Consumer Credit Bill |
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Gordon Banks (Ochil and South Perthshire) (Lab): I should like to pick up on the point made by the hon. Member for Wealden, who said that extended data sharing was absolutely vital to the delivery of responsible lending. The extension of data sharing must be the way forward to deliver the amendment tabled by my right hon. Friend the Member for Leeds, West. Mr. Sutcliffe: I congratulate my right hon. Friend the Member for Leeds, West on the amendment. I hope to be able to prove that it may not be necessary, but we will see how we go. I say to the hon. Member for Wealden and my hon. Friends the Member for Hastings and Rye (Michael Jabez Foster) and for Ochil and South Perthshire (Gordon Banks) that I know this was the core element on Second Reading for all hon. Members in relation to our concern that lending was not responsible. The whole purpose of the White Paper, the Bill and the wider Government strategies is to try to create greater transparency to ensure that people who lend money do so responsibly and appropriately and have everything in place to ensure that there is transparency. The consumer has to know what he is
We have seen tragic cases, and it was my experience to meet Mrs. Lewis and go through with her the issues affecting her husband with regard to how he was able to borrow so much money given his income. I did not find it a very pleasurable experience. There are too many of those cases. I note what the hon. Member for Wealden has said about the figures and the announcements yesterday. We are all concerned about the level of debt. The only qualification I would make—I do not intend to score any particular points—is that when the economy is doing well, people feel more able to borrow. In most circumstances, people can handle credit well. I do not think that the Committee is trying to say to anyone that credit is not a good thing if handled and used in an appropriate way. However, when it is not and people are put into a very difficult position, that is not acceptable. All of us, in our constituency casework, have examples of where things have gone horrendously wrong. Suicide is tragic, but many other people’s lives are affected for a period of time by the debt they get themselves into. To turn specifically to the amendment that my right hon. Friend has tabled, we all agree that lenders have to be responsible when lending to consumers. It will come as no surprise to my right hon. Friend that I have tried to resist definitions throughout our deliberations, which was the reason for the principal argument on clause 19 regarding the unfairness test. If we are very specific about an issue, we could undo what we are trying to achieve. For many, responsible lending imposes a requirement that lenders do certain things before extending credit. However, the things that a lender may take into account in the case of one debtor may be very different to those of another. It will depend on a debtor’s circumstances. Any duty to lend responsibly would mean defining what is, and what is not, responsible lending. That is the point I made earlier about defining the position, and I explained that point when we discussed the unfairness test. I do not think that a list of things that lenders must do is enough. It would encourage them to think that as long as they have complied with a list, they have lent responsibly, but that cannot be so in all cases. The OFT guidance cannot impose a duty: it is guidance. However, the draft OFT guidance on fitness, which I provided to hon. Members before the Committee, makes clear the sort of issues the OFT will look at when considering the fitness of an applicant for a licence. Page 4 of the draft guidance says:
Page 9 of the draft guidance lists examples of specific unfair practices that I am sure hon. Members would agree go to the heart of responsible lending, as do the practices in relation to non-status lending listed in the
11 amJames Brokenshire (Hornchurch) (Con): The interesting thing here is the lack of willingness to embrace the concept of responsibility, which is what lies at the heart of the amendment that has been put forward by the right hon. Member for Leeds, West. The Minister talks about subsequent amendments to the OFT guidance if it is felt that things are not being conducted in a reasonable fashion. In many ways, one of the weaknesses of the structure that is set out in clause 30 is the lack of influence from any outside body. It is interesting that this provision differs from certain other provisions later in the Bill, such as clause 54, subsection (3) of which states:
There is no such measure in clause 30, but if there were it would introduce some sort of check or balance in terms of the guidance or direction that will be given. It is interesting that there is reluctance about introducing that element of reasonableness, despite what the Minister may say about the guidance. Mr. Sutcliffe: I am grateful to the hon. Gentleman. I understand what both he and my right hon. Friend the Member for Leeds, West are trying to achieve. I argue that the OFT guidance may be of assistance, but if I do not satisfy the Committee of that, I am prepared to reconsider the issue. It might assist the Committee if I first talk about some related OFT issues. As we have discussed, the OFT will from time to time take into account examples of irresponsible lending that come to light. It also has guidelines on non-status secured lending, which involves the sector of the market that lends to people with poor credit histories or limited means. The OFT encourages lenders who offer unsecured products in that sector to comply with the guidelines, which set out a series of principles to which lenders should adhere when lending to non-status consumers. If I may, Mr. Conway, I shall go through the guidelines. They state that
