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Mr. Iain Luke (Dundee, East) (Lab): I congratulate the Minister and his team on introducing this Bill and on the consultation process. Is he aware that there is an anomaly in relation to the time orders, on which there is a difference between Scotland and England and Wales? Obviously, the CAB in Scotland would be glad if time orders in Scotland were brought into line with those relating to England and Wales. Will he undertake to consider that in Committee?

Mr. Sutcliffe: The time order is an interesting, useful tool on which we need to do a great deal of work, for which the Bill provides. I will consider the various representations from the CAB in Scotland and elsewhere on how we can make the time orders most effective. I shall now try to make some progress with my speech.

We can see from the interventions by Members from across the House how important this Bill is to our constituents and to the credit industry. We were careful to consult at every stage. We could not have reached today's position without the continued support of all stakeholders: business, consumer groups and regulators. I thank all those who helped to get this legislation right.

Important though it is, the Consumer Credit Bill is not the whole picture. The Bill builds on the success of the consumer credit White Paper that we published a year ago. We have been doing considerable work with other organisations on many fronts. We have produced new regulations for credit advertisements, enabling consumers to shop around with confidence and to choose the best credit product to suit their needs. We have increased transparency across the sector by legislating for consumers to receive information before they sign up to an agreement. We have standardised the way in which APRs are calculated, so that consumers can compare the costs of credit deals with confidence. We know that many people found that a confusing issue—it was an issue to which the Treasury Committee devoted a lot of time, and we too are addressing it.
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We have ensured that consumers are given clear, up-front information in the agreements themselves, in print which people do not need a microscope to read. We have introduced a fairer deal for consumers who want to settle their loans early. We have brought forward new rules enabling consumers to conclude agreements electronically, increasing financial inclusion across the sector. We have worked with colleagues in other Departments to provide regulations that ensure that consumers are protected when signing agreements away from business premises.

The Bill is therefore just part of our vision to provide protection for consumers in a fair, clear and competitive credit market. The Bill has three main themes: improving rights and redress, improving the regulation of consumer credit businesses, and ensuring appropriate regulation.

The current tools available to consumers for obtaining redress or solving credit disputes are, at best, limited. Where there is a dispute, consumers are often restricted to court action—a costly and time-consuming process. Where consumers are trapped in unfair agreements or subject to unfair behaviour, the current rules do not provide for adequate redress. I am sure that all Members are well aware of recent high-profile examples, such as the judgment last month in the case of London North Securities v. Meadows, in which an original loan of £5,000 soared to a debt of £384,000. Last month, the judge ruled that the agreement was unenforceable, partly because its terms were extortionate and failed to state correctly the terms of the loan. I am aware that the lender has appealed, and we await the outcome.

Mr. Graham Allen (Nottingham, North) (Lab): I congratulate my hon. Friend on introducing this long overdue measure, and colleagues in all parts of the House on ensuring that the measure was brought before the House today and not delayed. If the Bill is passed, extortionate rates of interest can no longer be levied on future loans, but schedule 3 also includes a welcome provision for those of us whose constituents currently have problems, to ensure that the courts can reconsider existing agreements during the transitional period. Constituents such as one of mine, Mr. Frederick Jones, of whom the Minister is well aware, need that redress. Will he be open in Committee to the idea of ensuring that that transitional period is brought forward, so that my constituents, and those of many other Members in all parts of the House, can get that redress early rather than having to wait at least two years?

Mr. Sutcliffe: I thank my hon. Friend for his compliments on the work carried out, but as I said, that work has been done by major stakeholders across the range. We are able to examine the possibility of retrospection because lenders themselves realise that their position and reputations are put in jeopardy when such cases come to the fore. I am sure that in Committee we can consider the detail of how best to use that provision to benefit consumers.

Mr. Michael Weir (Angus) (SNP): Following on from that point, one of my concerns is that while cases such as Meadows raise an anomaly, the court case deals with only the particular problem of that constituent or
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lender. I presume that the company has offered such loans to many other customers, who may not, for various reasons, have come to court, but who are in the same position. There seems to be no provision for forcing companies to allow some of their other lending activities to be examined. Would such a provision be feasible?

Mr. Sutcliffe: If the hon. Gentleman reads the Bill carefully, he will see that there is such provision in the form of the unfair credit test and the alternative dispute resolution procedure. We are improving the position, although if we find during the Bill's progress that further improvements are possible, we shall consider them. I believe that the reason why so few cases are brought is the high hurdle presented by the extortionate credit test. Lowering it by introducing an unfair credit test will improve things. I have already mentioned penalties, and the effect on the reputations of companies that do not act responsibly and fairly. The Bill gives the Office of Fair Trading powers to review the lifetime of licences that are approved.

As Members have pointed out, the Meadows case represents a rare success for the consumer. Consumers should have the right to challenge unfairness where it exists, and obtain redress when that is appropriate. The Bill, as I said, introduces a mandatory alternative dispute resolution system giving consumers a fast and effective procedure, without the need to resort to court action immediately. It will be run by the Financial Ombudsman Service, which is experienced in dealing with disputes of this kind, and it will provide an impartial ruling in any circumstances in which a lender's internal complaints procedure has been exhausted. Consumers will be able to challenge unfair agreements more effectively, and competition will be increased throughout the sector.

As I also said, the Bill will replace the out-of-date extortionate credit test with a new test based on the principle of unfairness. That will enable consumers to exercise rights that have previously been out of their reach. Consumers will be able to apply to the courts to reopen agreements involving an unfair credit relationship. The system will require consideration of all aspects of a transaction, including the lender's conduct in administering the loan. It will also give the courts a wider discretion to assist those who are unfairly treated by lenders.

Provisions on unfair relationships will act as an incentive for lenders who might exploit consumers to behave fairly, which will result in increased and effective competition throughout the market. Consumers will be empowered to challenge unfairness where it exists, and obtain redress when that is appropriate.

Empowering consumers by increasing their ability to challenge unfair agreements is our first aim, but consumers must also be confident that they are borrowing money from responsible lenders. Our second aim, therefore, is to improve the regulation of consumer credit businesses. The amount of work currently involved in licence renewal, together with the OFT's limited information-gathering powers and the lack of intermediate sanctions, hampers the OFT in both its running of the licensing regime and its policing of licence
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holders. The Bill will give it more powers, enabling it to obtain the information that it needs to ascertain and monitor the fitness of firms.

Overhauling the licensing regime will create more categories of licence, and will introduce indefinite standard licences, together with an improved fitness test based on the credit competence of licensees. The result will be a more streamlined, more targeted system that is more appropriate for the modern credit market.

Reducing the burden of bureaucracy on both industry and the OFT will also ensure that lenders acting unfairly are prevented from continuing and, if necessary, excluded from the market, that responsible lenders can be regulated by light-touch regulation, and that consumers can have confidence in a competitive market.

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