|Consumer Credit Bill - continued||House of Commons|
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Potential Consumer Benefits
116. In addition to reducing consumer detriment, which is not readily quantifiable but is significant, the proposed reforms can provide consumer benefits. The provision of clearer pre-contractual information will allow consumers (should they wish) to shop around and potentially achieve a better deal prior to entering into the agreement. The provision of additional post-contractual information as proposed in the Bill may encourage consumers to switch to cheaper products. The provision of clearer post-contract information is expected to be directly attributable to £153 million of consumer savings a year.
The cost to business of compliance
117. The proposed reforms are part of a wider consumer credit reform package, and consumer credit businesses will be required to absorb not only the costs of these reforms, but also the costs of compliance with the new Regulations in relation to pre-contractual disclosure, advertising, form and content of agreements and early settlement.
118. The proposed reforms mean that a typical consumer credit business will incur the following direct costs:
Total direct compliance costs for all businesses
119. Based on the current number of active licences, we estimate that the total additional direct cost of compliance with the ADR levy and the licensing regime will be:
giving a total additional cost of direct compliance to business of c.£4.8 - £7.6 million per year. This amount will be in addition to the c.£6 million currently paid annually to OFT by consumer credit businesses.
120. We estimate that the cost to small business of introducing the new post-contract information requirements would be a one-off cost to all small businesses c.£0.5 - 3 million. We estimate that the cost of introducing the new post-contract information requirements would be a one-off cost to other businesses of c.£16 - £79 million.
121. Indirect compliance costs for business: For those businesses with compliance and complaint handling systems already in place, indirect costs may represent an incremental increase and an additional cost for those that do not. These costs will depend on the individual circumstances of each business and do not necessarily require considerable expenditure to develop and maintain.
122. All businesses that are members of consumer credit trade associations and other codes of practice should already have compliance and complaint handling systems in place. Indeed, costs associated with compliance and complaints handling reflect the degree of complexity of the business, and so costs for small businesses should be small. Larger businesses generally have such systems in place, and so costs will be incremental and not significant.
123. Clause 71 gives the Secretary of State a power, by order, to bring all of the provisions of the Bill into force on such day as the Secretary of State may appoint, and to appoint different days for different purposes.
EUROPEAN CONVENTION ON HUMAN RIGHTS
124. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by Section 1 of that Act). On 18 May 2005 the Secretary of State for Trade and Industry made the following statement:
125. This section of these Notes comments on those provisions in the Bill which may engage Convention rights. Our conclusion in relation to these clauses is that there is no incompatibility with these rights. This section also comments on provisions of the Bill which are intended to ensure compliance of the 1974 Act with Convention rights. No specific reference is made in this section to clauses of the Bill, which it is believed, do not engage Convention rights and do not therefore require further comment.
Regulation of agreements
126. Clause 13 provides that only simple interest (not compound interest) may be charged in respect of default sums (as defined in the Bill - see notes on clause 18 above). This is considered to be in the public interest in view of the significant escalation that compounding interest on default sums can have on a debt and which does not reflect the creditor's loss.
Enforceability of agreements
127. The repeal of sections 127(3) to (5) of the 1974 Act (under clause 15) ensures that the sanctions under this section are proportionate and that the section therefore complies with Convention rights having regard to the abolition of the financial limit under clause 2.
128. Schedule 3 to the Bill sets out transitional provisions with regard to clauses 19-22 which deal with unfair credit relationships. As a result, the new unfair relationship provisions will not only apply from their commencement in respect of all new agreements made after commencement but will also apply in respect of all existing agreements at the end of a specified period after commencement, including agreements made before commencement. This arrangement seeks to strike a fair balance between the interests of the industry and the objective to improve consumer protection. In particular, it is essential that many consumers are not deprived of the new protection for a long period of time given that some credit agreements run for 5-20 years.
Duration of licences
129. Clause 35 of the Bill requires periodic payments to keep indefinite standard licences in force. Under clause 37, a licence terminates if the payment is not made by the due date or the expiry of the extended period for payment. Insofar as a licence amounts to a "possession" within the meaning of Article 1 of Protocol 1, this arrangement might engage the Convention. However, provision has been made to enable OFT to extend the period for payment under clause 36, and in the light of the need to control the use of licences when they are made indefinite under the Bill and the fact that a licensee may re-apply for a licence in the event of termination, this is felt to be in the public interest.
