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Malcolm Bruce: New cards are issued, and people used to think that the purpose of a credit card was to buy a product. However, after three or four days of issue, a phone call is made, saying, "We can transfer the entire credit limit from this card to your bank account today by authorisation from you over the phone." That is making it incredibly easy for people to get into difficulties—I suspect much, much too easy.

Chris Bryant: I agree. The second half of my conversation with the Royal Bank of Scotland was to do precisely that. That is the telephone version of the unsolicited blank or filled-in cheque. I am sure that hon. Members will know about receiving a credit card cheque through the post. The individual thinks that it is probably more likely to be a credit card loan. He or she probably does not expect that interest will be charged
 
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from the moment that the cheque is paid into their bank account. The process deliberately makes taking out extra loans too easy, in my understanding.

The hon. Member for Gordon (Malcolm Bruce) referred earlier to cheques that have a certain amount filled in, but I believe that blank cheques are even worse. On my HFS loan card I could actually fill in the amount on the blank cheque with whatever figure I wanted. I could pay it into my bank account and, lo and behold, from that moment I would be paying interest at a fairly high APR.

All these problems are endemic in the industry, which needs to roll itself back from this position—partly for its own good, because there may come a time when interest rates rise and people find it much less affordable to sustain their present level of debt. The Minister rightly argued earlier that, as a percentage of people's income, the amount of money expended on servicing debt is now, because of lower interest rates, considerably less than it was 10 years ago. The truth is that if interest rates did have to rise for whatever reason, many people would find themselves hideously exposed, and the industry would find itself exposed, too. That is why the industry should do some of its own rolling back. Of course, many in the industry have written to us to say that they have already done some rolling back. The new banking code, which comes into practice this spring, imposes some further restrictions on what companies should or should not do.

I will not support the amendment because of what I suspect the Minister will argue. I expect him to say that it would conflict with the unfair relationship clause, which we debated in Committee. I am nervous about the fact that so much is hanging on a fairly slender thread. We do not really know whether it will be a slender thread or a hefty rope capable of sustaining the weight. My metaphors are becoming too complex nowadays, Mr. Deputy Speaker, and I feel that I should draw my words to a conclusion.

I hope that the Bill will manage to operate in precisely the manner outlined by the hon. Member for Gordon and that it will help to roll back these practices. I believe that they currently expose people to excessive risks. They are irresponsible and feckless. We want a mature industry that provides people with opportunities to manage debt responsibly, and we need to ensure that that is made possible for everyone in the country.

Mr. Laurence Robertson: I want to deal mainly with amendment No. 22, which relates to retrospection, but I also want to add a few thoughts about our debate on amendment No. 21, which was ably moved by the hon. Member for Gordon (Malcolm Bruce). He touched on many important issues and I agree that it is far too easy for people to take out credit these days.

The hon. Member for Gordon rightly drew attention to the fact that when a £150,000 mortgage is applied for, every nook and cranny will, quite rightly, be examined. It is a major commitment on behalf of the lender, as well as the borrower, which is why such an application is so seriously looked into. Unfortunately, that does not happen when someone wants to borrow just £3,000. I know from private conversations that lenders do not really look into the proposal too seriously. If they lost one or two lots of £3,000 here and there, they would still
 
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be making enough out of the interest on the many other lots of £3,000 for it not to matter that much. They tend not to bother too much about applications for relatively small amounts. The problem is, of course, that people can borrow £3,000 from this company, another £3,000 from that company, and so forth. One lot of £3,000 is not very much, but when they are all added together, it could represent a significant debt for an individual.

I well understand how easy it is for people to get into great difficulty. While we were debating the Bill in Committee, I recall hearing a report on the "Today" programme—a very sad report that featured a widow whose husband had committed suicide because he had got into terrible debt as a result of having 22 credit cards. That really set the tone of debate in Committee. Tragic though it was, the radio programme did a useful service for our considerations, but we all wished that the tragedy had not happened in the first place.

I was concerned about the issue and tabled an amendment on data sharing. Unfortunately, it was not selected, but it would have required many changes to the Data Protection Act 1998, which we are not considering; we are amending the Consumer Credit Act 1974. In it I sought to make it easier for lenders to share information on potential debtors. The credit reference agency carries many details on people who have defaulted or been late with payments or who have county court judgments. That is fine, but often they do not share information on how many credit cards people have or what their level of income is. That is where the problem begins because it is so easy to take out many credit cards.