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The guidelines make it clear that:
and that all underwriting decisions
The OFT will revise the guidance once the Bill becomes law. With that explanation, I hope that my right hon. Friend will withdraw his amendment. However, I give the Committee the undertaking that, if we can strengthen the position on Report, we will look at that. John Battle: I am grateful to the Minister for his response, and I welcome his sentiment that he understands what I am trying to do. We have come some way, but I should like to go a little bit further. The concept of responsible lending focuses on the lender doing the right thing and—I am being harsh—on the lender covering their back by doing everything according to the spirit and letter of the law. That is good, and should be done, but I want there to be more focus on the borrower. I want to respond to something that the Minister said. I thought, “Oh my God, the word ‘responsible’,” as I do not want to have a great row about the definition of that word. I defer to colleagues with legal expertise, but I imagine that a massive issue in most court cases is whether a person was responsible for their actions when they carried out a crime. Someone tried to take me on in a big way because they said that I was not a responsible MP. He had written to me, so I was responsible and responded. I am always conscientious in replying to my constituents, but I received the answer, “Yes, but you did nothing. You didn’t solve the problem.” The problem was that someone else’s cat was infringing on his property, but I did not think that I could solve that very easily. We get all kinds of cases, but I went around for days afterwards wondering whether I was a responsible person. I do not want to go there with the amendment. I do not want courts asking how we defined “responsibly”. I want to focus on people’s ability to pay back. Reference has been made to the wider economy, and the Opposition spoke about lending. The House has a consensus on lending; we all worry about it when the economy is doing well. The Minister said that people handle credit well when the economy is doing well, but I suspect that they take greater risks and that they push the boat out further. For instance, people now borrow
We should not go down the road of responsible lending but focus instead on people’s ability to pay back. Some might accuse me of saying that the lenders should consider not just the terms and conditions of loans, with their agreements and hidden clauses, but the budget of those to whom they are lending. Some hon. Members might then say, “Ah, if you want a full outlay of their income and outgoings, that is means-testing.” I understand the stigma of means-testing, but it could be argued that tax forms are a type of means-testing—they assess people’s income and their ability to pay; that is how their tax bills get sorted. I suggest that, if we can ask for tax returns, we might consider people’s incomes and be a bit more open about their ability to manage their money. I warmly welcome the Chancellor’s announcement this morning, but I want the money to be available not only to those in difficulties, whose boats are right out and who cannot pay back. We have to do a heck of a lot to educate people. Indeed, the hon. Member for Wantage (Mr. Vaizey) spoke about the need for financial education and the most basic money management skills. We could all improve our circumstances with a little more of that. We could include the subject in adult education courses. We should be more user-friendly, not simply telling everyone how to manage on a low budget and assuming that everyone is poor, but being a bit more open about financial management and household budgeting. People are not catching on to that as an innate form, and many are falling further and further behind, and that will build up into a debt bubble. The ability to repay, the ability to pay back, is important. It will enable people to be part of a conversation, instead of lenders simply saying to those who have so far paid their loans and who therefore have a good credit rating that they will lend them more, which will mean borrowers getting further out and wanting more. I cannot think that that is responsible. The letter of the law may say that it is responsible. It may be responsible under the Companies Acts for companies to tell people their terms, to make clear the hidden clauses and to send regular letters letting them know how they are getting on, but I suspect that it is not enough. However, I warmly welcome the Minister’s offer to continue a conversation on the subject. I shall push a little further in those conversations rather than drive further in a debate about what is meant by responsible. I do not want to go there. If the Government can help by looking at the problem in a more positive way, one that will ensure that the OFT’s guidance is absolutely clear and that it includes information on people’s ability to repay, I shall happily withdraw the amendment. Column Number: 97 Charles Hendry: I, too, am grateful for the Minister’s comments, but I join the right hon. Gentleman in encouraging the Minister to go that bit further. One has only to look at the wording of the amendment. If the words were changed around, the amendment would become a motherhood and apple pie thing. If companies were to be allowed to lend irresponsibly, we would all say that it must be wrong. Therefore, the thinking behind the amendment is something that we should all support