Consumer Credit Bill
Mike Penning: That is what I am saying.
Mr. Sutcliffe: I thought the hon. Gentleman was saying that the role of trading standards would be funded. The OFT will fund the aspect that I described, through the licensing fee. The OFT will pass on the money to trading standards.
However, there is a more general point about the future. The hon. Member for Wealden raised the issue of where trading standards fits, although not in specific detail. I was trying to help by pointing out that we acknowledge and recognise the work of trading standards. We acknowledge that local authorities have a keen interest in the future of trading standards. In the general debate that we shall have over the coming months about the future of the proposed CTSA, which came from the Hampton review, the issue of local authority funding relating to trading standards will be high on the agenda.
Michael Fabricant (Lichfield) (Con): To follow on from the points that my hon. Friend the Member for Wealden made, and for the avoidance of any doubt, is the Minister saying that there will be no further financial burden on trading standards, following resolutions passed in the Bill?
Mr. Sutcliffe: Yes.
Charles Hendry: I am fascinated by that because the advice that the Minister referred us to a little while ago from the Office of Fair Trading and which I read, as he suggested, states:
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So, although he said to my hon. Friend the Member for Lichfield (Michael Fabricant) that there will be no additional work, it appears to me that there are new obligations on trading standards services, but they will not now be guaranteed the money from the Minister to ensure that they do not have to cut back in other areas to carry out those responsibilities.
Mr. Sutcliffe: That is very wide of the mark. We are referring to the clause relating to the licensing fee. All that affects the clause under the licensing fee will be funded by the additional fees. I will regret that I did this, but turning to the wider issue of trading standards, there is a discussion to be had in the future relating to the Hampton reviewI am sure that the hon. Gentleman will quiz me on that over the summer and into the autumnon trading standards. That will have an effect on local government. I want to reassure local government that the Government are keen to have discussions about the future in terms of where the CTSA and local government fit in. There will be no further burden on local government in relation to this clause.
Question put and agreed to.
Clause 27, as amended, ordered to stand part of the Bill.
Applications for standard licences
Question proposed, That the clause stand part of the Bill.
Mr. Sutcliffe: The clause gives the OFT the power to manage the application process more efficiently. It requires people to specify what businesses they want the licence to cover in the application for licences. That means that the OFT will be more easily able to identify and scrutinise higher risk sectors and monitor them more closely while reducing the burden on low risk sectors.
The clause will also enable the OFT to specify sub-categories, which is what is meant in the clause by descriptions of business. The clause also divides up the current licence categories of consumer credit, consumer hire, and ancillary credit business. Applicants can apply for a whole category licence, or one or more sub-categories. A whole category licence might cover consumer credit businesses. Within that, a sub-category licence might cover issuing secured loans of up to £10,000. The type of licence depends on the range of activity that the applicant is planning to carry out.
Licensees will be required to demonstrate fitness only for the sub-categories for which they have applied, rather than whole categories as now.
Charles Hendry: Why is this matter being included in the Bill and not being dealt with through regulation? It is constantly evolving. One of the aspects relates to debt adjusting, an issue that was not known about 30 years ago. In 30 years time, new types of business will have been set up, but we simply do not know what they are at this stage. It appears that they will not be covered by this area of the Bill. Subsection (5), on the OFT powers, states that the OFT
and implies that the OFT may be able to bring forward new definitions. However, that appears to relate to descriptions of businesses rather than types of business. The Bill lists a number of types of business, which appear to be set in stone. Would it not be more sensible to deal with this through regulation instead?
Mr. Sutcliffe: I understand where the hon. Gentleman is coming from, but I do not think so. We must be clear about the change in the licensing regime from the Consumer Credit Act 1974 to what we are trying to achieve. There will be the whole licence and then the sub-categories, as set out clearly in the clause. We arrived at that through consultation and discussion with the stakeholders to ensure that we were very clear. I do not think that the scenario that he mentioned will happen. The descriptions that we have given are clear. He is starting to confuse me now because he keeps saying that the Bill is too general, but when we are very descriptive about what we mean, he picks me up on that. I hope that the confusion will clear up as the day goes on.
Charles Hendry: I shall try to assist the Minister immediately. We are calling for greater clarification of all parts of the Bill, but we have asked for that to be done in regulation in most cases so that there can also be flexibility. We have been trying to get a better understanding of what he wants to achieve so that there is no doubt about what the Bill aims to do.
