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Chris Bryant: Does that mean that the Minister would advise people who send unsolicited pre-approved credit card application forms and loans of the kind that we have been discussing to desist because the courts might find that they had entered into an unfair relationship?
Mr. Sutcliffe: My hon. Friend will understand, and I forget the judgment—I am sure that I shall be reminded of it by way of information that will come quickly—
Mr. Plaskitt: Pepper v. Hart.
Mr. Sutcliffe: Thank you.
If a Minister goes down the route, along which my hon. Friend the Member for Rhondda has tried to entice me, and comments on a matter in Committee, the comment may be used as evidence in court. That is why I do not wish to do that: the courts will have an opportunity to look at all the issues before they make judgments on them. I will not be tempted into saying what is or is not unfair; what I say is that lenders should lend responsibly.
The hon. Member for Bridgwater (Mr. Liddell-Grainger) mentioned the minimum payment, and we have tried to ensure that the consequences of making only a minimum payment are there for the borrower to see.
Mr. Battle: What concerns me is that the unfair relationship will be tested in court. In court will be the person who has borrowed and the lender; the power of the lender to make a case will, I suspect, be much greater than that of the borrower. I press the Minister to say whether he thinks the balance is yet right. We welcome the Bill, but can we redress the balance a little to ensure that the borrower can challenge the lender, and can we say that the relationship is unfair? The borrower may say: ''I cannot prove unfairness absolutely in minute detail, because your lawyers will argue against me while I cannot even get legal aid to make my case.'' How can we ensure that the borrower is properly backed up in court?
Mr. Sutcliffe: There is a process for reducing the test from what it is now. It is very difficult to get to court at present on the basis of the extortionate credit
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test. That is why we favour the unfairness test. There are redress mechanisms: if a borrower is not happy with a lender's method of dealing with matters, he can make use of the alternative dispute resolution; if he is unhappy with that, he can go to court. We have struck a balance in outlining responsible lending and have tried to make matters clear and fair for the consumer. There is balance.
At present, the balance of disproving the extortion is in favour of the lender. The consumer need only make an allegation that the transaction is extortionate, and he will succeed if he can satisfy the court, on the balance of probabilities, that it is unfair. That is where the balance lies for the consumer.
We should give the unfair credit test a fair wind, and I ask hon. Members to trust our judgment. If we lay down restrictions we may miss some of the cases that we are trying to prevent.
3.15 pm
Mr. Liddell-Grainger: The Minister is making an interesting case. However, I have just been reading that debt in this country will pass £1.1 trillion in the middle of this year, and it is rising by 15 per cent. a year. Are we to trust the Minister to sort things out? His right hon. Friend the Member for Leeds, West (Mr. Battle) made a valid point that the Bill will not work because debt will continue to increase. There are 1,300 credit cards on the market now and presumably there will be more to come.
Mr. Sutcliffe: I will resist the temptation to make a detailed response. We had a discussion this morning about the £1 trillion debt when I exchanged words with the hon. Member for Tewkesbury about its make-up.
I am concerned to get the Committee to understand the nature of the unfairness test and its possibilities. I am happy to say to my right hon. Friend the Member for Leeds, West that I am confident that the balance is more in favour of the borrower now as a result of our proposals.
Mr. Battle: I meant that it should be more in favour of the borrower than it was under the 1974 Act.
Mr. Sutcliffe: I shall not split hairs too finely. We must ensure that we do not go for 30 years without reviewing the consequences of the new legislation. We must see how the legislation is working, and if it does not work as hon. Members suggest it should, we shall have to look at it again. If we restrict the definition we may miss some cases, and borrowers' positions will not improve as we had hoped.
Gregory Barker (Bexhill and Battle) (Con): Is the Minister comfortable that the legislation, framed as it is, gives sufficiently robust guidance to the courts? Is there a danger of our asking the courts to make decisions on cases in which we ought to be more robust ourselves about the judgment we expect?
Mr. Sutcliffe: Let me set out the areas that we expect the courts to consider: the start of an agreement, its conditions and lifetime, and what happens if it goes wrong. We want the courts to
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have enough guidance to understand the intention behind the Bill. I do not believe that we have been vague in saying how the relationship should be regarded.
