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Mr. Sutcliffe: It will come as no surprise to the hon. Gentleman that the Government will resist the amendment. It is a principle of the ADR scheme that it is self-funding, and amendment No. 44 could make that impossible. It is also a fundamental principle of the ADR that it should be free to the consumer. That ensures that all consumers have access to redress mechanisms, not just those who can pay for them. The ADR funding arrangements should recognise the unequal bargaining positions of firms and consumers. I seek to correct that imbalance so that cost is not a barrier for consumers when seeking redress.
Under clause 60, the ADR scheme would be funded by a modest annual levy, and a case fee will be payable by those businesses against which complaints are considered. There will be a levy and a case fee. The majority of firms will never pay the case fee. Their cases do not get as far as requiring ADR—
3.29 pm
Sitting suspended for a Division in the House.
3.44 pm
On resuming—
Mr. Sutcliffe: To recap, I had said that the ADR scheme would be funded by a modest annual levy with the case fee payable by those businesses whose complaints are considered at ADR. I also said that the majority of firms will never pay the case fee if their cases do not get as far as requiring ADR. Firms that come before the FOS currently get the first two cases in a year free anyway. Therefore, ADR will be much cheaper for firms than going to court.
I am not clear how the proposal to fund the arrangements would work in the scenario offered by the hon. Member for Tewkesbury (Mr. Robertson). Case fees for businesses that lose cases will be likely to increase dramatically. The FOS takes all steps possible to ensure that firms do not pay unnecessarily for ADR. When the FOS receives a complaint, it attempts to
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resolve it informally before the case is opened. If it is successful, no case fee is payable. The FOS will consider a complaint only when a firm's internal complaints handling procedures have been exhausted; the FOS also has a screening system to filter out complaints that are obviously frivolous or vexatious. The outcome of the ADR is rarely as straightforward as simply upholding or dismissing a complaint; and the solution given by the FOS is often somewhere between a win or a lose for the consumer or the lender. As such it is not usually obvious whether a firm should pay the case fee or not.
It is vital that the FOS be independent of both consumer and firm, and it must be seen to be independent. A case fee determined by the success of a complaint would give the FOS a financial stake in its own determination, and that would undermine industry and consumer confidence in the ADR scheme. Although the Bill gives the lender many opportunities to avoid going as far as the ADR, it also ensures that the FOS remains self-funding. If the case fees are too small, firms may be put out of business, and we do not want that.
I hope that with that explanation the hon. Member for Tewkesbury will withdraw his amendment. If he does not, I shall have to ask the Committee to vote against him.
Mr. Robertson: As my hon. Friend the Member for North-East Bedfordshire (Alistair Burt) has said, the Minister has a reputation on the football field for letting nothing past him. However, that does not mean that the Opposition stops trying. In spite of the Minister's detailed response I am not satisfied that these arrangements are in keeping with the spirit of natural justice. At one point, the Minister said that if firms that were cleared of an accusation did not pay, those that had cases proved against them would have to pay more. Well, what is wrong with that? That is in keeping with the spirit of natural justice.
I accept that there may have to be an annual fee so that the body can operate. I do not dispute that; neither does my amendment. However, it is not right that a firm should have to pay a fee when the case against it is not proven and, indeed, is thrown out. That is simply not right. Therefore on this rare occasion the Minister has failed to persuade me that we should let this one go. As on the football field we shall have to try to slip this one past him. I realise that he has the officials on his side just as he has on the football field but I do want to press the matter to a Division.
Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 7.
Division No. 4]
AYES
Barker, Gregory
Bruce, Malcolm
Burt, Alistair
Liddell-Grainger, Mr. Ian
Robertson, Mr. Laurence
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NOES
Bryant, Chris
Farrelly, Paul
Keeble, Ms Sally
Plaskitt, Mr. James
Quinn, Lawrie
Sutcliffe, Mr. Gerry
Watson, Mr. Tom
Question accordingly negatived.
Clause 60 ordered to stand part of the Bill.
Clause 61 ordered to stand part of the Bill.