Further powers of OFT to regulate conduct of licensees
130. The power of OFT to impose requirements on licence holders to take or refrain from taking certain action will not be used to deprive licensees of their rights under a licence, but to control the exercise of them in appropriate cases in the general interest. This means that there is no conflict with Article 1, Protocol 1 of the Convention, under which it might be asserted that these provisions interfere with licensees' peaceful enjoyment of their possessions (insofar as rights under a licence amount to "possessions"). These powers are intended to enable OFT to take more proportionate action than it is currently able to under the Act, and persons on whom requirements have been imposed or, for example, whose employment is adversely affected may appeal to the Consumer Credit Appeals Tribunal. It is not considered that the principle of legal certainty has been breached in relation to the scope of these powers because of the safeguards which will be in place, namely the duty on the OFT to issue guidance; the duty on the OFT to give reasons; the requirement on the OFT to seek representations from persons upon whom the requirement may be imposed and other affected persons; and the right of appeal to an independent Tribunal.
Powers and duties in relation to information
131. Powers conferred on OFT by clauses 44 to 51 to obtain information from licensees and (in certain cases) third parties are not considered to breach Convention rights. OFT requires adequate but proportionate powers to obtain information from applicants and licensees to satisfy itself of the fitness of standard licence holders, or that the grant or continuance of a group licence better serves the public interest than issuing several standard licences. Insofar as some of these provisions might engage Article 8(1) of the Convention as regards individuals' rights to respect for home and correspondence, they are felt to be proportionate and are subject to protections (including supervision by the court in relation to sections 36D (entry to premises under warrant) and 36E (failure to comply with information requirements) and an exception for documents and information to which legal professional privilege applies). Under section 36D there are prescribed limitations on when a warrant can be obtained from a court: the court must be satisfied that there are reasonable grounds for believing that the information or documents sought by OFT would not be delivered to it under section 36B or would be tampered with.
132. Clause 52 (s39A) gives OFT power to impose civil penalties on a person who has breached a requirement under sections 33A or 33B (clause 38 and clause 39) or failed to provide information required by general notice under s 36A (clause 45). These provisions may engage Article 1, Protocol 1 of the Convention. However, in this legislation penalties represent a means by which the additional intermediate powers which the Bill confers on OFT (such as licence requirements) may be enforced. It will not always be proportionate to take licensing action (e.g. to suspend or revoke the licence) for breach of such a requirement and these provisions are intended to provide OFT with a more proportionate means to ensure compliance in this regard. Procedural safeguards against the disproportionate exercise of this power have been built into these provisions viz. the need to give notice of the proposed penalty and reasons for imposing it, the use of the representations procedure, the statement on penalties policy to be issued under clause 54 of the Bill, the £50,000 penalty limit and the right of appeal. It is not considered that a civil penalty imposed in accordance with the new section 39A would amount to a criminal charge within the meaning of Article 6. This is because a civil penalty may only be imposed on a discrete section of the community (i.e. persons holding a licence under the Consumer Credit Act and persons covered by a group licence), and therefore a civil penalty amounts to a disciplinary or administrative measure necessary for the proper functioning of the licensing system.
133. The appeals system currently provided for in section 41 of the Act is to be amended (see clauses 55 to 58 and Schedule 1 to the Bill). Article 6 European Convention on Human Rights protects individuals' right to a fair and public hearing within a reasonable time by an independent and impartial tribunal. These provisions of the Bill will create a new appeals body wholly independent of the Secretary of State for Trade and Industry whose members will be appointed by the Lord Chancellor. It will have full powers to take decisions without reference to the Secretary of State. Appeals on a point of law are permitted to the Court of Appeal or Court of Session in Scotland and decisions of the Tribunal will be subject to the supervision of the Council on Tribunals. It is considered that, taken as a whole, the Tribunal is compliant with Article 6.
134. Clauses 59 to 61 (and Schedule 2) introduce an alternative dispute resolution procedure by extending the jurisdiction of FOS (created by and currently operating under Part 16 of FSMA) to certain activities regulated by the Act. Creditors within certain categories will be under a legal duty to refer complaints to it where a debtor requests this.
135. The scheme is considered to be compliant with Article 6. It is operated by a company (Financial Ombudsman Service Ltd) whose chair and directors are appointed by FSA. However, FSMA provides that their terms of appointment must be such as to secure their independence from the Authority in their operation of the scheme (paragraph 3(3) of Schedule 17 of FSMA). The company in turn appoints the ombudsmen who will adjudicate on the cases and the chief ombudsman. The Ombudsman Service will have a broad jurisdiction to determine complaints and its decisions will be capable of enforcement by the courts. Although no appeal system is provided for, its decisions are subject to judicial review.
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