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Norman Lamb: We support the change in the test. The current test in the 1974 Act has been shown not to be fit for today's consumer market and it must therefore change. An unfairness test generally appears to meet the requirements. It provides some flexibility and it seems appropriate for today's substantial market. However, the lack of clarity and guidance creates genuine concerns.
The hon. Member for Wealden (Charles Hendry) referred to the burden of proof, which effectively means that one is guilty until proven innocent. That imposes an onerous burden. There is no guidance about what would subsequently be deemed unfair by a court and that is an unattractive scenario for the lending industry. It is also unattractive for consumers who are left simply not knowing their rights. The lack of clarity is dangerous in law making for the interests of both the consumer and those whom the measure seeks to control.
It has been said many times by many people, including me, that a court will inevitability consider this test at some point, and lay down guidelines. Is the Minister saying that he wants a court to provide that greater clarity for the industry and the consumer? I do not think that that would be satisfactory. First, it could take months or even years before we learn what the court decides the right guidelines should be for interpreting the unfairness test. Secondly, is it right that a court, rather than Parliament or a body accountable to Parliament, should determine those guidelines? That is an unattractive proposition.
The hon. Member for Wealden referred to other legislation in which attempts had been made to provide guidelines as to what is meant by unfairness, in the particular context of the legislation. He cited the Unfair Contract Terms Act 1977 and certain employment
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legislation. There are myriad guidelines for understanding what is meant by unfair dismissal. The ACAS code of practice is a case in point. It is provided by ACAS to help employers and, crucially, employees to understand the duties involved. In the context of this legislation, however, there is nothing. That is a serious concern, both for lenders and consumers.
Mr. Sutcliffe: I am trying to resist the temptation to get involved in a discussion about unfairness. The hon. Gentleman must consider this issue in the context of the Bill and of the other measures that appear alongside the unfairness test. The whole purpose of the Bill is to provide for transparency and responsible lending. I shall resist going into detail about the unfairness test, because I know that I am not going to convince the hon. Gentleman or the hon. Member for Wealden (Charles Hendry) of its appropriateness, but I ask him to consider the matter in the context of the Bill.
Norman Lamb: I absolutely understand the context and I am completely with the Minister in his aim of achieving transparency and responsible lending. I was talking about that earlier in relation to data sharing and it is absolutely the correct objective. That is why I generally support the test of unfairness. It will have a real effect in changing the culture in parts of the industry, and I hope that it will also address the concerns of the people who argue for a cap on interest rates. Under the test, we shall be able to consider all the circumstances, including the wording of the agreement and the behaviour of the parties involved. That is a good thing, but the Minister cannot deny the fact that there are no guidelines on how the provision is to be interpreted. A court will inevitably end up defining that, because Parliament has failed to do so.
Mr. Sutcliffe: The concept of unfairness exists in relation to other financial matters. To suggest that this is completely general flies in the face of the fact that such provisions exist elsewhere. Why is the hon. Gentleman trying to tie down what the court may consider? It is 30 years since the existing provisions were introduced, and there could be new ways of doing things that we have not been able to consider, yet he seems to be suggesting that we tie down the ability of the court to consider all these issues. He makes a fair point on interest rate caps and the unfairness test will deal with that issue.
Norman Lamb: The Minister is right to say that, at any one time, we might not have considered developments and practices that emerge at a later date. However, if guidance were to be
as the amendment suggests, that would provide the flexibility that he is looking for. It would mean that the guidance could address new developments and practices that had not been thought of when the Bill was introduced. I do not think that he has made an argument for resisting the amendment. In addition, his challenge to me was: why should we seek to tie down the provision? I am not doing that. It does not have to be prescriptive and say that unfairness is, "This and this
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alone." As the hon. Member for Wealden outlined, however, a test in guidelines could say that particular practices will always be deemed unfair. That does not prejudice the generality of the provision, which allows the Office of Fair Trading and the courts to consider a wider range of practices and ways of behaving, and to rule ultimately that those other practices are also unfair.
2.45 pm
Mr. Edward Vaizey (Wantage) (Con): Does the hon. Gentleman agree that that is precisely the point? At the moment, the consumer has absolutely no guidelines. Surely, under such a Bill, it is incumbent on some official body to give the consumer some guidelines as to what "unfair" means.
Norman Lamb: I agree. It is important both for the lending industry and consumers to have a greater understanding of what is intended by Parliament. We are sitting as Parliament setting new rules yet none of us can say precisely how this provision will be interpreted. It is right to provide flexibility for the future, but the amendment does that, as it enables the Office of Fair Trading to meet new developments, practices and procedures that might cause concern. It does not cast the provision in stone but provides the flexibility that the Minister seems to want.
The issue seems to come down to a choice between setting the guidelines through a body that is ultimately accountable to Parliament or allowing the court to do it for us. It will be one or the other—we all know that. The Minister seems to prefer the court doing it at some indeterminate date. I prefer a body that is ultimately accountable to Parliament to set the ball rolling and to have the flexibility to amend the guidelines.
On retrospection, the hon. Member for Wealden raises a legitimate point: two years is too long. It would be too much of a bureaucratic burden suddenly to impose all the new obligations in relation to contracts that are about to expire, but the provision of two years goes too far. I hope that the Minister might respond by accepting that the Bill should provide for a shorter period to exclude agreements that are due to conclude very soon.
Adam Price (Carmarthen, East and Dinefwr) (PC): I had not intended to speak on this clause, but I was prompted by the comments of the hon. Member for North Norfolk (Norman Lamb). A fundamental principle is at stake as to who makes law. If the Minister will forgive me, there is a circularity in his argument that we do not want to bind the hands of judges. Actually, judges want precisely such clarity from legislators—they do not want vague legislation because that will inevitably lead to a lack of clarity, and if the hon. Member for North Norfolk will forgive me, only lawyers can gain from that in the long run. We need Parliament to be clear.
As we know, the first thing that a judge will do in such cases is to say, "What was Parliament's intention?" They will look at the Committee Hansard and at the comments of the Minister in particular. The problem is that the Minister refuses to be drawn on the issue of unfairness. The judge will therefore be left in the peculiar situation of having to interpret unfairness when
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the Minister and the Government have refused to give any guidance. Precisely that court-based approach has led us into this cul-de-sac, under the Consumer Credit Act 1974, with extortionate lending. We ended up with a very narrow interpretation, which was not the fault of the judiciary but of that Bill, too, because the Government did not set out clearly what was Parliament's intention.
Mr. Sutcliffe: I realise that I am not following my own advice. I am getting involved and trying to make everyone understand where we are coming from.
The hon. Member for Wealden (Charles Hendry) mentioned the unfair contract regulations and the unfair commercial practices directive. There are already guidelines on what can be considered, which deal with specific issues in the regulations. The unfair credit test involves the substance of agreements and relationships. That is the point that Members are missing. It is the substance that we want the courts to be able to consider.
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