instinctively. The Minister quoted from the guidelines and highlighted one guideline that said that there should be responsible lending. It is not far from that to saying that we should put in the Bill—in primary legislation—a requirement to lend responsibly. It would make lenders think that we were serious if there were not just guidelines but a measure enshrined in an Act of Parliament. We all recognise that we cannot take account of all circumstances. We know that some people will not tell the truth about their circumstances—they will not admit to other sources that they have borrowed from. By not telling the truth, they will still be able to build up debts that they cannot afford. Even with better data sharing, I do not think that we could expect lenders to know when people are not telling the truth. We also know that people’s circumstances will change, so that what may be affordable for them when they take out a loan becomes unaffordable in due course. Again, as long as the lending was responsible at the time of lending, the lender would have fulfilled these criteria. We need to be aware that we live in a world in which advertising is designed to make us think that we can afford anything. The motor pages of our local newspapers contain adverts that say, “You can have a Jaguar for £200 a month”. We might think, “Whoopee! A Jaguar for £200 a month”. The Deputy Prime Minister has probably taken up many of those offers. It is only when one looks at the way in which the loan is structured that one comes across a colossal payment at the end and suddenly realises, “Actually, I can’t afford that and it will cost more than if I went to the garage and bought a car outright.” The advertising is designed to make us all think that the debt is something that we can afford more easily than we can. We are looking for greater clarification in the Bill. There should be an onus on people to make sure that they lend responsibly. In most cases, they do. In most cases, there is not an issue. However, in too many cases, lenders do not act responsibly. That must be our priority and our concern. James Brokenshire: I emphasise again the points made by my hon. Friend the Member for Wealden and the sentiment that lies behind the amendment that was tabled by the right hon. Member for Leeds, West, which is the concept of responsibility. On Second Reading, I highlighted the case of a refinancing transaction in which somebody borrowed some money and was offered additional credit by another provider, which worsened the problem that they got into. The question is: was the person who lent them the money fit to lend? Arguably, they were. Did they act responsibly or reasonably? Probably not, considering
It is all very well saying, “Okay, we’ve set out guidance on whether somebody is fit to obtain a licence”. However, we also need to address and to push further the concept of competence. I hear what the Minister said about that. We also need to push the concepts of responsibility and of demonstrating whether a person will act in a responsible fashion. In conclusion, this has been an interesting and instructive debate. I hope that the Minister will hear the message from the Committee about people acting responsibly and will follow the matter through. Mr. Vaizey: I support the remarks of my hon. Friends and the amendment that was tabled by the right hon. Member for Leeds, West. It is an exciting amendment. Perhaps that is an unhelpful adjective to use, because, when a Minister or his officials hear the word “exciting”, they run for the hills. In the past few years, the concept of corporate social responsibility has gained ground and credibility in this country. Many trees are felled in order to produce environmental reports showing that a company is socially responsible. As far as I am aware, no legislation enshrines the need for a company to behave responsibly. In my view, there is no more important need for a company to behave responsibly than in the area of consumer credit. 11.15 amIt strikes me as bizarre that someone who applies for a mortgage must jump through several hoops to secure the funds, even though there is a property as security, but that to obtain an unsecured loan there are barely any hoops to jump through. Lenders come knocking on the door. One can, normally, barely open the front door for the amount of junk mail and direct mail that lenders have sent, offering credit cards and loans. It is not possible to drive down a motorway now without seeing an ad-van parked in a field, offering a loan, yet no hurdles have to be jumped so that credit lenders can assess whether the person to whom they are lending has accumulated too much debt, has too many credit cards, or is simply trying to manoeuvre debt along into the never-never. To enshrine the amendment in the Bill, and then in law, would be a wonderful, forward-looking step that the Government could take to send a clear signal to financial institutions that they should start to behave responsibly. As the right hon. Member for Leeds, West so eloquently put it, although the lenders can look to their own back office functions and tick all the boxes, they must look outwards and check whether they are flogging their customers to death. Mr. Sutcliffe: I congratulate all the hon. Members who took part in the debate, because I understand their sincerity in pursuing their aims. I hope that they do not doubt my sincerity in trying to accommodate those aims in a framework that will allow the Bill to be successful. Relevant to that is the consensus that we discussed at the beginning of our exhaustive
