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Mr. John Battle (Leeds, West) (Lab): It would be more honest if the information asked one question: ''May we have your house later, please?'' The hon. Member for Bexhill and Battle (Gregory Barker), whose constituents I do not know, referred to the impact of the mortgage market, and I suspect that home owners are being targeted to get them to increase their debts on the basis of the increasing value of their property. It is a scam to say to people that they should pay back the loan over 25 years, because interestingly that is likely to be the lifespan of their mortgage as well.
Chris Bryant: My hon. Friend has made an extremely important point, and I know that he was considering this problem before he entered the House. He took up such issues with some vigour in his previous line of work. Some may think that many people in Rhondda live in social housing, because it is one of the poorest constituencies in the land. However, 86 per cent. of people there own their homes, so they have assets that they may well lose. That is why areas such as mine receive a large number of unsolicited mailings.
The three exciting features that the Capital One credit card offers are: no annual fee; a typical APR of 29.9 per cent.; and—and this seems bizarre to me—the free choice of card design. Customers may pick one of about 20 credit card designs on the application form. It seems bizarre that more time and energy should be spent on the design of a credit card than on establishing whether someone has the financial resources to afford one.
Interestingly, when studying the small print—I still have reasonably decent eyesight—I noticed that people can apply for the priority service option for faster processing of applications. A charge of £10 is added to the account for the service, but opting for this increases the APR from 29.9 per cent. to 34.2 per cent. Most people applying for such a card would never bother to look at that detail. What the leaflet does not state is the point at which people would start to pay interest on purchases, balance transfers or cash withdrawals. Such information makes a significant difference to whether someone can really afford a credit card.
We heard on the ''Today'' programme this morning that one lady's husband had 22 credit cards. The amount of debt that can be racked up—which can then be moved on to one of these debt-busting Hfs loans—is so significant that people can lose not only their homes, but their sense of personal well-being, and that often leads to significant health problems.
I have tabled two amendments. The first is an amendment to clause 19, which states that if a debtor
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had entered into a credit agreement as a result of such an unsolicited and pre-approved mailing, that would in itself render the agreement into which the two parties had entered an unfair relationship, under the terms in the amendments to section 140 of the 1974 Act. I suspect that this amendment to the Act would stop these mailings immediately. There would be no point sending out unsolicited mailings, because no one would be able to enforce the terms in them. The Minister may feel that that process would be slightly too draconian. For that reason I have also proposed new clause 2, which would simply prohibit unsolicited credit-token applications.
I hope that we manage to stop this process, because I know the mischief and damage that it does to too many homes and families. We should try to rectify the level of irresponsibility shown in some—but by no means all—parts of the market.
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Mr. James Plaskitt (Warwick and Leamington) (Lab): I support the principle that my hon. Friend the Member for Rhondda (Chris Bryant) has raised, although I suspect that he might not have the right vehicle or means of proceeding, as he intimated.
As the Minister will know, my colleagues and I on the Select Committee on Treasury have been working on those matters for a couple of years and endeavouring to push the credit card industry in particular towards greater transparency. My hon. Friend is absolutely right to place emphasis on the industry's unsolicited promotions. We have steadily pursued that matter over the past two years, and the industry has made only grudging movement. The Bill gives us an important opportunity to take some measures that the industry should be prepared to take itself, but—by and large—has not been keen so to do.
When there are so many providers in the field and so many different products, and when the business itself is so intensely competitive, it is entirely reasonable that the industry should promote its products as much as it wishes in order to compete. However, there is a distinction between promoting products in general and promoting extensions of credit lines. When the industry crosses into that area, we begin to encounter some of the horrific problems that my hon. Friend mentioned, and which were mentioned on the radio this morning. Other such instances were brought to the attention of the Committee during its inquiry. The industry does many things of an unsolicited nature. I am particularly concerned about the unsolicited issuance of credit card cheques, and I have tabled an amendment on that matter, which I shall address later.
We also unearthed examples of the unsolicited promotion of credit extensions. That is of particular concern because it is often aimed at those who are already nearing their credit limits and are, therefore, financially vulnerable. It can be very tempting, if an offer is made, to extend that credit line still further.
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The industry is not doing enough to run checks on the extent to which people make multiple applications or respond to many of the inducements to take up additional lines of credit. A key to making progress is to address the sharing of information among providers. The Treasury Committee unearthed evidence that there is simply not enough sharing of information, and I hope that the Minister can assure us that there are measures in the Bill—if not in this clause—to help us to secure better sharing of information among providers. If we can achieve that, we will minimize the chances of financially vulnerable people piling up multiple ownership of cards and building up debt, which leads to the horrific consequences such as we have seen.
