Clause 3
Exemption relating to high net worth debtors and hirers
Mr. Robertson: I beg to move amendment No. 9, in clause 3, page 2, line 27, after 'description', insert
', who shall not be connected through pecuniary interest to the lender'.
The Chairman: With this it will be convenient to discuss amendment No. 10, in clause 3, page 2, line 30, at end insert—
'(d) must be signed by the debtor in the presence of an independent witness, who shall not be connected through pecuniary interest to the lender and shall not be the person who has made the statement referred to in subsection (1)(b).'.
Mr. Robertson: This is the first clause that might be considered to be in the meaty bit of the Bill. It deals with an exemption that relates to high net worth debtors and hirers, which means that certain people who are declared to be of high net worth do not come within the scope of the Bill. In a sense, it is difficult to understand why the clause is in the Bill, but there is a precedent in the insurance industry. People who go to,
Column Number: 7
for example, Legal and General or Prudential to make a purchase or to be sold a pension plan are allowed to state that that is all they want. They do not have to accept the wider advice that those companies are deemed to have to provide.
This provision is slightly different, in that people in the insurance industry who take out a pension or a savings plan are not taking out an obligation as such: they are purchasing something of lasting benefit. If people decide, after six months or six years, that they do not want a pension, they can simply cease payments; that is not the case with a credit agreement. People who take out credit may get themselves into a difficult situation that is not as easy to get out of. I am not sure that that analogy is a direct one.
I am slightly concerned about people being declared of ''high net value'' and therefore not coming under the terms of the Bill. Amendment No. 9 seeks to clarify the clause. The Bill says that someone other than the debtor has to declare himself or herself as being of high net worth. The amendment attempts to make it clear who can make that declaration. I say that the person making that declaration
''shall not be connected through pecuniary interest to the lender''.
It is clear what I am trying to get at: a lender should not be able to provide a person to declare that the borrower is of high net worth when they have a direct pecuniary interest in doing so, because that would let the lender escape the terms of the Bill. That is a rather convoluted way of describing it, but it is probably clear what I mean.
Amendment No. 10 requires that such a declaration
''must be signed by the debtor in the presence of an independent witness, who shall not be connected through pecuniary interest to the lender and shall not be the person who has made''
the original statement. It is a little bit complicated, but I hope that the Committee understands what I am driving at. I do not seek to strike out the ability of somebody to be declared as being of high net worth and therefore escape the clutches of the Bill. I am simply trying to make it a little more certain that the lender does not manipulate the situation.
Mr. Sutcliffe: I welcome the spirit in which the hon. Member for Tewkesbury has moved amendment No. 9 and spoken to amendment No. 10, though there may be drafting difficulties to overcome before he hits the target he is aiming at. It is important to explain what we are trying to achieve with the clause, and the amendments will help us to do that.
Amendment No. 9 seeks to prevent statements of high net worth from being made by any person who has a connection by way of pecuniary interest to the lender. The amendment prevents the statement from being given by anyone who is employed by the borrower or who otherwise works for him or her for financial reward. It prevents the statement from being given, for example, by a lawyer or an accountant retained as an adviser by the borrower.
I cannot imagine that that is what the hon. Gentleman intends. Such professional advisers operate within strict rules of conduct.
Column Number: 8
Mr. Robertson: Amendment No. 9 prevents someone who is connected to the lender from giving a statement. In other words, the lender cannot remove someone from the clutches of the Bill.
Mr. Sutcliffe: If the hon. Gentleman will bear with me, matters will become clear to him. If they do not, I am sure that he will pursue them. I understand the intention behind the amendment, but we are dealing with a particular group of people and it is important that we understand how they operate under the circumstances in which they find themselves, given the industry's fears that business might be lost if we over-regulate.
The Secretary of State will have power by order to set out exactly who may make a statement of high net worth and what such a statement must contain. It is also our intention that the order will carefully prescribe the classes of person authorised to make a valid statement. They should be professionals whose status has been independently verified, such as solicitors, accountants and independent advisers who have been recognised by the Financial Services Authority.
I may be getting ahead a bit, but once the Bill has passed into law I plan to consult before laying a statutory instrument setting out exactly who will be permitted to give a statement. That may cover both amendments.
In amendment No. 10, the hon. Gentleman seeks to strengthen safeguards when someone is claiming high net worth exemption in clause 3. Again, the drafting may cause a problem. Subsection (1) would permit the Secretary of State, by order, to provide that a debtor or hirer who is a natural person may agree to forgo his or her protection and remedies under the Consumer Credit Act 1974 so long as two conditions are satisfied. The first is that the debtor should sign a declaration in the credit agreement making it clear that he or she agrees to forgo those protections. The second is that the lender should be in receipt of a statement of high net worth made in respect of the borrower. Subsection (3) makes it clear that such a statement may be made not by the borrower, but by a specified person. Subsection (4) grants to the Secretary of State the power, by order, to define who will constitute a specified person. It will also set out other rules about the form, content and signing of such statements.
At this stage we propose that statements of high net worth will be made by professionals whose status has been independently verified, such as solicitors, accountants and independent advisers who have been recognised by the Financial Services Authority. The statutory instrument will take care of the issues that the hon. Member for Tewkesbury has raised.
Informally, this is known as a helicopter clause, as those who wish to borrow large amounts of money can, at very short notice, with professsional advice, make a statement of high net worth. I understand the hon. Gentleman's point, but there are sufficient safeguards in the clause.
Column Number: 9
Mr. Robertson: One of the constant concerns expressed to me about the Bill, which I supported on Second Reading, so I do not want to be too damning, was that certain of its provisions are vague and that we will have to wait for further orders to come forward before we know the details. Does the Minister have any idea about what might be deemed ''high worth''? It may be a relative term, but it would help the Committee if he could say something about its meaning.
9.45 am
Mr. Sutcliffe: As the hon. Gentleman would expect, I do not accept entirely the challenge that the Bill is wholly vague. The Bill is trying to engender the concept of responsible lending and borrowing to ensure that the whole process is transparent on both sides. It is important that we listen to the concerns of the industry. It was the industry that raised the issue of high net worth individuals and their ability to go elsewhere if this provision is not available in the United Kingdom.
In the short term, the answer to the hon. Gentleman's question about high worth is that we envisage it as encompassing a net annual income of £100,000 and net assets of £250,000, excluding non-liquid assets, such as the share in the principal home and pension funds. These figures reflect those used by the Financial Services Authority to define a sophisticated investor. I hope that helps the hon. Gentleman. I ask him to withdraw his amendment, and if he does not, I ask the Committee to vote against it.
Mr. Robertson: I thank the Minister for his detailed and very helpful response. I am still a bit concerned that somebody connected to the lender could make the declaration. To return to the analogy originally used, it would not be acceptable for a financial services company to dispense with the requirement to give best advice. That must be done by somebody other than the company, and, in that case, it would be the person taking out the pension plan, if that was what they were taking out. I am not entirely satisfied, but the Minister has gone into considerable detail in answering my question. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.
Clause 4
Exemption relating to businesses
Question proposed, That the clause stand part of the Bill.
The Chairman: With this it will be convenient to discuss the following amendments: No. 12, in clause 5, page 3, line 37, leave out 'or 16B'.
No. 15, in clause 5, page 4, line 25, leave out 'or 16B'.
This is a slightly unusual procedure.
Column Number: 10
Mr. Sutcliffe: Like you, Sir John, I am slightly confused about the way in which we are dealing with this group of amendments.
Mr. Robertson: It may help if I say that these amendments are consequential on deleting clause 4.
| 
