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Mr. Sutcliffe: This has been a worthwhile debate on an issue that unites the Committee on a common objective. There is no difference between us on what we believe the end result should be. We have, necessarily, focused on the vulnerable who are most likely to be exploited. We must remember the context of the Bill: the UK has the most mature credit market in Europe. The principles that we are trying to adopt reflect the wide range in the market.
As my right hon. Friend the Member for Leeds, West pointed out, my word is law; therefore I shall keep my remarks short and I shall be very careful about what I say. The context of the debate is something on which we have all agreed: the extortionate credit test does not work, and it does not work because it is too prescriptive. Hon. Members mentioned several cases arising from the extortionate
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credit test. It was not working; there was a need for something else.
However, the something else—the unfairness test—is not without parameters. There is a spirit of fairness all the way through the various legislation and practices that affect the credit industry. The Financial Services Authority values highly the principle of treating customers fairly. The provisions of the Consumer Credit Act 1974 stipulate that a licensee must be fit to hold a licence, and the priority is that customers be treated fairly. The industry has its own code of practice on fairness. Therefore the parameters are very clear on how the test could be applied.
The failure of the extortionate credit test to meet all the requirements is a reason for not being too prescriptive about the unfair credit test. The extortionate credit test does not work.
Mr. Robertson: I agree that the extortionate credit test does not work. Nevertheless, elements of it are quite prescriptive. We are repealing those; it is not just a matter of adding the clause on unfairness. We are actually repealing some of the details of section 138 of the 1974 Act; we are removing 138(2)(a):
''the comparison of interest rates prevailing at the time it was made''.
In a sense, we are moving backwards.
Mr. Sutcliffe: I understand why the hon. Gentleman says that, but we are moving forwards, not backwards. Despite those provisions, that test was not delivering what was required. That is why we must have an unfairness test that can examine any of the terms of an agreement, the way in which a creditor has exercised or enforced his rights, and anything the creditor does—or fails to do—in relation to that agreement. The court can take into account all matters that it deems relevant when determining whether a relationship is unfair.
We have an excellent opportunity to get this right: through the spirit and framework of the meaning of unfairness and responsible lending; through informing consumers; through the licensing regime that we shall introduce; and through better powers for the Office of Fair Trading so that it can tackle bad practice.
We must consider the range of issues under discussion. The hon. Member for Richmond Park referred to loan sharks. The Government are addressing that issue with two pilot programmes that were introduced in Birmingham and Glasgow. Those programmes specifically tackle those people mentioned by my hon. Friend the Member for Leeds West who threaten physical violence and use the most unacceptable practices to extort money. We are also working with credit unions and the financial inclusion fund to see how those matters can be dealt with. The unfairness test relates to all consumers, and they will have the opportunity to allege unfairness in the courts—an option that they do not presently have.
Hon. Members raise those issues because of their frustration that the industry is not acting responsibly across the board. My hon. Friends the Members for Warwick and Leamington, for Rhondda, and for Newcastle-under-Lyme cited incidences that they found unacceptable. As my right hon. Friend the
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Member for Leeds, West said—although I am not saying it—the spirit and intention of what the Committee as a whole wants is clear.
I hope that the unfair relationship test is appropriate. The two amendments would represent a step backwards. I echo the question of my hon. Friend the Member for Warwick and Leamington to the hon. Member for Richmond Park: what is the definition of responsible lending? There is a danger of becoming prescriptive and missing something. The majority of lenders are responsible practitioners who operate within codes of practice and within the framework of the law. They may be competitive in their marketing of products, but on the whole most operate fairly. However, we are talking about those who do not operate fairly, and who will try to find loopholes in the law so that they can get their products across to the most vulnerable.