I heartily agree about financial education and support for citizens advice bureaux and all the agencies that pick up the pieces when people have problems. We are trying to pursue that course throughout. However, I got the feeling from the debate that hon. Members think that the OFT lacks teeth and that going along with what it says is almost optional. It is not. Not complying with OFT guidance raises questions about a lender’s fitness and could lead to licensing action, so there are teeth. As to the guidance on non-status lending, concern was raised about the proper assessment of a borrower’s ability to repay; taking full account of all relevant circumstances is the key concern. The OFT guidance includes that, as well as the concept of responsible lending. In the spirit of what my right hon. Friend the Member for Leeds, West wants to achieve, we shall consider the matter and try to make the provisions clearer. I do not want to play the definition game and talk about what is “responsible” or “reasonable”, or what is unfair or not unfair. The unfairness test is all a matter of relevant circumstances and it could be argued that relevant circumstances include the ability to repay. Charles Hendry: I am grateful to the Minister, particularly for letting me interrupt him in full flow. May I get this clear? He talked about the guidelines that say that lending should be responsible. He has implied that his objection to the amendment is that it is unnecessary because the matter is dealt with in the guidelines. He has not, I think, said anything about why he believes the amendment is flawed. I should be grateful to know any particular reasons for his thinking that the requirement for lenders to lend responsibly should not be included in the Bill. Mr. Sutcliffe: For the very reason that we do not want to get into an argument on definitions. There would be a definition of “responsible” and people would be able to hide behind that, because it might not be wide enough to cover all the relevant circumstances. Perhaps the discussion that we should continue is about how to develop the matter. It is in that spirit that I hope my right hon. Friend will withdraw the amendment, on the undertaking that we shall discuss the matter further and see what we can come up with. Mr. Vaizey rose— Mr. Sutcliffe: I will give way to the hon. Member for Wantage, but the words “exciting”, “visionary” and so on cause me some concern. Column Number: 100 Mr. Vaizey: If the Minister is happy for the word “unfair” to appear unfettered in the Bill and to allow the courts to define it, surely it should be possible to have the word “responsible” in the Bill and to allow the courts to define that. Mr. Sutcliffe: I hear what the hon. Gentleman says, but I must, unfortunately, disagree with him. We are worried that the amendment would not be workable because guidance cannot impose a duty. I want to discuss that further with my right hon. Friend. Despite the sincere attempts to persuade me to accept the amendment at this stage, it is not possible for me to do so. I hope that my hon. Friend will recognise that we are trying to be clear about what we mean. I repeat my offer of further discussions to see what we can do and to return to the matter on Report. John Battle: My greatest fear is that the whole business will go to the courts and remain there for years so that people will not receive the basic justice that is in the Bill. I am reluctant for rows about the definition of “responsible” or “responsibility” to clog up the courts for years and for people not to have a good working relationship with lenders. My aim is to protect people who suffer from unscrupulous lenders who should be driven off the park by the OFT. When it comes to the fitness test such lenders should not allowed anywhere near the park to start with and I hope that that will start to happen as a result of the Bill. However, other lenders are doing a reasonable job and I do not want to drive out all lenders. We need people who lend money to other people. I do not want the problems to go to the courts. I want a reasonable conversation between lenders and borrowers so that things work out for both parties. I want a fairer balance for borrowers. Rather than driving lenders to the courts to discuss whether they have been responsible, I want the OFT to be clearer and more forceful in explaining to lenders that the issue is not about protecting their backs, but about having a decent relationship—it might not be just on paper—with borrowers. I do not mean that when final payments are due the lenders send a man with a dog to threaten a young woman with a child on the grounds that the arrangements have changed and her loan charges have increased because they forgot to tell her about the extra charge they added, saying, “We have come for an extra £20. Did you not realise that it was due? By the way, my dog barks ferociously so watch your child.” Such conversations are out of order and we want to drive those people out of the marketplace. That puts the onus on those left in the marketplace to have a better and stronger relationship with the people to whom they responsibly lend. In that spirit, I am prepared to withdraw the amendment and to continue the conversation. I beg to ask leave to withdraw the amendment. Hon. Members: Object. Question put, That the amendment be made. The Committee divided: Ayes 6, Noes 10. [Division No.
AYES Brokenshire, JamesFabricant, Michael Hendry, Charles Penning, Mike Reid, Mr. Alan Vaizey, Mr. Edward
NOES Bailey, Mr. AdrianBanks, Gordon Battle, John David, Mr. Wayne Dhanda, Mr. Parmjit Foster, Michael Jabez Snelgrove, Anne Stewart, Ian Sutcliffe, Mr. Gerry Wright, Mr. Iain Question accordingly negatived. Question proposed, That the clause stand part of the Bill. |
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