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Session 2004 - 05
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Standing Committee Debates
Consumer Credit Bill

Consumer Credit Bill

Column Number: 41

Standing Committee E

Tuesday 25 January 2005

The Committee consisted of the following Members:

Chairmen: †Sir John Butterfill, Mr. Joe Benton

†Barker, Gregory (Bexhill and Battle) (Con)

†Battle, Mr. John (Leeds, West) (Lab)

Bruce, Malcolm (Gordon) (LD)

†Bryant, Chris (Rhondda) (Lab)

†Burt, Alistair (North-East Bedfordshire) (Con)

†Farrelly, Paul (Newcastle-under-Lyme) (Lab)

†Keeble, Ms Sally (Northampton, North) (Lab)

†Lazarowicz, Mr. Mark (Edinburgh, North and Leith) (Lab/Co-op)

†Liddell-Grainger, Mr. Ian (Bridgwater) (Con)

†Plaskitt, Mr. James (Warwick and Leamington) (Lab)

†Quinn, Lawrie (Scarborough and Whitby) (Lab)

†Robertson, Mr. Laurence (Tewkesbury) (Con)

†Sutcliffe, Mr. Gerry (Parliamentary Under-Secretary of State for Trade and Industry)

†Tami, Mark (Alyn and Deeside) (Lab)

†Tonge, Dr. Jenny (Richmond Park) (LD)

†Watson, Mr. Tom (West Bromwich, East) (Lab)

Geoffrey Farrar, Committee Clerk

†attended the Committee


[Sir John Butterfill in the Chair]

Consumer Credit Bill

Clause 12

Notice of default sums

Amendment proposed [this day]: No. 22, in clause 12, page 10, line 23, at end insertó

    '(6A) The debtor shall not be required to pay a default sum unless the liability to do so is clearly set out in the statement as required under subsection (7) of section 6 of this Act.'.ó[Mr. Laurence Robertson.]

2. 30 pm

Question again proposed, That the amendment be made.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): The hon. Member for Tewkesbury (Mr. Robertson) moved amendment No. 22, which is based on arguments similar to those he raised in amendment No. 17. Since we did not support amendment No. 17, it will come as no surprise to him that we will not support amendment No. 22 either. I understand the spirit and intention of what he is trying to achieve, but the Government have identified a better process for ensuring that people are informed fully about the default sums incurred when they incur them. For those reasons I do not need to go into any great detail. It is important that people understand fully their default situations, but it would not be helpful to follow the route that the hon. Member for Tewkesbury suggests. Therefore I respectfully ask him to withdraw his amendment in the same spirit as he did so previously.

Mr. Laurence Robertson (Tewkesbury) (Con): I did not withdraw amendment No. 17; I pressed it to a vote, as acceptance of the amendment wouldó

Mr. Sutcliffe: I apologise. I have just had lunch with the British Retail Consortium, so my memory is slightly clouded. I remember now, and acknowledge that the hon. Member for Tewkesbury did push amendment No. 17 to a vote.

Mr. Robertson: I hope that the Minister enjoyed his lunch. I am sure that it was rather better than my lunch in the Tea Room.

Chris Bryant (Rhondda) (Lab): Such is opposition.

Mr. Robertson: Such indeed. I did not withdraw amendment No. 17 because its acceptance would have improved the world of consumer credit, in the sense that it would have required the lender to set out clearly the terms of the agreement into which the borrower was entering. However, it was lost. Amendment No. 22 is consequential on that, so I do not intend to press it to the vote. It is important that the lender set out clearly the detailed terms of the agreement so that the borrower has no illusions about what he is entering into or the consequences of any default. Given that I did not win that vote, I do not suppose that I shall win
Column Number: 42
this one, so I shall not trouble the Committee any further with it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman: It will not be necessary, or even desirable, for all hon. Members to preface their remarks by stating their luncheon arrangements. [Laughter.] For the convenience of hon. Members a new selection list is available.

Clause 12 ordered to stand part of the Bill.

Clause 13

Interest on default sums

Question proposed, That the clause stand part of the Bill.

Mr. Sutcliffe: Hon. Members will be aware of high-profile cases in the press in which compound interest on default sums has resulted in massive escalations of the original debt. That is of considerable concern, and it is addressed in clause 13. Creditors or owners are entitled to the cost of recovering the debt, but that should not unduly penalise debtors or hirers. The clause will prohibit the compounding of interest on default sums and allow the charging only of simple interest. A default sum will be defined in a new section 187A of the Consumer Credit Act 1974 as an amount payable, other than interest, by the debtor or hirer for any breach of their agreement. For example, this could include a late payment fee, a mispayment fee or legal fees. Any current agreements that permit compound interest will have to be amended to allow simple interest only.

