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Michael Jabez Foster (Hastings and Rye) (Lab): Is not the bigger problem something that the hon. Gentleman has mentioned already—the fact that as long as spending is within the limit there is not an increased credit obligation, but that the practice is, I understand, sometimes to send the cheques with an invitation to increase the limit? That increased limit is
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the problem. It is unsolicited, and that may be the aspect of the matter that should give rise to concern.
Charles Hendry: The hon. Gentleman may have seen that new clause 4 covers exactly those issues of the raising of credit card limits without the agreement in advance of the proposed recipients. I agree that that is where the practice is at its most dangerous. The fact that someone can still spend only up to their limit is protection, but if it is possible to spend significantly beyond that, there is a risk of spending money that cannot realistically be paid back.
The restrictions would not apply to invitations to apply for credit cards in general. They would specifically relate to credit card cheques. Many representations were made on Second Reading about the need to tackle this matter—as, indeed, happened when the Bill was introduced previously. I hope that the Minister can give the Committee some reassurances.
Mr. Sutcliffe: The Government will resist the new clause, but not because we do not know where the hon. Gentleman is coming from—we do. He admitted that the provision might be too widely drafted so that it would encompass all credit tokens, which was not his intention. He explained his focus and the reasons for it.
The hon. Gentleman will know, because he has read the debates and will have heard me say so on Second Reading, that during the previous Parliament a vast range of hon. Members were concerned about credit card cheques. In response, I undertook to consider the need for secondary legislation to improve transparency in the matter of credit card cheques. As I said then, the issue is more one of transparency than anything else. Just receiving a cheque will not increase a consumer's indebtedness, but consumers should know what they are about and the implications of using them. Consumers should have clear information when an agreement is made, including information about charges.
We are considering what information—including warnings—should be provided at the time when the cheques are provided. The DTI is having discussions with the industry and consumer groups to reach a solution that will provide appropriate protection for consumers. We are actively considering what to do and the best way of addressing many of the issues that the hon. Gentleman has mentioned, but I am confident that we can deal with that through secondary legislation.
James Brokenshire: The Minister said that indebtedness would not increase as a consequence, but there could obviously be a difficult situation as consumers might not necessarily be aware that higher rates of interest may apply or that there could be shorter interest-free periods. Indebtedness could increase through that, hence the need for more warnings when the cheques are issued to protect consumers. I welcome the Minister's comment that he will look at that seriously, although we would say that it is better to act in the Bill rather than later.
Mr. Sutcliffe: I am again grateful for the hon. Gentleman's remarks, and I know that he is sincere in
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his comments, as are the Government in our undertakings. The new clause is not drafted appropriately to work in the way that he would want, but we will deal with the issues that it raises. We believe that secondary legislation is most appropriate, and when we are in a position to consult on the regulations, that will be a useful time to speak to the Opposition parties about whether we were right or not.
With that assurance, I hope that the hon. Member for Wealden will not pursue his new clause.
Charles Hendry: I am grateful for the Minister's assurances. All Members will be pleased to know that the Government are considering how to address the issue. I accept that the new clause is not drafted correctly and, in the light of that, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
New clause 4
CHANGES IN CREDIT LIMITS
'(1) It shall be the responsibility of a lender to ensure that any increase in a credit limit made on an unsolicited basis to a debtor is reasonable and affordable, before agreeing any such increases with a debtor.
(2) It shall be the responsibility of a lender to ensure that any increase in a credit limit has the written agreement of a debtor before any such increase is granted.
(3) Any lender who fails to meet the requirements set out in subsections (2) and (3) shall be subject to penalties to be determined by regulation.'. —[Charles Hendry.]
Brought up, and read the First time.
Charles Hendry: I beg to move, That the clause be read a Second time.
We are making good progress, and we have perhaps reached the debate when the Minister will not just say that something is excellent but go along with us on it.
Again, the proposal deals with an issue raised on Second Reading. In that debate, I referred to my experience of having a credit card that I used only for petrol, perhaps spending £200 a month on it. Without any request from me, the card issuer has raised the limit on several occasions so that it is now £3,500. The issuer has never checked whether I could afford to spend to that limit, and the hon. Member for Hartlepool (Mr. Wright) expressed concern about that issue, too.
I recognise that the banking code has been changed, but I hope that the Committee will see that there are grounds for doing more. The banking code says that all issuers must assess a customer's ability to repay before increasing a limit and must make appropriate checks on the customer's risk profile and apply proportionate increases. They must not apply increases to accounts in arrears or those that fall below credit scoring thresholds, they must consider emergency limit increases individually—when a specific transaction will go over the customer's pre-agreed limit—and they must always assess the customer's ability to repay.
What the code does not include is any requirement to contact the customer. Banks can just go through records, contact credit agencies and find out what the
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person's credit rating has been. They do not have to contact the person to ask whether such an offer would be welcome and reasonable or to ask what assurance they could give that they could repay the money. The new clause would put the onus on the lender to ensure that the customer can afford a higher limit and to get the customer's agreement in writing before finalising an increase.
The new clause must be seen against the background of concern about rising debt levels, which we discussed earlier. There is growing anxiety in the Bank of England about debt levels, and we are right to address that now. We are seeing a growth in the number of people who cannot pay their debt and a growth in mortgage arrears and repossessions. All that should make us wary of allowing a situation to continue in which people can simply have their credit card limit increased. As the hon. Member for Hastings and Rye (Michael Jabez Foster) said, before those people have such a limit available to them, it must be certain that they can repay the money. Currently, the debtor's circumstances are currently not checked when those limits are raised. That cannot be considered responsible lending.
6.15 pm
Mr. Sutcliffe: It is appropriate that we end our deliberations on new clause 4. I thank the hon. Member for Wealden for drawing the attention of the Committee to this important issue. I know where he is coming from and where he intended to go, but he went too far, I am afraid. The new clause goes beyond prohibiting unsolicited increases and also bans solicited requests for increases not made in writing.
As for the sentiment underlying the amendment, the concern expressed by the hon. Gentleman is not new, as he says. Unsolicited credit limit increases have been an issue of concern for some time. During the last Parliament, the Treasury Select Committee examined the issue in some detail and expressed its concern, and businesses undertook to improve the processes through self-regulation.
As the hon. Gentleman said, the industry has done much through improvements to the banking code to improve the processes through which credit limit increases are made. The changes were included in the new version of the code, published in March. At the time the Government welcomed the new guidelines, as did the Committee. We look forward to seeing the industry's response to the Committee's recommendation to restrict unsolicited increases in credit limits.
The Government welcome effective self-regulation by business when it improves the quality of business practices, serves to protect consumers and enhances the services that they receive. Effective self-regulation is as critical to the proper functioning of the market as formal regulation through legislation. The industry is on notice on the matter, and we look forward to its taking an effective approach to address the concerns expressed by hon. Members, which have existed for some time.
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Michael Jabez Foster: Will the Minister assure us how he will present his position if the industry does not come good? This is the opportunity to do so, and it may not arise again.
Mr. Sutcliffe: As I have said, we believe there are opportunities to deal with the matter through secondary legislation. However, it is only fair that we give the banking code, since it came in in March, an opportunity to prove its worth as the industry reaction to the severe strength of feeling from the Treasury Committee and other hon. Members. The industry is on notice. If it does not deal with the issue in the way that the code offers it the opportunity to do, we will take action. I give my hon. Friend that commitment.
I hope that the hon. Member for Wealden, who was quite right to raise the issue in the way he did, will withdraw the new clause because of the assurances that I have given and the opportunities that will arise in future to take action if things do not improve.
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