A difficulty could arise if hon. Members asked me to list the circumstances required when applying for the description. That might make it difficult for the courts to consider circumstances not covered by a list. We are very clear in setting the issues—[Interruption.] The hon. Member for Bexhill and Battle may not think so, but we are very clear that we want the courts to look at existing relationships. Remember, we are replacing a very high test of extortionate credit with a balance very much in favour of the lender. The unfairness test, together with the redress mechanisms we have in place, will shift the balance towards the borrower. It ensures that the borrower has the ability to prove that the test is unfair; the lender has to prove that it is not.
Mr. Robertson: May I ask the Minister for a point of clarification? I am not trying to trip him up—I know he will have the answer. Under which clause or subsection will the Minister or the Secretary of State be able to issue guidance to the courts?
Mr. Sutcliffe: In normal circumstances, we will set out the parameters within which we want the courts to operate. I believe that I have already set out what the relationship should be. We shall examine the Office of Fair Trading guidelines and our code of practice. There will also be the evidence that developed from the alternative dispute resolution process. The courts will have powers based on the information developed as the Bill progressed. The hon. Gentleman asked how we will do that: we will do it through secondary legislation, if that is required.
Mr. Robertson: I am grateful to the Minister for that. However, I am not sure—I am not a lawyer—that the Bill provides that opportunity. The Minister is getting advice. I would like to hear what that advice is because I would like the matter cleared up. I would be very pleased to be proved wrong.
Mr. Sutcliffe: I can help the Committee by looking at the Bill's requirements on the unfair relationships test. Section 140A of the 1974 Act sets out what the court can do:
''The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—''.
The section then sets out the terms on which a judgment would be made. I hope that helps.
Mr. Robertson: I may be getting into water deeper than I can cope with, not being a lawyer, but, with respect, that is not what I asked. I asked what opportunity there is for the Minister to introduce a statutory instrument to guide the courts. The Minister said that the Office of Fair Trading may be able to offer guidance, but I am not sure to what extent the Minister can guide the OFT. He knows that we have had that dispute on a separate matter, which we will return to later in the Bill. Nowhere on the face of the Bill is there an opportunity for the Minister to issue
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guidelines to the court about the meaning of ''unfairness'' that would be sufficiently close enough for interpretation by the court.
Mr. Sutcliffe: We are entering dangerous ground. Let me be very clear about what the unfair relationships test says: the circumstances are outlined on the face of the Bill.
Mr. Robertson: They are not.
Mr. Sutcliffe: The hon. Gentleman says they are not, but they are. The Secretary of State will not issue guidance. The Office of Fair Trading will issue guidance as to how it will enforce the test under part 8 of the Enterprise Act 2002; it has to be in the collective interest of the consumer.
Chris Bryant: The Minister may be interested to know that section 44 of the 1974 Act gives him the powers that he needs.
Mr. Sutcliffe: I am ever grateful to my hon. Friend for saving my face by pointing to the right regulation.
Mr. Plaskitt: Will the Minister comment on clause 19, new section 140A(2)? It states:
''In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant''.
Will the Minister indicate the type of things that he thinks will qualify as relevant?
Mr. Sutcliffe: I do not want to do that, for the reasons that I outlined to my hon. Friend the Member for Rhondda. If I become prescriptive about the issues relating to the detail of individual tests, that will restrict the ability of the courts to look at all elements of the relationships between the lender and the borrower when trying to discern whether a test or agreement is unfair. That is why I have resisted the temptation.
Mr. Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I understand why the Minister is resisting countless temptations to go along the road of setting out his views on what an unfair test might consist of, and why he does not wish to that, and I will not ask him to do so. Perhaps, though, he will be prepared to go as far as to say that it is certainly the intention that those clauses should be interpreted as broadly as possible. They are intended to be a broadening of the situation as regards the debtor vis-à-vis the creditor compared with extortionate tests. If he is prepared to say that, it would be helpful, and I hope within the limits to which he is prepared to go today.
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