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Mr. Bone: I am beginning to become very concerned as I listen to my hon. Friend. If the measure applies only to new licences, it drives a coach and horses through the legislation. We are worried about existing licences, so that point needs to be clarified.
James Brokenshire: My hon. Friend makes the point to which I was trying to allude. I hope that the Minister will give us clarification on ongoing enforcement and monitoring and the ways of ensuring that someone remains a fit and proper person.
James Brokenshire: I see that the Minister wishes to intervene, so I hope that we will get clarification straight away.
Mr. Sutcliffe: I intervene on the basis that I might not get the opportunity to give answers in full, given the time constraints. The measure will apply to existing licences as well.
James Brokenshire: It is important that we have that clarification on the record. Given that the legislation is not a consolidating Bill, but merely inserts new measures into existing legislation, such clarification on what the follow-through will be is extremely helpful.
We come back to the definition of "irresponsible lending". There is some similarity between our consideration of that and our previous lengthy debates on the unfairness test. I have even asked the Minister a question about the unfairness test, and he kindly responded by promising to monitor closely the impact and effect of the test to ensure that it does not have unintended consequences. One needs to read both provisions together, although they are separate. The unfairness test relates to a creditor who wants redress trying to assert that the relationship that was entered into was unfair. However, when considering irresponsible lending, the OFT can examine both matters. It can consider whether someone has been unfair, even though it has said that it will not try to define that. I presume that it says that that is a matter for the courts because of the context in which the provision arose.
I hope that the OFT will be prepared to give more clarification on the meaning of irresponsible lending. My hon. Friend the Member for Hertford and Stortford (Mr. Prisk) talked about certainty. The industry needs certainty so that it can prepare properly and effectively for the implementation of the Bill. We will hopefully then not get into enforcement problems due to challenges on whether the provision has been infringed.
The question of clarity and certainty is germane. The hon. Member for Kingston and Surbiton (Mr. Davey) highlighted the fact that a balance must be struck. On the one hand, we need to provide protections, but on the other we do not want something that is too prescriptive. We debated in Committee why a prescriptive list that is an attempt to give certainty might lead to a box-ticking exercise, rather than providing the protection to creditors that we all want as a consequence of a Bill. If the system is too vague and uncertain, there is a risk that certain sectors of our community, especially people
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from socially disadvantaged backgrounds, will be denied credit—full stop. There is a risk that if the system is very vague and uncertain, lenders will say, "We don't know what this means, so we are not going to take any risks at all" and thus withdraw from a specific sector of the market.
Some providers lend small sums of money, but the annual percentage rate that they levy suggests that they are engaging in irresponsible lending. However, the monitoring process shows that they provide a service to the market that would otherwise be sucked up by loan sharks and unsavoury characters whose practices we hope the Bill will end. If there is uncertainty, credit could be denied to a sector of the market. Lenders already have to factor in the cost of risk, but because of the small sums involved that may appear disproportionate. I am deeply concerned that failure to provide clarity would have the unintended consequence of playing into the hands of loan sharks and illegal lenders who prey on the disadvantaged.
9 pm
David Taylor (North-West Leicestershire) (Lab/Co-op): The hon. Gentleman suggests that if borrowers were denied access to those lending organisations they would be driven into the hands of loan sharks and unsavoury organisations. However, there are alternatives, such as credit unions, that are certainly not unsavoury, in many parts of the country. Does he acknowledge that they are properly regulated and do not offer unfair or excessive lending terms? I should declare that I am a member of a credit union board.
James Brokenshire: I would certainly like to put on the record my appreciation of the work of credit unions. However, they are not accessible to everyone in those circumstances. We need to promote a diverse and varied credit industry. I hope that the Minister and the Department will continue to work with the industry to do so once the Bill is enacted. However, I fear that the industry may withdraw its services from certain parts of society if the law is not certain or if it is over-prescriptive. A balance needs to be struck.
My hon. Friend the Member for Hertford and Stortford referred to the briefing note circulated by APACS, which highlighted concerns about withdrawal from the market:
"In practice we are concerned that the OFT will set an unnecessarily wide definition and that this will in turn have an impact on whom lenders choose to lend to."
Lenders should be more cognisant of the people to whom they are lending. That is the concept of responsible lending that Members on both sides of the House have sought to promote throughout the progress of the Bill. There should be greater responsibility, but not if that means that services are withdrawn wholesale from certain parts of the market. It is self-evident that the socially disadvantaged are in a difficult situation, so an extortionate credit bargain under the existing legislation could put them in a much worse position. People would not have access to direct or regulated credit, so they would fall prey to the unregulated sector.
There has been reference to the involvement of the courts. In exercising its powers, the OFT must be certain about its remit and the provisions that it seeks to
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interpret. We have missed an opportunity by failing to spell out the concept of irresponsible lending in the Bill. In Committee, the Minister said:
"For many, responsible lending imposes a requirement that lenders do certain things before extending credit. However, the things that a lender may take into account in the case of one debtor may be very different to those of another. It will depend on a debtor's circumstances.
Any duty to lend responsibly would mean defining what is, and what is not, responsible lending."—[Official Report, Standing Committee D, 28 June 2005; c. 93.]
Several months down the line, we have included the concept of responsible lending in the Bill, but we have not included a definition. I therefore hope that the Minister can explain where we can find such a definition, given his comments on the issue in Committee.
In summary, there is not certainty in the Bill about the meaning of responsible lending. I accept that a balance needs to be struck, but clause 29 deals explicitly with fraudulent, deceitful or oppressive practices. As a lawyer, I interpret things according to their context, and such practices suggest that a high standard would have to be breached before the responsible lending test were applied. Someone would therefore have to be guilty of an outrageous practice to breach that standard.
Mr. Bone: Does my hon. Friend agree that the Government appear to be against irresponsible lending, but they do not have the foggiest idea what responsible lending is?
James Brokenshire: The Bill does not provide any indication of what constitutes responsible or irresponsible lending, so my hon. Friend is quite right.
Mr. Jim Devine (Livingston) (Lab): Is irresponsible lending based on giving a loan, but failing to reveal who provided that loan?
James Brokenshire: I shall wait to see whether the Bill applies to us all in relation to any loans that may or may not have been made. It remains to be seen whether another Committee will decide to investigate its relevance to such matters.
The time allowed for industry to prepare for the Bill is of critical concern. We have already heard from my hon. Friend the Member for Hertford and Stortford that the proper implementation of the measure could take 18 months. I appreciate that the Minister can probably only take limited action in providing guidance and greater clarity, so such things may be left to secondary legislation and guidance from the OFT. I hope that that is sufficient to ensure a smooth transition for the industry. Throughout the Bill's progress, there has been a great deal of cross-party consensus about the need for a measure to update the Consumer Credit Act 1974, which is not fit for purpose, so I hope that we will use this final opportunity to do so.
Lords amendment No. 4 is a technical amendment. As a lawyer and a purist, however, I believe that it should refer not to "the officer" but to the "relevant
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officer", given that that term is used throughout clause 50. I would therefore be grateful if the Minister would confirm that "the officer" is indeed the relevant officer cited in that provision.
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