Clause 62
Monitoring of businesses by OFT
Amendment made: No. 6, in clause 62, page 51, line 3, leave out '1' and insert '1(1)'.—[Mr. Sutcliffe.]
Clause 62, as amended, ordered to stand part of the Bill.
Clauses 63 to 68 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 69 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 70 ordered to stand part of the Bill.
New Clause 1
Credit-token specification
'After section 14 of the 1974 Act insert—
''14A Credit-token specification
A person carrying on a consumer credit business and providing a credit-token agreement to an individual must specify in the agreement the type of credit token that will be provided and may not provide other additional credit-tokens, including cheques, that may be used to draw on credit accounts without the agreement of the debtor.''.'.—[Mr. Plaskitt]
Brought up, and read the First time.
Mr. James Plaskitt (Warwick and Leamington) (Lab): I beg to move, That the clause be read a Second time.
The purpose of new clause 1 is to end the unwelcome practice of the unsolicited issue of credit card cheques. I make it clear that the purpose of the amendment is not to end credit card cheques themselves, simply their unsolicited issue. At the moment credit card cheques are sent out to 16 per cent. of all households in the United Kingdom, which means that millions of people receive them. They are sent repeatedly, often in multiple issue, and they are virtually always unsolicited.
The Select Committee on Treasury has taken much evidence on this practice. That evidence suggests that those cheques are sent to a greater than average proportion of cardholders who are already experiencing some form of financial difficulties. I find it hard to see a justification for the existence of the cheques at all, but the new clause does not drive that far. Credit card cheques are not really an extension of the cards, as the industry argued when giving evidence to the Treasury Committee.
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The use of credit card cheques has significant disadvantages when opposed to the use of credit cards. Credit card cheques have no interest-free period, as distinct from virtually any credit card in circulation. The annual percentage rates applicable on the cheques can often be higher than that of the cards themselves. There is generally a handling fee of 2 per cent., which is not incurred when using a credit card. Under current legal arrangements, there is far less consumer protection on any item purchased by a cheque as opposed to a credit card, and cheques are significantly less secure against fraudulent use.
I recently met Detective Chief Superintendent Ken Farrow of the City of London police fraud squad, who is making a special investigation of the matter. He told me that criminals are able to use credit card cheques to commit fraud because cheques are not secure and because they are sent out unsolicited. That is a significant additional factor that must be borne in mind when considering the consequences of issuing those cheques.
Malcolm Bruce: I am sympathetic to most of what the hon. Gentleman has said about credit card cheques. However, there are circumstances in which they are relevant, and I am not sure whether his clause would cut against those. For example, one might purchase a significant item, within one's credit limit, for which the provider will not accept credit card payment. Presumably one could use the cheque and effectively get a credit card payment, which would suit one's purpose. I agree with most of the other strictures about credit card cheques. However, is that not a legitimate use, and would his clause adversely affect that?
Mr. James Plaskitt (Warwick and Leamington) (Lab): The new clause would not adversely affect that type of offer, because I am not seeking to remove credit card cheques from the system entirely; I am simply trying to bring an end to their unsolicited issuing. In a moment, I shall address some of the issuers' arguments in defence of their practice, and I will test those arguments against the point made by the hon. Member for Gordon.
There is also a problem with regard to the repeat issuing of cheques. An examination of the marketing material that companies use when they issue the cheques is quite informative. For example, the leaflet that MBNA issues with its cheques, entitled ''Making the most of your credit-card cheques'' states:
''Credit card cheques make perfect gifts for family and friends and are a really clever way to use your MBNA credit card account''.
The Halifax also issues promotional material with its cheques and makes a series of suggestions as to how its customers might use them. For example, it suggests using them to pay for club memberships, holidays, home improvements, school and university fees, or to buy oneself gift or treats.
Chris Bryant: Has my hon. Friend received a copy of a letter that I received from the Association of Payment Clearing Services, which moaningly states:
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''Credit card cheques can be used to pay for goods and services where cards themselves are not accepted. For example, with tradesmen such as plumbers or decorators who do not accept credit cards.''
Surely that is one of the craziest ways to use a credit-card cheque.
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