill is to benefit the consumer.
I draw attention to annexe 1 of the unfair commercial practices directive, which contains an extensive list of commercial circumstances that may be considered unfair. Mr. Conway, you would of course rule me out of order if I were to read out the
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entire list, but it highlights some commercial practices that it says are in all circumstances considered unfair. It is not an exhaustive list, but it gives guidance. For example, it highlights:
''1) Claiming to be a signatory to a code of conduct when the trader is not.
3) Claiming that a code of conduct has an endorsement from a public body when it does not have.
7) Falsely stating that a product will only be available for a very limited time''—
which could certainly apply to financial issues—
''or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice.''
The list includes:
''14) Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.''
It includes also:
''18) Passing on materially inaccurate information on market conditions or on the possibility of finding the product with the intention of inducing the consumer to acquire the product at conditions less favourable than normal market conditions.''
Finally, it includes also:
''25) Conducting personal visits to the consumer's home ignoring the consumer's request to leave or not to return except in circumstances and to the extent justified, under national law, to enforce a contractual obligation.''
Those practices in the European directive are commercial practices that in all circumstances are deemed to be unfair. We are looking for the Bill to list a similar set of circumstances that would be deemed to be unfair in this country. There is tremendous concern about the lack of clarity and we need something that provides a level playing field so that both the credit companies and the courts will understand what is going on. This clause is the crux of that. I know that other colleagues will be keen to join in the debate, because without that clarity, we are simply struggling in the dark.
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