I do not wish to add to the anecdotes, but over Christmas I had such an experience. I bought several items from Marks and Spencer. I was not paying much attention to what I was doing. It was hot in the store and I just wanted to get out and get home. I ended up signing up to what I thought was just a points card but turned out to be a MasterCard, with which I could instantly spend up to £7,500 anywhere in the country. I did not ask for that or want it. That is how easy it is to take out a credit card. The minimum number of checks was done. Presumably a credit check was carried out, but the store had no idea whether I had other credit cards and no proof of my income. I am probably reasonably safe with that credit card, but many people are not. In my amendment I wanted to enable lenders to have access to information in that situation.

Mr. Sutcliffe: If I may, I should like to help the hon. Gentleman on data sharing. I understand the principle of what he was trying to achieve, even if I do not understand why it was not ruled in order. I received a draft paper from the Financial Ombudsman Service on issues surrounding data sharing. Officials are currently working closely on it with stakeholders. We believe that data sharing is a necessary and important means of ensuring responsible lending. I put that on the record so that the hon. Gentleman knows that work is being carried out on the issue.

Mr. Robertson: The Minister is as helpful as ever. We have made enough points on that amendment, and I agree with him in principle.
 
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Amendment No. 22 relates to retrospection with particular respect to the unfair test which replaces the extortionate test in the 1974 Act. We approve of the change of test of an agreement's legality from extortionate to fair. It fits with the reasonable requirement and test of English law—"reasonable" being the most important word in English law. Given the nature of this business, it is possible that some retrospection is necessary. For example, is it not the case that a respectable company would only ever enter into what could be considered a fair agreement with an individual? If an unfair agreement continues to run, is it not right that the courts should be allowed to look at it and bring to an end the suffering of the weaker party? I accept that there are some reasons for retrospection.

Several problems result, however. Philosophically, legislation is not normally retrospective. Indeed, it is a principle of legislation that it should not be retrospective because it is unfair in itself for someone to be fined or punished or have their business disbanded because some years previously they behaved in a manner that complied with the law then, but the law has subsequently changed. As the Finance and Leasing Association has said, applying laws retrospectively is equivalent to recording a motorist driving 40 miles an hour on a 40 limit road in 1995, but fining that motorist in 2005 because the speed limit has subsequently been reduced to 30. That sums it up. As all students of history will agree, figures of the past should be judged by the standards of the times in which they lived, not by the standards that exist now.

3.45 pm

Retrospective legislation is bad enough, but not having the requirements of the legislation in the Bill is worse, because lenders will not know what they are supposed to be doing retrospectively. The Bill does not state what will constitute an unfair agreement, and that is the crux of the matter. We will never be completely certain of what constitutes an unfair agreement, because the courts will have to decide in each case, and one case will not set a precedent for subsequent cases unless they are identical.

The Government and the Office of Fair Trading may issue guidance, but if it is considered to be a remedial order, it might contravene schedule 2 to the Human Rights Act 1998 unless it is laid before Parliament. There is no suggestion in the Bill that that is the intention.

The unfairness test is retrospective, and I understand that it will apply to agreements reached before enactment of the Bill, certainly in some respects, if not all. There will be a transitional period, which the Secretary of State can extend, but existing agreements will be affected.

A further point, which is slightly complicated, is that if the industry complies with the original guidance and it later changes, will we be creating further retrospection because of the fluid nature of the business and the change to the guidelines? Leaving those details out of the Bill is a backward step, because section 138 of the Consumer Credit Act 1974 defines the meaning of "extortionate" by listing the evidence that should be
 
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taken into account—for example, prevailing interest rates; the age, experience, business capacity and state of health of the debtor; the degree to which he was under financial pressure at the time; the degree of risk accepted by him; his relationship to the lender; and whether a cash price was quoted for any goods or services included in the credit bargain. The Bill repeals that section, leaving lenders totally in the dark about what constitutes an unfair agreement. I tabled amendments in Committee which would have gone some way towards addressing the problem, but sadly, the Government did not accept them.

That vagueness has led to a great deal of unrest and concern in the industry. I have received representations from, among others, the British Bankers Association, the Council of Mortgage Lenders, the Consumer Credit Association, the Finance and Leasing Association, the Association for Payment Clearing Services, Cattles, Royal Bank of Scotland, Barclays, the Zacchaeus Trust and MBNA Europe Bank Ltd. All are concerned about the lack of guidance on the unfairness test, and that concern is increased by the retrospection in the Bill.

As I said, there is a transitional period for the industry to clean up its act and to clean up the agreements that it feels it should clean up, but how can it do so if it does not know what the criteria are for determining what represents an unfair agreement?


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