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Adam Price: I pay tribute to the Under-Secretary, who, unless there is another election in the next few months, is the first Minister for 30 years to get a consumer credit measure on the statute book. Clearly, it fulfils an important need. Having said that, there will be missed opportunities in any Bill—the Minister probably expected me to say that; he could probably write my speech and I could write his response—and this one is no exception.
 
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I refer in particular to the interest rate cap that the hon. Member for North Norfolk (Norman Lamb) mentioned. The Bill provides for a significant enhancement of indirect consumer protection as a result of an easier recourse to the law, either through the courts or through an alternative disputes procedure. A more explicit definition in the Bill of the unfairness test would have provided more direct and immediate protection, but we do not have that at the moment. I would go further and argue that we need completely to stamp out exploitative lending in the sub-prime market through the operation of an interest rate ceiling. Such ceilings exist in most countries, including the majority of European countries, and in many states in the USA, Australia and Canada. The South African sister Department to the DTI has included in draft legislation an enabling clause similar to the one that I proposed in the previous Bill before the election, and in the past few weeks, the Polish lower House has supported legislation to introduce an interest rate cap. Surely all those countries cannot be wrong.

Credit is to be supported, but there is a difference between credit and what used to be called usury. Credit is an arrangement that benefits both the lender and the borrower. The lender receives the interest payments, but the borrower also benefits because the arrangement enables them to smooth out fluctuations in their income. Usury offers no long-term benefit to the borrower, however, and the lender knows that at the time of the transaction. Surely such arrangements should be eliminated, and an interest rate ceiling would appear, from the research that the Minister and I have seen, to be a successful way of achieving that.

The Minister said on Second Reading that he was prepared to look again at the independent research on interest rate capping. I know that he has received a briefing on the issue from Debt on our Doorstep. It is an extensive literature review that goes back over 40 years of experience in interest rate ceilings. It goes into much more detail than the Policis research, which, as the hon. Member for North Norfolk said, is highly flawed. Policis does not appear to have interviewed many of the leading academic commentators worldwide. It claims to have done a full literature review, but there was no extensive bibliography in the report. I know that Debt on our Doorstep has asked to see it. That research seems flawed to me.

I echo the comments made by the hon. Member for North Norfolk. Could we have a timetable for the review that the Minister has promised? Will the Government commission further independent research, because of the doubts that are widely shared about the robustness of the Policis research? After all, there is a template that the Department could use. It is the Treasury's recent consultation document on the credit union interest rate cap. The Government have imposed an interest rate cap on the credit unions. By law, they cannot charge more than 1 per cent. a month. If it makes sense to place an interest rate cap on credit unions, which by their very nature are beneficent in their attitude towards their borrowers, why is it not worth looking again at putting a interest rate cap on lenders that are slightly less beneficent in their approach? Will the Minister therefore consider that?
 
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In relation to the comments of the hon. Member for Hornchurch (James Brokenshire), as I have never said that an interest rate cap is a one-size-fits-all solution, will the Minister say what the Government plan to do in terms of their financial inclusion agenda, beyond the financial inclusion fund? Are there any proposals, for instance, to examine the kind of statutory requirements that the Governments of France and Germany place on mainstream lending institutions in relation to providing banking, including overdraft facilities, under which a certain proportion of their customer base must be low-income households? In commissioning further research, will the Government examine not just interest rate caps but spreading financial inclusion through mainstream providers?

4 pm

Mr. Vaizey: Like everyone else in the Chamber, I want to say how much I welcome the new Bill and wish it well on its way to the other place. As a new Member, I have thoroughly enjoyed the experience of participating on Second Reading, Report and Third Reading but most of all in Committee. It was a tribute to the proceedings of Parliament that we were able to go through the Bill in such detail, clause by clause, with such courtesy across the Committee Room. I thank the Minister for the way in which he and his officials have handled the Bill, and I also thank the Liberal Democrats. Most of all, however, I thank my hon. Friend the Member for Wealden (Charles Hendry) who was an extremely effective Opposition spokesman, putting forward detailed and necessary amendments and arguing his case extremely forcefully.

I want to return to only three issues, some of which I raised on Second Reading. As the Minister is now well aware, I am obsessed, rather like a dog with a bone, with the unfair relationship test. It strikes me as extraordinary that the Department has not in any way sought to include guidance on what an unfair relationship means. Were such guidance provided, perhaps in the Bill or by regulation, that would be an enormous benefit.

To begin with, guidance would help the industry before the Bill even came into effect. The industry would know how to redesign if necessary any products that were on the market, and how to adapt easily and quickly to the forthcoming regime. Above all, however, guidance would help the consumer, who stands alone when he or she makes the bargain, and who has no resources to turn to expert advice if the bargain goes wrong. It would help the consumer if he or she were able to turn easily to guidance on what might or might not be unfair, rather than, as I had to do, ferret around in "Chitty on Contracts", using my dusty and ancient legal experience, to work out that there might or might not be a connection with the terms in consumer credit regulations. Guidance would also help the industry—it would put off ambulance chasers and unscrupulous individuals seeking to try it on because they were unhappy with the bargain that they had made—and the ombudsman.

There are many other measures in the Bill, however, that one can welcome, not least the creation of an ombudsman in this area, which is long overdue, as well
 
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as the role for the Office of Fair Trading, although I take on board the critique put forward by my hon. Friend the Member for Wealden about the excessive powers.

I have also listened with interest to the wider debate, which we did not necessarily have in Committee, particularly the debate on an interest rate cap. I have to say that I am increasingly attracted to that idea. Arguably a Conservative Member's instinct should be to oppose any regulation, especially regulation that "interferes with the free market", but I think that too often members of our party shy away from active regulation and intervention that can help the individual, the consumer and the vulnerable person, because we make obeisance at the altar of the free market.

When we look at the financial services industry, we see an industry that is selling a product. Any other industry that sells products to consumers is regulated, and indeed the financial services industry is closely regulated. But no one would argue that we should get rid of motorway speed limits because they cut off access to high-speed, thrilling drives for Ferrari drivers, and I find it odd that we should wish not to cap interest rates because that would cut off access to vulnerable consumers for unscrupulous lenders. As for the argument that we are somehow doing vulnerable consumers a disservice by cutting them off from excessive rates of interest, I find that bizarre. It is precisely because those consumers are vulnerable in a host of ways, not just because of their particular circumstances at the time but perhaps because of their educational background, that they are targeted.

As the hon. Member for Carmarthen, East and Dinefwr (Adam Price) pointed out, the Government are not shy of imposing consumer-style regulation on financial products, not just credit agreements but the stakeholder pension when it was introduced. As I said on Second Reading, that also applies to CAT—charges access terms—standards.

Norman Lamb: I do not know whether the hon. Gentleman agrees with me, but I think that the picture is unclear. Research commissioned by the Department of Trade and Industry suggested that there would be consequences that none of us would want, and that people could be pushed into the clutches of loan sharks. I have no idea what the truth is. Does the hon. Gentleman agree that the Department should commission more authoritative research, so that we could at least try to agree about the evidence?

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