Mr. Liddell-Grainger: The hon. Gentleman has made some good points. It is a particular problem that credit card companies try to push people to take on as many cards as possible, because they want them to repay only the minimum amount and create more debt. The hon. Gentleman is absolutely right, one of the biggest problems is that the industry is determined to push those cards for that reason, and I am afraid that it will probably take legislation to stop that. Does the hon. Gentleman agree?
Mr. Plaskitt: The hon. Gentleman is right. The Treasury Committee has raised that issue with the industry many times, and has moved it considerably on that point and has got it to put clearly on statements what will be the consequences of making only minimum repayments. It was interesting that when we asked the chief executives of the banks, when they were giving evidence to the Committee, how long it would take to pay a debt if minimum repayments were being made in a given scenario, they could not work it out. If they could not work it out, and the henchmen behind them in the second row could not work it out either, why should they expect a customer with far fewer resources to work it out? We have encouraged them and, to their credit, many now include statements about the consequences of making only minimum repayments, which gives the customer some indication of how long it would take to pay off the debt and how much the debt would rack up if they were tempted to do that.
In the context of my hon. Friend's amendment on unsolicited promotion, I put another example to the Minister on risk-based pricing. We all understand why the industry needs to engage in risk-based pricing and, as an approach in itself, there is nothing inherently wrong with it.
However, if a credit extension is promoted to a customer in an unsolicited way and is advertised at one given APR, the customer may respond positively only to find that, when the card is used, with the credit having been extended, the APR is much higher because of the risk attached to the customer. That further example of the unsolicited nature of so much of the industry's promotion is an unacceptable marketing practice.
Finally, the industry keeps telling us that unfair relationships can be dealt with through improvements to the banking code or to its own code of practice. I acknowledge that it has made some welcome
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improvements to the code. Crucially, however, in many areas that relate to unsolicited marketing and promotion, the industry has not made sufficient moves with regard to its code. I hope that the Minister can reassure us that, if the amendment is not deemed to be totally suitable, measures can nevertheless be taken that will help us to plug the gaps that the industry should have plugged by now.
Mr. Sutcliffe: I congratulate my hon. Friend the Member for Rhondda on the way in which he moved the amendment and my hon. Friend the Member for Warwick and Leamington on speaking to it. Although we may disagree on the detail, there is no disagreement about the principle of what we are trying to achieve.
I have seen the recent press coverage about Mr. Cullen; I am sure that the entire Committee wishes to record its sincere condolences to the Cullen family for the circumstances in which they find themselves. It is not unreasonable that Mrs. Cullen should ask why her husband, as a result of having so many credit cards, found himself in such a difficult position. My hon. Friend the Member for Warwick and Leamington is right: sharing information is vital to what we are trying to achieve. It is also what the Select Committees on Trade and Industry and on Treasury are trying to achieve. My hon. Friend the Member for Bassetlaw (John Mann) brought to my attention a case similar to Mr. Cullen's. There are too many such incidents.
Although I said this morning that credit is a good tool if people use it wisely, we must, through legislation, make the industry understand that such a price is not worth paying, given the misery it causes people. I acknowledge what my hon. Friends have said about the industry's attempts to improve the situation through the banking code, but we must go further.
Unfair relationships go to the heart of what we are trying to achieve on many issues. Hon. Members raised concerns, not only on Second Reading, but in various Committee hearings and in the House. The test of unfair relationships in clause 19 is a new one that replaces the existing extortionate credit test. We feel that the hurdles on that test are too high. It allows for the re-opening of credit agreements where a court finds the transaction as a whole to be unfair. That will be determined by references to all the relevant circumstances, including the terms of the agreement and the parties' conduct. The hon. Member for Tewkesbury chided me earlier, saying that many people say that some parts of the Bill are vague. On the unfair credit test, I am sure that the challenge will come forward from my hon. Friends and from the Opposition that it remains too vague.
I passionately believe that it is right and proper that the definition should be as wide as possible. We should not try to restrict the conditions of the test, which we might do were we to accept the routes towards which some amendments have pointed us.
Clause 19 permits the courts to consider anything done or not done by or on behalf of the creditor either before or after making the agreement or any related agreement. Clause 19(2) makes it clear that the courts may have regard to any relevant matter in making a determination.
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The drafting of clause 19 is wide enough to allow the courts to take into account the factors that the hon. Gentlemen list in their amendments: whether the creditor has entered into the agreement as a consequence of approved unsolicited application form; whether the creditor has lent responsibly; whether the terms of the agreement have been set out clearly in a pre-agreement statement; whether the lenders comply with all the requirements of the Act; whether the initial terms of the agreement may be considered unfavourable when compared to similar agreements; and whether the running of the agreement might be considered unfair to the debtor. It can also consider any other relevant matter.
I hope that the Committee will accept our reasons for following this course of action to ensure that anything can be considered in the test through the court and in the redress mechanisms that we have put in place later in the Bill.
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