Let me be clear: will the OFT have the power to deal with a new types of business? Subsections (4)(a) to (i) list several types of business. If a new type of business were to develop, would the OFT have the ability simply to change the list and add to it; would it have to try to fit the business into the list, even if that was inappropriate; or could we end up with a situation in which a new type of business would not be regulated because it could not be added to the list?
Mr. Sutcliffe: No, the OFT could not add to the list. That is why the Bill is drafted as it is. It has been set against consideration of the fact that there have been only two new categories in 30 years. The list will protect consumers and what we are trying to achieve will be clear to the industry. I therefore hope that the Committee supports the clause.
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Charles Hendry: That is quite disturbing. It means that we expect the Bill to be on the statute book for 30 years because it is not a natural area of business for Governments to come tumbling back to for reconsideration. The Minister says that two types of business have developed in the past 30 years, which means that it is quite possible that two significant areas of business to emerge in the next 30 years will be unregulated. Surely it is better to allow for that possibility in regulation or to give the OFT the power to add to that list of businesses so that we ensure that all new types of business are regulated as we want.
Mr. Sutcliffe: My confusion is growing. We have consulted the industry and stakeholders, and only two new types of business have emerged in 30 years. The hon. Gentleman is right, although we intend to review the workings of the Act regularly because of the maturity of the market and the effects of it on the sector and our constituents. I believe that 30 years is too long, but the rate of change and what has appeared in the sector are important to the economy. In addition, the types of business are broad. We believe that we have provided the opportunity for new businesses to fit into the types of business defined in the Bill. I hope that that satisfies the hon. Gentleman and that he is able to support the clause.
Charles Hendry: I shall have one more go. Will the Minister reconsider that and determine whether it is appropriate to table an amendment on Report which says that the list of types of business should be reviewed, say, every five years? I know that he has tremendous foresight and vision, but even he might not understand all the ramifications of new types of business that might develop in the next 30 years. So will he reconsider the clause and see whether it would be appropriate to build in such a review?
Mr. Sutcliffe: I am prepared to do that because the hon. Gentleman obviously has something in mind that I clearly have not thought about. What types of business does he think should be covered that are not covered, given the broad range of definitions that we have included? If he can answer that, I might do as he asks.
Mr. Edward Vaizey (Wantage) (Con) rose
Mr. Sutcliffe: It looks as if someone else might be able to give me an answer.
Mr. Vaizey: In our debate on clause 19 in the previous sitting, the Minister said:
That is the point that my hon. Friend the Member for Wealden is making. To quote the Secretary of State for Defence in the United States Administration, there are things that we know and there are things that we do not know, and there are things that we do not know that we do not know. My hon. Friends whole point is that we do not know what businesses might emerge in the next 30 years, which is why it is better to list them in regulations rather than in the Bill.
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Mr. Sutcliffe: I congratulate the hon. Gentleman on trying to support his Front-Bench spokesman so admirably because he was starting to confuse most of us. The point is that the definition clarifies the types of business that will be in place because we have the standard licence and the sub-categories. The guidance on clause 30 sets out a further definition that may help the hon. Member for Wealden.
Michael Fabricant: In a spirit of helpfulness, I wonder whether subsection (6), which states:
answers the question asked by my hon. Friend the Member for Wealden, or whether it is meaningless.
Mr. Sutcliffe: It is certainly not meaninglesswhat an outrage to declare any part of the Bill meaningless. Before the hon. Gentleman so helpfully intervenedif, indeed, that is what he didI was going to say to the hon. Member for Wealden that in the spirit of consensus, as we try to move the Bill forward
John Battle (Leeds, West) (Lab): Will my hon. Friend give way?
Mr. Sutcliffe: I will.
John Battle: I am amused that Opposition Members have moved from the mysticism of Donald Rumsfeld to the Bill. They should look at the explanatory notes. Helpfully provided under a clause that we have yet to come toclause 30they state:
in the future. If the fitness test is open, it allows changing market circumstances and businesses, and assessment of the problem, to be taken account of. I do not think that there is a difficulty, although Opposition Members may have just woken up.
Mr. Sutcliffe: It is a bit unkind to say that Opposition Members are not awake. I hope they know that I will chastise my hon. Friends if they attack their awareness.
Charles Hendry: If the Minister had said five minutes ago what the right hon. Member for Leeds, West (John Battle) just said, we would not have had to have this discussion. I am grateful to the right hon. Gentleman for clearing up the problem, and on that basis we are happy to accept the clause.
Question put and agreed to.
Clause 28 ordered to stand part of the Bill.
Issue of standard licences
Question proposed, That the clause stand part of the Bill.
