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Charles Hendry: I am grateful to the Minister, especially for meeting the hon. Member for North Norfolk (Norman Lamb) and me last week to talk about the issue of arrears notices. I am pleased that we have been able to agree on Government amendment No. 7 to help to resolve the problems that would have arisen from the Bill's original wording, to which the hon. Gentleman and I drew attention in Committee. That shows how far we can go when the Minister genuinely understands where we are coming from.

The amendment addresses a significant difficulty. In the Bill's original format, there is no distinction between cases in which four payments have been missed in a short period of time, where the borrower is likely to be in arrears, and possibly in some distinct trouble, and cases in which four payments have been missed sporadically, over a much longer period of time. In the latter case, missed payments are likely to have been repaid and amicable arrangements may have been made with the lender. If the Bill does not draw that distinction, lenders will be forced to issue arrears notices to borrowers who, in the latter case, may not be in arrears at all.

The problem is an aggregate one that relates most closely to home credit loans repaid on a weekly basis, where missed payments are not uncommon for most customers during their loan agreement. Indeed, on average, most home credit borrowers miss four payments during the period of a loan. A customer on a one-year agreement might miss one payment at Christmas, because of the increased costs at that time of year; a second in the spring because of a child's birthday; a third in the summer simply because they are on holiday the week the collector visited; and a fourth in the autumn for an entirely different reason. On all occasions, they may have notified the credit company and agreed amicably to repay the missed payments at a subsequent point. However, as drafted, the Bill would require the lender to issue an arrears notice on the missing of that fourth payment, despite the fact that the customer was not in arrears.

2.15 pm

As the Minister said in Committee, the customer would not technically be in arrears. In such circumstances, an arrears notice would cause great stress and concern. It would lead to family tension, as the borrower would be forced to explain why they had been issued with an arrears notice, however user friendly the format of that notice might be, when they would contend they are not in arrears because no additional debts or charges had been incurred.

The requirement would also create a bureaucratic nightmare, as potentially every one of the 3 million home credit borrowers would need to be issued with an arrears notice. That also presents a major administrative burden. Assuming that the cost of writing, posting and administration is just £1 a letter, that represents an extra £3 million in administrative costs, which would inevitably be passed on to borrowers in the form of higher charges, and that is the opposite of what the Bill seeks to achieve.

By reducing the time-frame in which the four payments must be missed before an arrears notice is required to be issued, from the entire length of the
 
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agreement to 20 weeks, we can overcome many of those difficulties. I am particularly pleased that the Minister has responded to our request that the period should be 20 weeks rather than the 26 weeks that he initially proposed. I am grateful for his flexibility. A 20-week period will be far more indicative of a customer in trouble, and will help to reduce the unnecessary distress and bureaucracy caused by issuing incorrect notices. Perhaps raising the number of payments missed from four to six would have helped that further, but I nevertheless welcome the Minister's compromise.

I tabled amendment No. 4 to the Bill before I was aware of the exact wording of the Government's amendment, but it remains relevant. I hope that the Minister will not think me churlish after his generosity if I seek to push him one step further. The aim of amendment No. 4 is to ensure that arrears notices will need to be served to customers only if their interests are prejudiced, and that means that they have incurred a charge or penalty on their account. The hon. Member for North Norfolk made that point especially strongly in Committee and it is fundamental to what we seek to achieve.

It looks possible that section 9A of the Government's amendment, which states that

"only amounts resulting from failures by the debtor or hirer to make payments he is required to have made during that period shall be taken into account in determining any shortfall",

addresses that same issue. My hon. Friend the Member for Lichfield (Michael Fabricant) mentioned the need for plain English, and I cannot quite understand the exact meaning of the provision. I would be grateful if the Minister clarified the implication of the amendment in that respect.