Mr. Robertson: Will the Minister consider extending the restriction to arrears generally, or has that been ruled unnecessary or undesirable? People get into trouble on arrears generally, not only on defaults. If a lender attracts simple interest on the arrears or the default, the money will be repaid with interest. Did the Minister consider extending the restriction to that extent? Arrears are potentially more dangerous for borrowers than defaults.

Mr. Sutcliffe: The hon. Gentleman has raised a difficult issue. To my recollection, we considered how to re-examine other agreements, but decided that the most appropriate route was the one that we had chosen. If that recollection is incorrect, I shall come back to the hon. Gentleman with precise details from the consultation.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clauses 14 and 15 ordered to stand part of the Bill.

The Chairman: I am happy for hon. Members to take off their jackets, but it is customary to ask the Chair for permission.

Mr. Sutcliffe: I am suitably chastened, Sir John, and I apologise for removing my jacket without first asking your permission. I shall have to stop going to luncheons, because they are clearly not doing me any good.
Column Number: 43

Clause 16

Time Orders

Question proposed, That the clause stand part of the Bill.

Mr. Sutcliffe: It is usual to spend some time on time orders, which are dealt with in clause 16. This morning, I mentioned the situation in Scotland with regard to time order applications. A debtor or hirer can ask the court for a time order in any action brought by a creditor or loaner to enforce a regulated agreement, or when they receive a default or non-default notice. Time orders may enable the debtor or hirer to have more time to repay the sums owed under the agreement and to remedy any breach of the agreement other than non-payment.

The time-order provisions of the 1974 Act are seldom used. Few are applied for and fewer are granted. Lack of information is part of the problem. Debtors and hirers are not aware of the time order provisions. We are working on ways to inform them about time orders, which will involve the inclusion of information on arrears and on default information sheets that will be produced by the Office of Fair Trading. The fact that debtors or hirers cannot apply for time orders at the appropriate times is part of the problem.

The clause amends section 129(1) of the 1974 Act to allow debtors or hirers to apply for a time order after they have received an arrears notice. That ensures that the debtor or hirer has the opportunity to apply for a time order when the problem is still developing, not when it is too late.

There is concern that people may use the time order simply to delay the inevitable, or that they will apply because they can. We will require people who want to seek a time order to go through certain steps. Debtors or hirers can make an application in the following circumstances: when they have notified the creditor or owner of their intention to apply for a time order and, in so doing, give details of their proposals; and that at least 14 days have passed since the notification was given to the creditor or owner. In practice, requirements should not be onerous. It is important to have simple criteria that can be met by debtors and hirers; compliance should also be simple.

The clause encourages creditors and owners to seek and resolve payment problems early. That was the basis for some of this morning's discussion.

Dr. Jenny Tonge (Richmond Park) (LD): Does it cost a debtor anything to apply for a time order?

Mr. Sutcliffe: That depends on the negotiations that take place on the plan that the debtor proposes to the lender. The arrangement would have to be in the best interests of both parties, but a time order provides time and opportunity to resolve difficulties at a very early stage. It is a useful tool for resolving problems, and we wish to see its use spread throughout the UK. We will be talking to the Scottish Executive and others in order to achieve a consistent approach across the UK.

Question put and agreed to.

Clause 16 ordered to stand part of the Bill.
Column Number: 44

Clause 17

Interest payable on judgment debts etc.

Question proposed, That the clause stand part of the Bill.

Mr. Sutcliffe: The next few clauses deal with the issue of interest payable on judgment debts. In England and Wales, money creditors' agreements include a term that allows them to continue to charge interest after they have obtained a judgment for a debt owed. That continues until the debt has been paid in full by the debtor. The term is included because the courts are prevented by law from awarding statutory interest on consumer credit debts.

Most creditors never make use of those terms, but some do. The problem is that debtors and hirers are often unaware of such terms, and do not appreciate that further interest may be accruing even though they are dutifully paying off the judgment debt. This is not an issue in Scotland and Northern Ireland. In those jurisdictions the court is empowered to order interest on judgment sums at rates specified in legislation. We are not banning the practice of seeking interestócreditors should be entitled to charge interest on an amount that is owedóbut debtors and hirers should also be told what they might have to pay.

We are not introducing a requirement for statutory interest in England and Wales. Few lenders seek post-judgment interest, and a statutory interest regime would mean that many people who are not required to pay interest now might have to in future.

Clause 17 requires creditors or owners to notify debtors or hirers about the interest that continues to apply after the judgment has been made. Once the judgment has been made by the court, if the creditor or owner wishes to claim interest on the amount to be paid, they must notify the debtor or hirer and continue to do so at least every six months. The notice may be incorporated into any other required statements or notices under the 1974 Act. The debtor or hirer does not have to pay the interest if the creditor or owner has not complied with this proposed new section. This provision does not apply where a court has the power to order interest to be payable on a judgment sum.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

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Prepared 25 January 2005