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I am referring to a study commissioned by the DTI, to which the right hon. Gentleman may object. [Interruption.] From a sedentary position, the Minister says, "He does." It is interesting that Which?, Citizens Advice and the National Consumer Council, which have considerable experiencefar more than mein the field, do not support a cap on interest rates. We should take careful note of what those organisations say.
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John Battle: I accept the importance of those factors. Interest rates are capped in Germany, France, Holland and 14 American states. Where is his evidence that those caps do not work? I am not sure whether his statement is true. [Interruption.]
Norman Lamb: From a sedentary position, the Minister says, "It is true." We must debate the matter further in Committee. I repeat the point that when a number of organisations that are centrally involved in the field oppose a cap, we must take careful note of their opinions.
Norman Lamb: I disagree with those bodies on this particular point, but I take note of their opinions. I do not know whether hon. Members can adduce different evidence, but the worst cases in which people commit suicide or experience a crisis such as a mental breakdown involve people taking on 16 different credit cards and personal loans while the data sharing system fails to catch the fact that debt is accumulating. The interest rates involved in such cases are often far below those offered by doorstep lenders, yet the cumulative effect of all that debt, together with charges and the extension of credit limits, produces the greatest tragedies. If the right hon. Member for Leeds, West can point to competing evidence, I would be interested to hear about it.
John Battle: It costs £700 to borrow £1,000 from a doorstep lender, which is so far over the odds that it is immoral and should be capped. I agree that the high profile cases involve different borrowers. APRs of 39 per cent. and 49 per cent. have been mentioned as great scandals; I deal with people who pay more than 1,000 per cent. APR. We should get a grip on the situation and, at the very least, serve notice to companies that they will be fined if they charge such interest rates.
Norman Lamb: I am grateful to the right hon. Gentleman for that intervention. I would never support such interest rates, but the question is whether we should make them illegal. If people are pushed out of the market, DTI research suggests that they will drift into borrowing from criminals, who are self-evidently totally unregulated. We can continue this debate in Committee.
Mr. Laurence Robertson (Tewkesbury) (Con): I am grateful to the hon. Gentleman for giving way and apologise to the Minister for missing his speech, although I served in Committee on the previous Bill, so I have probably heard most of his arguments.
I do not usually try to help Liberal Democrat spokesmen, but I will do so on this occasion because we should not go down the road of capping interest rates. The Bill does not state what constitutes "unfairness". In
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section 138(2)(a) of the 1974 Act, one of the things that constituted "extortionate" was a comparison of interest rates prevailing at the time that an agreement is made. We are withdrawing the specification and qualification of what "extortionate" means and are leaping towards "unfairness", which is probably a better test, but the fact that we are not defining "unfairness" is the kernel of the argument. The answer is not capping interest rates, but detailing what "unfairness" means.
Norman Lamb: I am grateful to the hon. Gentleman for that intervention. The unfairness test, perhaps combined with guidance, on which the right hon. Member for Leeds, West and I agree, might make the interest rates to which he has referred unlawful and challengeable under the new unfairness test. Again, I call on the Government to provide clearer guidance.
The unfair relationship provision repeals the old test of extortionate credit, under which only 10 successful prosecutions occurred. Although I accept that its influence goes beyond what might be suggested by having only 10 successful cases, it has clearly been inadequate in terms of providing protection, and most people accept that. It is right to raise concerns, as did the hon. Member for Wealden, about whether, without a further framework or guidance, it will be compatible with the human rights legislation. It is a vague test, inevitably, as there is a lack of a clear framework for applying it, and that, combined with the presumption that the relationship is deemed unfair until the contrary is proved, makes it potentially onerous.
Also in respect of the human rights provisions, there are concerns about the powers of licensing and the sanctions given to the OFT. Again, the powers are very wide and unfetteredfor example, the power to impose requirements on licence holders. The Joint Committee on Human Rights has expressed the concern that the
I suggest that the Bill should set out the clear regulatory objectives that the OFT should apply in exercising its discretion. Although that proposal was put to me by the Consumer Credit Association, it seems to me that clarity is entirely in the interests of consumers, as well as of the industry.
Subject to those concerns, I support the change in the test. It is right to be able to survey the whole relationship to determine fairness, considering all the relevant circumstances, including the terms of the agreement and, crucially, the conduct of the parties. An agreement that on the face of it can look entirely reasonable may, in fact, be entirely unreasonable if it has been forced on a consumer in entirely inappropriate circumstances.
With regard to the enforcement powers of the OFT, and subject to the concern that I have expressed about the human rights legislation, we support wider, more flexible powers below the nuclear option of licence withdrawal. I note that the maximum fine of £50,000 can be changed by way of statutory instrument. It is sensible to provide such flexibility.
We support measures to make it easier for consumers to pursue a complaint. The alternative dispute resolution scheme using the financial ombudsman
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service is an appropriate reform. I take on board the concerns of the hon. Member for Wealden about the capacity of the financial ombudsman service to cope, but that could be addressed and resolvedit is not a reason for not doing it. The alternative dispute resolution route is clearly preferable to consumers simply being left to expensive court action, and is a significant advance in consumer protection.
The Bill seeks to improve the regulation of consumer credit businesses. It broadens the fitness test to assess the competence of the business to provide credit. That is a sensible reform, as is the introduction of indefinite licences, which should lift the burden on responsible lenders so that greater focus can be applied to rogue lenders.
There are several other reforms, including annual statements and arrears notices. Like the hon. Member for Wealden, I suspect that it may be inappropriate to require the lender to serve a notice when the situation is being managed perfectly well between it and the borrowerfor example, where there is an agreement whereby although the consumer has failed to pay for a certain number of weeks, the level of debt will not be increased by rising interest rates.
In principle, however, the reforms are sensible. There will inevitably be a number of specific issues that we will debate fully in Committee, but the thrust of these reforms is good. The Bill, although overdue, is certainly worth supporting. I hope that it will lead to a change of culture in those parts of the industry where practices have been unacceptable. As I have tried to indicate, the industry still has a big responsibility to go further in all those areas that are not directly covered by the Bill. However, I guess that the objective of us all is to achieve a transparent and competitive market where businesses can be successful but the industry works in the interests of the consumer.
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