I think that the Minister understands why this issue is so important. We totally agree that arrears notices should be issued where a person is genuinely in growing arrears, but we do not think it right that it should be issued if they may technically be in arrears, but that has no other implication for the borrower. To give an example, if I lend the Minister £100—I know that that is highly implausible—to put on the horses this afternoon, he might offer to pay it back in 10 weekly instalments of £10. Of course, as a generous person I would not charge him any interest. If he tells me that he wants to treat Mrs. Sutcliffe to a special night out—we know that he can get a good deal up in Yorkshire—and to miss a couple of payments and so pays it back over 12 weeks instead, he would technically be in arrears, but neither of us would believe that to be the case in reality. It would be a reassignment, with no further debt or charge involved. The same is true in most home credit agreements, so the further change—

Norman Lamb: I hope that the hon. Gentleman will be able to clarify an aspect of particular concern. As amendment No. 4 is drafted, the whole section would have no effect if there was no prejudice to the borrower, but the question is what we mean by prejudice. I agree with him on doorstep lending, when payments are missed, but no extra interest is charged and no default charges are imposed. But what about a situation in which the borrower simply stops paying and misses 10 or 12 payments in a row? The hon. Gentleman and I would probably agree that in that situation, there could be a concern that the borrower was getting into
 
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difficulties. Does he believe that there would be prejudice, or does he believe that if no extra interest is charged, there should be no default notice? I am concerned that the entire section will not apply if the situation is not defined as one of prejudice.

Charles Hendry: I understand where the hon. Gentleman is coming from. We will be glad to complete proceedings on the Bill, so that we can stop saying that.

If the interests of the borrower are not prejudiced—if he faces no further charges, penalties, levies and so on—there should be no need to issue a formal arrears notice. Being in arrears means that some penalty is involved, but if there is none, is it necessary to go through the process of declaring the borrower to be in arrears? They will simply pay back the loan over a longer period, and pay back the amount they expected to pay, not a penny extra. Is it necessary to tell somebody formally that they are in arrears when they may feel that they are genuinely not, having had an amicable discussion with the home credit provider and reached agreement on a different way of repaying the loan?

Norman Lamb: In the situation that I described, where payments simply stop and none have been made for 10 or 12 weeks or more, would it not be right for some sort of notice to be issued to warn the person of the consequences of not resuming the payments?

Charles Hendry: I understand what the hon. Gentleman is saying. If the borrower had simply stopped paying, they would technically be in default, rather than arrears. Arrears would mean that the lender had agreed to reschedule payment over a longer period. If the borrower stopped paying unilaterally, without consulting the lender, the lender would want to issue a notice quickly, to make sure their own interests were protected. Where the borrower has reached an agreement with the lender about how they will reschedule the loan and pay it back over a slightly longer period, and where the lender's interests are not prejudiced, a clear case can be made as to why the borrower does not need to be issued with an arrears notice.

The change is entirely in keeping with the spirit of the Bill and will benefit borrowers, who must be our top concern. I hope that if it is not implicit in the Government's amendment, the Minister will agree to that change now. I know that he has had the opportunity to receive further guidance on the matter, so I hope that he can provide the clarity that I seek.

Norman Lamb: There is no point in repeating what has already been said, so I shall be brief. I put on record my appreciation of the Minister's readiness to meet us, hear our arguments and respond by way of a compromise to reduce the period to 20 weeks. That is a sensible compromise which recognises how doorstep lending works.

My big concern, to which the hon. Member for Wealden (Charles Hendry) has alluded, is that in many agreements there is no prejudice as a result of occasional payments being missed. The two parties agree to postpone the payments, they are paid at a later date, and no extra interest or penalty charge is incurred. In
 
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situations where there is no prejudice, it seems over-bureaucratic and potentially quite scary for the borrower to require the lender to serve an arrears notice. The Government amendment is a compromise, but it addresses our concerns in a reasonable way.

On amendment No. 4, I am with the hon. Member for Wealden on the principle of it. I have concerns about the workings of the clause as drafted. It removes the whole of the effect of the section where there is no prejudice. I still have a sense that where payments stop for a considerable period, it may well be appropriate for the lender to have an obligation to serve an arrears notice. My concern was to ensure that the arrears notice was not triggered so quickly in the case of doorstep lending. The principle is right, but I have concerns about how it would operate, given the wording of the amendment.

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