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Adam Price: I am not a lawyer, but I think that there is a problem here. It is possible that judges could draw on precedent in the form of definitions of unfairness deriving from common law, case law and so forth, which might not coincide with the Government's underlying objective. Unless the Government are specific in this context—for there is case law on unfairness in other contexts—the definition eventually handed down by the courts may not be the one that the Government want. The amendments allow flexibility, so that the general definition can reflect changes in the consumer credit market over time. Ultimately, however, given the direct impact that this may have on our constituents, Parliament should decide on the definition rather than a judge handing down some landmark judgment in a couple of years.

Mr. Sutcliffe: As we have discussed unfair relationships at some length today, in Committee and on Second Reading, I will not allow myself to be drawn back into the debate—

Mr. Vaizey: The hon. Gentleman is already doing that.

Mr. Sutcliffe: It may indeed occur.

Amendment No. 5 tries to do two things. First, it seeks to require the court to have regard to any OFT guidance on the unfair relationships provisions when making decisions under clause 19. Secondly, it seeks to require the Secretary of State to approve any OFT guidance on unfair relationships before it is published. As the unfair relationships provisions make clear, the court may have regard to any relevant matter.

The amendment seems to assume that the test is somehow dependent on the OFT's guidance. It is not. The OFT's guidance is simply that: guidance. It will set out the circumstances in which the OFT will act under its powers in part 8 of the Enterprise Act 2002, and it will not seek to interpret or define unfairness. It is not one of the OFT's functions as a regulator to interpret the law for the courts. The courts are not bound by the OFT's guidance and need not have regard to it if it is not relevant to the specific case. Obviously, if the guidance
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is relevant, which we could expect it to be quite often, the court may have regard to it. The court's application of the new test need not and should not be linked to the OFT's guidance as the amendment suggests. Indeed, as it can have regard to the guidance, the amendment is unnecessary.

The hon. Member for Wealden (Charles Hendry) also wants to make the OFT's guidance on the unfair relationships provisions subject to the Secretary of State's approval. That appears to be based on the requirement in the Bill relating to the OFT's powers to impose civil penalties. In that instance, the OFT is prevented from imposing a civil penalty until it has published a statement of policy that has been approved by the Secretary of State. Given the seriousness of that power, which goes beyond the usual regulatory functions, the Government felt it necessary for the statement of policy to be approved by the Secretary of State.

In the Enterprise Act, Parliament reconstituted the OFT as an independent regulator. Parliament decided that the way in which the OFT used its powers to enforce the legislation for which it is responsible should be free of ministerial control. The amendment would fetter that freedom. It would mean that the way in which the OFT used its enforcement powers in respect of unfair relationships would be subject to ministerial control. We do not accept that that should happen and I earnestly ask the hon. Gentleman to consider withdrawing the amendment.

Amendment No. 3 also appears to suggest that the unfair relationships provisions depend on the OFT's guidance for their meaning and effect. They do not. The OFT's guidance is simply that—guidance. It is guidance on the circumstances in which it will take action, under its powers in part 8 of the Enterprise Act 2002, against creditors who enter into unfair relationships. The 2002 Act provides that the OFT may take action against a breach of specific statutory requirements, including through the unfair relationships provisions, where harm is done to the collective interests of United Kingdom consumers. The OFT's guidance will not seek to interpret or to define an unfair relationship, although it could refer to conduct that it considers may give rise to, or contribute to, unfair relationships.

Mr. Vaizey: The Minister said in Committee that the unfair credit terms regulations do apply. Will he confirm that he meant the Unfair Terms in Consumer Contracts Regulations 1999? If they do apply, the OFT could surely make that clear in its guidance.

Mr. Sutcliffe: People have to comply with the regulations, and the OFT could indeed make that clear. I hope that that satisfies the hon. Gentleman and clarifies the position regarding the unfairness test, although I suspect that it does not, given his view of that test.

The test operates independently of the OFT's guidance and, as I said, the courts are not bound by the guidance and do not have to have regard to it. Obviously, if the guidance is relevant—we can expect that it often will be—the court may have regard to it. A court's application of the new test need not—indeed,
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should not—be linked to the OFT's guidance in the way suggested in the amendment. I therefore ask that the amendment be withdrawn.

Adam Price: Notwithstanding the fact that the Minister does not want be drawn down this particular road, will he confirm that, as he seemed to suggest in a recent radio interview, a failure to take account of the ability to pay would constitute unfairness in this context?

Mr. Sutcliffe: Here we go again. The last time that we discussed this issue, I doubtless referred the hon. Gentleman to the Pepper v. Hart judgment, pointing out that Ministers do not set specific parameters because that could restrict us in what we are trying to achieve. On the example that he gives, I believe what he says to be right, although perhaps my saying so will cause further problems. None the less, if that is what I said on the radio, it must be right.