We could become too prescriptive. The matter is not open-ended, because the industry finds certainty within the codes of practice and the financial services authority. The industry, through its own codes—the banking code, for example—operates within fair parameters. Someone described unfairness as rather like the proverbial elephant: you know it when you see it, but it is not difficult for a lender to know when it is a priority. Unfairness is like that elephant in that it is clear what we mean by unfairness, and it is clear what the Committee means by unfairness. Through the spirit and intention of what we are trying to achieve, the industry knows what we mean by unfairness.
The two amendments do not take us forward; in fact, they take us backwards and are too prescriptive. I ask the hon. Member for Richmond Park not to press the amendments. We shall discuss later the points raised by my hon. Friends about the powers of the OFT and the banking code. The British Banking Association and others will take on board many of the issues that my hon. Friend for Leeds, West has raised. The Treasury Select Committee and others will monitor the success of the regulations that are already in place. The Bill will get across the fundamental principle of responsible lending and borrowing and deal with unfairness, where it exists.
4.45 pm
Dr. Tonge: If the Minister looks at Hansard tomorrow, he will find that he used the phrase ''whether the creditor lent responsibly'' several times, so I want to see him vote against the amendment and eat his words.
Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 10.
Division No. 2]
AYES
Barker, Gregory
Robertson, Mr. Laurence
Tonge, Dr. Jenny
NOES
Battle, Mr. John
Bryant, Chris
Farrelly, Paul
Keeble, Ms Sally
Lazarowicz, Mr. Mark
Plaskitt, Mr. James
Quinn, Lawrie
Sutcliffe, Mr. Gerry
Tami, Mark
Watson, Mr. Tom
Question accordingly negatived.
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Amendment proposed: No. 23, in clause 19, page 13, line 19, at end insert—
'(2A) In particular, when determining whether an agreement is unfair, the court should consider—
(a) whether the terms of the agreement, which the lender is seeking to enforce, were clearly set out in the pre-agreement statement provided by the lender to the debtor as set out in subsection 7B of section 6 of this Act;
(b) whether the lender has complied with all other requirements of this Act and the 1974 Act;
(c) whether the initial terms of the agreement might be considered to be significantly unfavourable to the debtor when compared with other similar agreements, when there are no compensating factors within the said agreement available to the debtor; and
(d) whether the running of the agreement might be considered to be significantly unfair to the debtor when taking into account the relative financial strength of the parties to the agreement.'.—[Dr. Tonge]
Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 10.
Division No. 3]
AYES
Barker, Gregory
Robertson, Mr. Laurence
Tonge, Dr. Jenny
NOES
Battle, Mr. John
Bryant, Chris
Farrelly, Paul
Keeble, Ms Sally
Lazarowicz, Mr. Mark
Plaskitt, Mr. James
Quinn, Lawrie
Sutcliffe, Mr. Gerry
Tami, Mark
Watson, Mr. Tom
Question accordingly negatived.
The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.
Question agreed to.
Clause 19 ordered to stand part of the Bill.
Clauses 20 and 21 ordered to stand part of the Bill.
Clause 22
Further provision relating
to unfair relationships
Mr. Robertson: I beg to move amendment No. 24, in clause 22, page 16, line 6, leave out 'alleges' and insert 'demonstrates'.
I was concerned by the word ''alleges'', because it is easy to allege without substantiation. In discussing on the previous clause, I spoke at great length about being clear as to what was an unfair agreement. The subsection that I seek to amend states:
''If, in proceedings referred to in section 140B(2), the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.''
The question is whether that shifts the burden of proof. I understand that the Minister will respond by saying that it does not, but it depends: if a creditor takes the matter to court, that is one thing, but for a debtor to take the matter to court is quite another with regard to the burden of proof. However, if the debtor
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only has to ''allege'' that it is unfair in order to require the creditor to prove to the contrary, that is not a strong enough word. There must be some demonstration from the person who has taken the matter to court that it is unfair. Otherwise, there could be frivolous claims.
The Bill seeks not necessarily to achieve anything for consumers or for lenders, but to achieve fairness in dealings. To ''allege'' something is a bit weak, and I would rather replace that with ''demonstrate''.
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