Mr. Sutcliffe: The clause introduces a broader fitness test that the OFT will use to decide whether someone is fit to hold a consumer credit licence. The current fitness test puts the emphasis on past behaviour. Under the new test, the OFT will assess
The clause builds on the current fitness test. The OFT will continue to consider an applicants past behaviour, which might include evidence showing that a licence applicant or an associate has committed an offence involving fraud or violence. It may consider evidence that an applicant or associate has contravened any consumer credit law, including the Consumer Credit Act 1974, part XVI of the Financial Services and Markets Act 2000, or any equivalent consumer credit law in another European economic area state. Evidence that an applicant has practised discrimination or engaged in unfair business practices will also be considered. All that evidence demonstrates fitness from past behaviour, which is an important element of the current test. The Bill will not prevent the OFT from taking such things into consideration.
The new broader fitness test gives the OFT explicit power to require evidence of future competence to provide credit. For example, it may require an applicant to give evidence to show how he would ensure that his employees understood what was required of them. Evidence might also show that the employees understand their credit products and can explain them to consumers. The OFT will not require evidence of expertise to demonstrate fitness. Applicants will be required to demonstrate a base line of competence.
The OFT will be required under clause 30 to produce guidance on how it will assess fitness. That will be done as soon as possible after the clause commences. Hon. Members will have seen the draft guidance and information packs. The guidance will be subject to full consultation after Royal Assent and will be available to applicants and licensees in good time.
The ability to require evidence on future competence to provide credit will better enable the OFT to regulate licensed businesses. It will drive the rogues out of the market and enable more effective and fairer competition.
Charles Hendry: May I push the Minister for clarification on the clause, and particularly on its retrospective nature? On page 18 of the explanatory notes, there is a list of practices deemed to be inappropriate. One of them is has practised discrimination. That is clearly in the past tense. Some forms of discrimination that are now illegal were not illegal a while ago. For example, we would have found discrimination on grounds of sexual orientation or of gender morally reprehensible, but if they were not illegal at the time when they occurred, could they be taken into account by the OFT? There are also continuing acts of discriminationfor example, in relation to the sale of goods and services, and on sexual orientation. If an organisation were to practise that sort of discrimination now, would that also be grounds for refusing it a licence?
Mr. Sutcliffe: Again, the powers of the OFT are in line with the Cabinet Office concordat. It has to act in a reasonable and proportionate way. That is already in
Question put and agreed to.
Clause 29 ordered to stand part of the Bill.
Guidance on fitness test
John Battle: I beg to move amendment No. 38, in clause 30, page 24, line 7, at end insert
As in any Bill, it is necessary to refer to previous clauses. This clause comes in a cluster of clauses that deal with the fitness of a business to hold a licence in the first place. It inserts proposed new section 25A after section 25 of the 1974 Act. That requires the OFT to prepare and publish guidance on how it determines the fitness of a person to hold a licence. In light of the previous debate, I would add that the OFT may revise the guidance on fitness at any time. That opens up the question of who is fit to hold a licence. That will be an evolving process, and it will keep pace with market developments.
However, I want to turn the telescope around and suggest that the reference to fitness concerns the person holding the licence. There is an ambiguity because on first reading
one could be forgiven, having glanced through the Bill, for thinking that it refers to the poor lender, but it is the person who receives the money who has to be in a fit position to survive the loan that he has received. It seems that we are more concerned about the fitness of the coach than we are about that of the athlete to keep up, or the team member to play. If all the emphasis is on the fitness of the coach, there could be a case in which the team is of no use, but the coach is perfectly fit and all the athletes are flogged to death. That is what worries me, and that is why I drive the analogy. The lender could lend to people who are not able to pay back, and who might well know that and carry on regardless.
Lenders are eager to assert that they are responsible. We have had briefings from banks and lenders who say that they are good people. Most are. Their purpose is notto coin a euphemism and to use language that I am sure is not parliamentaryto screw people for the sake of it. Yes, they want to make a fair income, but the majority believe that they are doing it in a fair way. However, how do they go about their business and how do they check repayments?
To give a practical example, there is plenty of evidence that it is easy to gain credit. We had this debate in Committee in the previous Parliament, and there were plenty of examples across the board. I have
Lenders do not carry out a full income test, as they do for mortgages. One can borrow more than the amount of their mortgage through credit companies without even a fraction of the checks that are done when papers are filled in for a mortgage. That is irresponsible lending. Lenders do not examine the borrowers income and expenditure to check whether they can afford the credit repayments but tend to rely on information held in credit reference files, which usually involve the payment records of past credits and loans. If someone pays back loans and keeps up with payments, they are a good creditor and can borrow more. Lenders do not ask whether borrowing more will push the payments out of the reach of the borrower but simply ask whether they will keep up the payments. They do not ask whether that will mean not being able to live or keep ones family. If they simply repay the money, they will have a good record.