Amendment No. 6, which I have had some problem understanding, seems to provide that the unfair relationships provisions should not apply to agreements made before those provisions are brought into force, but which end within a period of two years from the end of the transitional period. It seems to provide an additional transitional period to the transitional period already provided for in the Bill, thereby misconceiving the way in which the transitional provisions work. For the sake of clarity, I will explain those provisions again.

The unfair relationships provisions will apply to all new agreements entered into after the day on which those provisions commence. There is no transitional period for these agreements; indeed, there is no need for one. The unfair relationships provisions will apply only to existing agreements made before the day on which these provisions commence, and which are ongoing after the completion of a transitional period. The provisions will not apply to any such agreements that end before the completion of the transitional period.

The transitional period will be a minimum of 12 months, and the Secretary of State may extend it by order. Different transitional periods may apply to different classes of agreement, so there need not be one transitional period. There may be several, each applying to different classes of agreements, and they may be for different lengths of time. The Department will consult the industry to determine whether particular types of agreements should be treated differently, and it will consider the circumstances in which the period should be extended. Indeed, it has had some preliminary discussions with industry groups.

The amendment would add a further transitional period to the transitional period provided for in the Bill. The transitional period is intended to provide creditors with time to adjust. We have set the minimum period at 12 months, but as I said, it can be extended by different periods for different types of loans. The provisions are flexible, and we have built in the ability to change the requirements if necessary. I therefore hope that the hon. Member for Wealden accepts that the amendment is unnecessary, and that he will withdraw it.

Charles Hendry: I am disappointed with the Minister, as we hoped that he would be prepared to think again
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about this issue. The clarity that we are seeking through this amendment is something that everybody wants, including all the parties, his own colleagues and all those who spoke on Second Reading. Members even wanted such an amendment in Committee; they simply failed to vote for it.

There is a huge demand for greater clarity and I believe that the Minister will, in time, look back and regret the missed opportunity. The Bill will be less effective and the interests of consumers will be prejudiced. The people whom the Minister is most seeking to protect will suffer the most, because lenders will become more cautious. Perhaps, in many years' time, when the Minister is wrapped in ermine and writing his autobiography entitled, "I Can See Where You Are Coming From", he will realise that he missed a golden opportunity. He had the chance to make a difference, but did not take it. We must now expect huge delay before the legislation will work effectively.

3 pm

The Minister said that the twin purposes of the Bill were transparency and responsible lending. However, unless the detail that we are asking for is there, neither of those purposes will be brought effectively into practice. The Minister is condemning us to leaving all the sorting out to the courts. That means that we will have to wait years. It will take many years for cases to be brought to court, go through all the appeals processes and the rest of it. It will also cost a phenomenal amount of money. As was said earlier, the only people to benefit are the lawyers. It could not have been the hon. Member for North Norfolk who said it, because he is a lawyer. [Interruption.] Yes, perhaps he can see a new career opening up for him outside this place. The costs will be huge.

We heard earlier about the fear factor—the sheer concerns that people will have when they face the option of taking on a massive multi-billion pound corporation in the courts. People will decide that they simply cannot go through with it. Even if they have full backing from the consumer associations, they will say that they just cannot face going through it all and will back down. The issue will drag on for longer and longer. Once a judgment is eventually reached, there will be debate about its implications. Either it will mean that the lenders could have been less cautious in the intervening years—they will subsequently know with greater clarity what they can do—or alternatively, millions of agreements will have to be rewritten and compensation paid because the system was not clear enough in the first place.

All we are asking for is more clarity in defining fairness. It does not have to be absolutely detailed; it could be as we cited in the European directive, setting out some measures that could be agreed on all sides to be clearly unfair in all circumstances. That would have been a step forward in itself and I think that it is profoundly sad that the Minister is not prepared to move further on that. As I said, everyone is calling for this change: the industry wants it, consumer groups want it, Members on both sides of the House want it. It is very sad indeed that the Minister will not concede any ground.
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I hope that another Minister will look at the problem again in the other place and I hope that that Minister can find another way forward. The Minister is determined not to give ground, so I am prepared to withdraw the amendment. I was glad to hear about the flexibility that already exists in respect of the transitional period. That provides some of the reassurance that we are seeking. I am sorry to end Report on a discordant note, but I have to say that the Minister has an opportunity to show that he has really listened to the demands that came out of the consultation. It is a matter of great sadness to all of us that he is not prepared to do so.

I beg to ask leave to withdraw the amendment.

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