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Alistair Burt: That is a good phrase.
Mr. Robertson: It certainly is a good phrase; however, I digress, Sir John. I was alarmed. Presumably, I could have gone out and spent that money that same day. I did not, and I will not spend it, because I do not believe that debt for debt's sake is a good thing. That is one recent example.
Mr. Sutcliffe: I am sorry to pursue the hon. Gentleman, but this issue is at the heart of the Bill. Is it the Government's responsibility to determine what products are available in the credit card market or to determine how consumers seek redress? I have some sympathy, given the circumstances in which he obtained that credit card, and that would be a good example for the unfair credit test. Is it the Conservative party's view that the Government should determine what products the industry should offer?
Mr. Robertson: I gave the example to support the remarks of the hon. Member for Richmond Park about it being too easy to obtain credit and money. I wonder how it was possible for the gentleman of the poor widow who was on the radio this morning to obtain 22 credit cards.
It is certainly not for the Government to determine whether I should get a Marks and Spencer store card. It is none of the Government's business, and I did not come into politics to encourage the Government to interfere more in people's daily lives—quite the reverse. However, there is a massive amount of personal debt in this country, which is not entirely due to house prices and not entirely asset backed. It is a big problem for some people—I do not know how many. Not everybody who has borrowed money is in trouble. I borrowed money for my house and my car. I am not in trouble with that, but many people are.
I am concerned about people's inability to ensure that they are treated fairly because they are not lawyers and do not necessarily understand what constitutes a contract. I do not think that many people understand what the essential ingredients of a contract are. People seem to think that if a big company states that it can charge X for a letter or for a default on a payment, it is entitled to do so. Many people are not financially literate; most certainly have no legal training or, indeed, legal knowledge. I am concerned that the Government help those people and prevent them from being ripped off. No one is concerned about honest agreements that involve, for example, people taking out loans that they can pay off at an interest rate of 5 per cent. I am not suggesting that the Government should restrict the number of products available. I do not think that they could if they wanted to. However, I am concerned that protection is afforded to people who are not financially literate or legally educated. I am not sure that the Bill goes far enough in doing that.
Chris Bryant: The hon. Gentleman said earlier that the company had no idea who he was when he got the
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card. The hon. Member for Richmond Park said that perhaps there should be some sort of means test. For clarification, would the hon. Gentleman put his opinion on that on the record? Even if the Minister is not able to make such comments, I am sure that the fact that this has been said by all parties will be significant in how the industry views the likely outcome of today's debate. The issue is clearly the sharing of information between companies. If someone tries to sell a card or loan to a person without having any information about him—not even whether he is under 18—that must, prima facie, be an example of irresponsible lending.
Mr. Robertson: I think, not for the first time, that the hon. Gentleman makes a very good point. My amendment No. 25 deals with credit reference agencies and although my intention was slightly different, it may just cover his point. It is probably largely up to the industry, but if companies were not so able to rip some people off as they are, they might not be so quick to lend money without taking into account people's circumstances. There is probably a logical thread in that.
If we apply to borrow money for a house, our income is checked. If we try to top that up more than our income allows, we will not be lent the money. That is because it is not as easy for those companies to rip others off to compensate for bad loans that they may have made. In the credit card and in the loan shark industry—if I may put it so crudely—that is not the case. It is a bit like third-world debt. Some organisations have lent money at extortionate rates of interest to compensate for the possibility that country B may not repay them. We have a similar situation, and I am not sure how effectively the Government can deal with it. They can act by reducing the burden of the test from extortion to unfairness. I welcome that, but let us clarify the matter so that we can squeeze out those who simply lend money to anyone.
I do not know how on earth that poor gentleman got 22 credit cards. I do not think that many of us would be able to do that, but it is obvious that some people can. I hope that I have made the case for defining the word ''unfairness''. I accept that my amendment is not perfectly worded and that parts of it are better than others; but it is a genuine attempt to help the Government with the Bill rather than to get in the way.
Paul Farrelly: I am grateful to have caught your eye, Sir John.
4.1 pm
Sitting suspended for a Division in the House.
4.16 pm
On resuming—
Paul Farrelly: Clauses 19 and 20 introduce the concept of unfair relationships in credit agreements. They replace the old concept of extortionate credit bargains, which is contained in the 1974 Act. We have already heard that such unfair relationships manifest themselves in many questionable practices by some
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lenders, and not just those who might be referred to as loan sharks.
One such practice is the imposition of late-payment charges of £20, £25 or £30 by credit card companies, many of them household names. People might be regular payers, be busy or have momentary cash flow issues; none the less, they get hit by late charges that are relative to the size of their minimum payments. Many people, particularly those who are already on lower incomes, make only the minimum payment. They may already be finding it difficult to pay off their charges, and penalty charges can make it nearly impossible to pay the principal amount.
All the major banks and credit card companies indulge in such practices—including Lloyds TSB, Barclays, HSBC and NatWest, which is now part of the Royal Bank of Scotland Group. I name those companies deliberately, Sir John, so that their public relations officers and top executives will read about this debate in tomorrow's clippings. Late payment charges often bear no relation to any risk of default, or indeed to the administrative costs of sending out a computerised reminder letter. They are simply onerous, money-spinning penalty clauses that exist because the balance of power between the lender and the borrower is so unfair.
There are other manifestations such as penalty charges or referral fees—call them what we like—for temporary breaches of overdraft limits. It is often hard not to breach an overdraft limit and avoid such a charge. Have hon. Members noticed that if, in this computer age, they ring up their bank, the computer always says ''no'', because using an overdraft limit is de facto evidence that an increase should not be given. It is impossible for people reasonably to avoid many of those charges.
The key legal provision of the 1974 Act is section 138, which sets out when credit bargains are extortionate. Although it is clear, it needs to be interpreted by the courts. In individual cases, the courts have found that many such practices are extortionate and that there unenforceable penalty clauses. In other cases, banks, when challenged, will settle quietly out of court because they do not want to create precedents that would otherwise prejudice their existing practices.
As my right hon. Friend the Member for Leeds, West points out, individuals are required to take a challenge to court in relation to unfair relationships. That highlights the time and cost implications for people who take on large corporations and multinationals. In practice, even if the big corporations lose cases to one or two determined individuals, they know that the authorities—in this case the Office of Fair Trading—have not shown evidence that they have run with the issue and enforced decisions to stop those practices. The authorities have a very poor record of tackling financial companies for these practices following court decisions.
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I do not want my remarks to be too lengthy, so I will ask the Minister for a few reassurances. First, these clauses are not going to hamper the ability of people to go to court in the first place if they want to, though I have some sympathy with the point made by the hon. Member for Tewkesbury but late charges such as those that I have been discussing might now be considered extortionate under the previous Act but may not be thought unfair under the future Act if they are advertised clearly and things stated up front. Will the Minister assure us that the ability of individuals to challenge practices of that sort will at least be matched, if not enhanced, by the new concept of unfair agreements.
Secondly, with respect to enforcement in practice, I seek reassurance that the Office of Fair Trading will improve its record, not just when the new Act comes in, but right now under its existing powers, so that people do not have to go to court in the first place. We will deal later with provisions to do with the OFT, but I mention it here because of the reality that unfair practices do exist. I would like some reassurance that the tiger will grow some teeth, because otherwise the balance of power will remain unchanged, and unfair relationships between lenders and borrowers will persist.
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