Someone with no past record of default will be regarded as a good credit risk whether or not their outstanding credit commitments are beyond their income. They might have to find the money in other ways. As long as they are paying back the loans, they will be a good credit risk.
Unfair sales techniques are often used. We could go into that in more detail. I am sure that all hon. Members are aware of such techniques from their ordinary constituency casework, from the press and so on. Sometimes people are pushed to take further credit without any checks at all on their ability to repay.
The key question should be whether a person has the ability to pay back without going deeper and deeper into debt. I make this point again; those on doorstep loans are not likely to go to court because, at any hint that they cannot repay, the companies offer them another deal or an extension. They will even advise other companies that can give another loan. The borrower is pushed further and further out without any checks as to whether they are able to repay the loan.
In the previous Parliament, I referred to the Lord Chancellors advice to the magistrates courts. They are under an obligation to check whether a person who has been fined for non-payment has the ability to pay the fine. It is not only illogical but a ludicrous economic situation to fine people on top of money that they owe but cannot possibly pay back. People are driven into debt that is totally unsustainable and that they cannot get out of, and it must be dealt with in a different way. There is guidance to the courts to ask whether people have the ability to repay.
We need to tackle what I would describe as irresponsible lending that drives people who borrow into deeper and deeper debt and desperation. It is not
I simply suggest to the Minister that he ask the OFT to include in its guidance a duty on licence holders to lend responsibly. We must get that phrase into the legislation. It is fairly bland and vague. Like the unfairness test itself, it is open-ended, but it would give the OFT a handle on changing marketplaces and new kinds of companies. I recommend it to the Minister and look forward to a positive response.
Charles Hendry: I congratulate the right hon. Gentleman on introducing the amendment. He raised the matter on Second Reading and asked us to consider it sympathetically. He has made a powerful case for it so far.
It is also a particularly appropriate time to discuss the issue, in the light of yesterdays headlines on consumer debt. For example, The Independent carried a story about the level of unsecured debt having doubled in the past eight years. The average unsecured debt per head is 42 per cent. of average earnings now compared with 29 per cent. in 1997. The rise in unsecured lending was 16 per cent.; the largest annual rise in eight years.
We are considering a matter of great concern, and indeed the Bank of England issued a warning yesterday about the risk to the UKs financial system from the surge in consumer borrowing and from people defaulting on debt when those who have borrowed money simply cannot afford to repay. We have also tabled two new clauses, one dealing with credit card checks and one with credit limits, that try to deal with some of the abuses that we feel are apparent. I hope that the Minister will be able to respond in due course.
There are too many examples of lending that has not been carried out responsibly. One of my colleagues has written to me with a letter from a mother in her constituency, in which she writes:
That is not a unique issue; all of us have seen constituency cases like that. On Second Reading I referred to Stephen Lewis, a person with an income of £22,000 who ran up debts of £70,000 on 19 different cards and ultimately took his own life when he could not afford to repay those debts.
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Those issues link into data sharing, and we are tabling a new clause on that as well. There should be a case for lenders to lend in a way that would be seen to be evidently responsible. We have described cases that do not involve responsible lending because in part the financial institutions did not know from where else the people were borrowing. More needs to be done to address the problem, and I will be interested to hear how the Minister responds to the amendment.
Michael Jabez Foster: I very much support the principle behind the amendment tabled by my right hon. Friend the Member for Leeds, West. I seek the Ministers view about how he could, if not accept the amendment, provide for the balance of responsibility that must form the basis of any credit agreement. As we discussed during our debate about clause 19, some of us believe that that clause may be the place for a definition of an unfair agreement or relationship in a form that we understand, without having to leave matters to the judges. That debate has passed, so if we could deliver something at this stage, it would provide guidance about what is an unfair deal. If a creditor lends irresponsibly, that in itself is an unfair relationship and should be taken into account.
I want to press further the point that my right hon. Friend made about the inability of the courts to mitigate situations in which over-lending has occurred. Cases that finish up in the county court frequently mitigate the repayments and, indeed, the very small repayments often made after taking full account of the debtors means. However, the nature of those debts is that often they do not reach the courts and for that reason, it is important to provide some sort of fairness for people at that stage.
If the amendment is not acceptable to the Government, I hope that an alternative will be in place to introduce to the legislation the principle of responsibility on the part of the lender.
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