Norman Lamb: I thank the hon. Gentleman for that intervention. He makes a good point. There is a big problem with the transfer of credit. Sometimes it can work in the consumer's interest, if they can get a genuinely lower rate of interest and use the system. However, there are real dangers involved. I am not suggesting that the new clause will be a panacea to resolve all the problems of irresponsible lending in the credit industry.
Further to the hon. Gentleman's point, the Treasury Committee noted that people often transfer their credit card balance having received a commitment of a nil rate of interest for perhaps a year. However, they are often not told that new purchases on the card will be charged at the full rate of interest, or that when they pay off some of the balance, it will be taken off the balance transfer, not the new purchases. They therefore find that they are paying interest when they did not expect to. So there are many problems, and they all come down to the practice of responsible lending. We still have a way to go to get the industry fully to understand the importance of that concept.
I am seeking to address one specific historic problem, which is that, in the view of the industry and the Information Commissioner, there cannot be a full sharing of data. The commissioner has advised the industry that it would be a breach of the Data Protection Act 1998 to share data without consent. Incidentally, the problem has got much worse because, as the hon. Member for Rhondda (Chris Bryant) pointed out, there has been a revolution involving people shopping around. In the old days, all our needs were met by one
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institutiona bank or whatever. Now, people shop around for the best value product, so the need to address the problem of data sharing has grown considerably.
The Information Commissioner has said that, under the old agreements in which there is no provision for data sharing, a lender would need the customer's consent to share such information. The only solution available at the moment, therefore, is for the lender to go to the customer and ask for their consent. Members will appreciate, having sent out political mailings to people, that the response rate to such requests would be tiny. The industry reckons that it would be less than 1 per cent. We cannot resolve the problem simply by seeking consent under the existing rules. New clause 1 seeks to address that.
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I have sympathy with the objectives of the new clause and with the need to promote greater data sharing on an historical basis. Does the hon. Gentleman agree, however, that we need to be careful about forcing consent, as it were, on members of the public? The Data Protection Act is there for a reason, after all. The new clause would give fairly wide powers to credit reference agencies and other organisations to extract consent from individuals. Perhaps the hon. Gentleman should think about the implications of what could be quite a serious breach of data protection principles.
Norman Lamb: I fully accept that. I have thought about the issue, and I realise that there is a balance to be struck. We could simply say that this provision breaches the principles of the Data Protection Act; therefore there is nothing we can do. However, the consequence of doing that would be too serious, and I cannot accept that that is the right approach. So while I fully understand the hon. Gentleman's point, it is my judgment that we should reform the law in the way that I have proposed. The consequence of not doing so could be very serious. At worst, it could be a matter of life or death. We have all come across awful cases of people taking their own lives because of the mess that they have got themselves into. There is a responsibility on all of us to address the problem, and to ensure that judgments on offering credit are made with the fullest possible information available.
Some people have expressed concern that the new clause could lead to predatory lending. Other jurisdictions have suggested that, where there are provisions for data sharing, some unscrupulous lenders could use the information to target vulnerable consumers. However, the specific provisions of subsection (4) will address that concern, in that it sets out the conditions under which the information can be shared. It will prevent any risk of the information being exploited for the purpose of predatory lending.
James Brokenshire (Hornchurch) (Con):
The information could be used to encourage more blanket mailings. More and more paper lands on our doorsteps each day, and we end up being offered credit for this, that and the other. This results in two problems. First, some of the offers are pre-approved, which can be a problem if that mail is intercepted. We all know from our constituency mailbags that people have had their information misused by others. Secondly, such offers can encourage people to take credit when perhaps they
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should not. Will the hon. Gentleman comment on the protection offered in the new clause to ensure that those things would not happen?
Norman Lamb: The hon. Gentleman raises a genuinely serious point. We all suffer from those mailshots, but some people are better able than others to identify the dodgy ones. There has been a revolution in the availability of credit, but there has not been a commensurate revolution in financial literacy and education. People are therefore often very vulnerable to such approaches. However, the conditions set out in subsection (4) ensure that the use of information to target mailshots at vulnerable groups would be prohibited. Lenders would not have permission to do that.
Data sharing is of value to both the lender and the consumer, but when we talk about breaching the principles of the Data Protection Act, we must remember that we are seeking to act primarily in the interests of the consumer. From the lender's point of view, it would enable better, more informed decisions. It would mean a reduction in credit losses and in the amount of time spent handling accounts. From the consumer's point of view, which for me is the most important, it captures those cases to which I referred in which unsustainable debts build up unnoticed, and helps to prevent such a crisis from occurring. It helps existing lenders to monitor what is going on with their customersif they can see, through access to information, that their customer is building up an unsustainable debt elsewhere, it enables them to make an earlier intervention to warn their customer of the potential consequences. At the moment, the lender is completely ignorant of such looming problems.
Consumers who have a good credit record would also be helped. The acknowledgement of that fact, because of the lack of "dodgy data" through data sharing, improves their ability to shop around to get a good deal. There is also a problem with people who have what is described as a "thin file". Because such accounts might be historic ones going back a long time prior to the Data Protection Act, credit reference agencies might have very little information about many consumers. That in itself often makes it difficult to gain credit, and potentially makes it more expensive.
Therefore sharing of information seems to be in the interests not only of the consumer who is liable to get into real trouble but of the consumer who has a good record. Crucially, it also encourages responsible lending. There is interesting evidence that a reduction in arrears occurs when consumers are informed that their data will be shared. When consumers know that information about what they are doing in relation to one particular account will be shared, it does not half concentrate their mindsit ensures that they try to keep their account under control, and therefore encourages responsible behaviour on the part of consumers. According to some suggestions, arrears could be reduced by as much as 50 per cent. simply through the consumer being aware that their data could be shared, because they realise the knock-on effects in terms of access to credit if they get into difficulty.
The new clause is not mandatoryit does not require the sharing of data. It is permissive. Crucially, therefore, it is not just a panacea on its ownit requires the
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industry to respond by taking advantage of what it would provide and sharing the information. For example, the industry would need to ensure that its codes of practice establish the principle that data sharing is the right approach, and ought to be done as standard practice.
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): I have been following the hon. Gentleman's argument with interest. I feel that it is flawed in certain areas. He has put forward the argument that the publication of a person's indebtedness will provide a disincentive, but under his proposals such a person has the right to prevent the public disclosure of his personal indebtedness. Those two proposals seem contradictory, because anybody who is likely to run up cumulative debts has the right under his new clause to prevent that being public knowledge.
Norman Lamb: I do not think that that is contradictory in any way. A safeguard is provided that addresses some of the concerns of other Members. We have already established the de facto principle that all credit agreements these days provide a standard clause for the sharing of informationthere is no opt-out, it is a fact, and that is what happens. If consumers want credit, they sign up to that arrangement. The new clause addresses the problem of all those agreements that predated the Data Protection Act, and therefore pragmatically helps to address a serious problem that cannot be resolved in any other way, because the response rate to any request for consent would simply be too low.
That is my new clause in a nutshell. It seems to me that there is a strong case for ensuring that there is full data sharingnot the partial data sharing that we have currently. We must do something effective to ensure that that happens. The time for talking is over, and it now seems to me that the Government should act. The new clause is the way of achieving that.