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Michael Fabricant: I accept the point that the Minister makes, but does he not accept that such explanations can often be quite confusing, particularly to those who are not financially literate? At the end of the day, they look at the headline figure and if it says "11 per cent. APR", that is what they see. They do not read an explanation in 8-point typeface that goes on in great detail for several paragraphs.
Mr. Sutcliffe: The hon. Gentleman will be aware that as a result of the consumer credit regulations that flowed from the White Paper, the summary box on such an agreement has now to be printed in a typeface that people can read. He is right, but this is where the test of unfairness comes into play. Under the Consumer Credit Act 1974, there was an extortionate credit test that was a very high hurdle for people to clear. The unfairness credit test reduces the height of that hurdle and will hopefully get the industry to act more responsibly, while at the same time making consumers more aware of what they need to do.
Returning to new clause 4, the regulations that address the issue raised by the hon. Member for Gordon (Malcolm Bruce) come into force on 31 May. Removing
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this important information on the cost of credit from its location in the small print will help consumers to select the product that best suits their needs. We do not believe that standardising the way in which the interest is calculated and applied would benefit consumers, because doing so would eliminate consumer choice. Not all borrowers want to use credit in the same way, and they benefit from being able to choose a product that complements the way in which they organise their finances. For example, some credit card users will want a lower APR but will be prepared to pay interest from the date of purchase. Others will prefer a slightly higher APR but, if they do not settle the whole balance, will want to pay interest on the outstanding amount only. Provided that these aspects of the product are clearly highlighted—our new transparency provisions will require that—we believe that it is better to give consumers a choice of products. Standardisation may bring certainty, but it comes at the expense of flexibility and innovation and, ultimately, competitiveness and consumer choice.
I understand the spirit in which the hon. Member for Gordon moved his new clause, and it will doubtless be reflected in the Bill's implementation and in the regulations to be introduced on 31 May. That said, I do not consider his new clause to be the appropriate way forward.
Mr. Laurence Robertson: The Minister mentions—as did I—competitiveness and the free market. In a competitive world, the free market will put a downward pressure on interest rates because companies obviously want to sell their products. Is there any way—I cannot think of one—in which we can examine the effect on the vulnerable, who are more likely to be paying higher interest rates? This is a difficult problem, but I ask the Government to give serious thought when they issue their guidelines to how such people might be protected. I do not agree with imposing a ceiling on interest rates, but I do accept that such people have a problem.
Mr. Sutcliffe: This brings us back to the question of fair markets, fair products, people fully understanding the product and their ability to get out of unfair agreements during the lifetime of such an agreement, rather than simply at the start. I should point out that if such an agreement is proved to be unfair, they can get out of it. These measures, together with the loan shark pilots in Birmingham and Glasgow and other work being done on financial inclusion, will hopefully enable people to choose the best product for them, regardless of their income and circumstances. That is what we are trying to achieve.
Members in all parts of the House want to see responsible lending and responsible borrowing. One of the Bill's strengths is perhaps the lack of a party political element. There is a clear view that something needs to be done, and hopefully, this Bill, which has been preceded by two years of consultation and a White Paper, is the best vehicle to do it. With that in mind, I respectfully ask the hon. Member for Gordon to withdraw new clause 4, just as I will ask him to do in respect of new clause 5.
On new clause 5, our view is that monitoring interest rates and charges would be a very costly exercise for the OFT and would subsequently impose excessive burdens on business. It would require the OFT to duplicate the
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valuable work already done in that area by consumer groups and researchers. The OFT's time and resources are much better spent on tackling fitness in the market, which is where it can most effectively ensure consumer protection, rather than collecting data and monitoring.
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It would not be useful for the OFT to publish the details of court cases or Financial Ombudsman Service determinations. Court judgments and evidence given in court in cases relating to unfair relationships tests will already be available to the public. The FOS will publish generic information from its cases, and it will share details of cases with the OFT to enable the OFT to take action, if it is necessary. The OFT will be able to publish key decisions relating to unfairness in its guidance, and I take the points on the development of guidance.
A far better way in which to protect vulnerable consumers is to enact the Bill in its current format. The Bill will improve protection against unfair relationships and opportunities for consumer redress, and it will give the OFT the right tools to ensure that rogues are driven from the market. On that basis, I ask the hon. Member for East Carmarthen and Dinefwr to withdraw his new clause.
Adam Price: I thank the Minister for his response. We are calling for transparency in the industry, and the way in which he has taken the Bill through the Commons has been open, transparent and fair.
I shall respond briefly to some of the points that have been made in this interesting debate. The hon. Member for Rhondda (Chris Bryant) and others have asked whether the maximum rate would effectively become the going rate, which is the one argument that the Policis report, of which I have been very critical, knocked down. The report states that although many within the UK industry have made that case, no evidence exists to support it from the countries in which a maximum rate has been set.
Another argument is that a cap could cause some lenders to move out of the market altogether, leaving a gap in the marketplace, which might force some people into the arms of illegitimate lenders—and to be fair, that argument holds some truth. The key issue is where one sets the cap. I do not claim to be an expert, but I have been told that some evidence suggests that the cap was set at too low a rate in the inefficient financial markets in some American states, which caused some of the problems that have been mentioned. The European experience, however, has been better.
I have referred to my criticisms of the Policis report, which we do not need to examine in great detail, but I know that Professor Reifner has said that the report's specific conclusions in relation to Germany were absolutely incorrect, and he has provided the Department with evidence that proves that point. I do not know whether the hon. Member for Lichfield (Michael Fabricant) has seen a copy of the report, but the Sparkassen claim that the report is wrong, too. The concerns about the report must be addressed.
I welcome the Minister's remarks. Both sides of the discussion have legitimate points to make, and both share the same ultimate objective. It is excellent that we
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can continue this dialogue by leaving the door open and that the Minister is interested in hearing and seeing independent evidence.
One interesting question concerns the relationship between a maximum rate and an unfairness test. I am not a lawyer or parliamentary draftsman, so I cannot answer that question definitively. We used the phrase, "widespread consumer detriment" to avoid confusion around the unfairness test. We used another form of words to avoid directly influencing decisions on the definition of unfairness, but I accept that that matter must be thought through. I point to the example of the South African Department of Trade and Industry, which has introduced consumer credit legislation that performs both of those functions at the same time. The legislation introduced a cap on maximum charges as well as a new test of reckless lending. The South African example shows that it is possible to have both an unfairness test and a maximum rate. Although the details may be different, the principle of two mechanisms is clear in the South African legislation, and I cannot see why it is not possible to combine two such mechanisms in this Bill.
Although greater clarity on interest rate charges and recourse to the courts will be useful to many consumers, I fear that the poorest consumers will not necessarily be able to avail themselves of either legal action or information and advice, which is why my party remains of the view that intervention by the Government in the form of a maximum rate is desirable to protect the most vulnerable.
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