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Session 2005 - 06
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Standing Committee Debates
Consumer Credit Bill

Consumer Credit Bill

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Standing Committee D

The Committee consisted of the following Members:


†David Taylor, Derek Conway

†Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)
†Banks, Gordon (Ochil and South Perthshire) (Lab)
†Battle, John (Leeds, West) (Lab)
†Brokenshire, James (Hornchurch) (Con)
†David, Mr. Wayne (Caerphilly) (Lab)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
†Fabricant, Michael (Lichfield) (Con)
†Foster, Michael Jabez (Hastings and Rye) (Lab)
†Hendry, Charles (Wealden) (Con)
†Lamb, Norman (North Norfolk) (LD)
†Penning, Mike (Hemel Hempstead) (Con)
†Reid, Mr. Alan (Argyll and Bute) (LD)
†Snelgrove, Anne (South Swindon) (Lab)
†Stewart, Ian (Eccles) (Lab)
†Sutcliffe, Mr. Gerry (Parliamentary Under-Secretary of State for Trade and Industry)
†Vaizey, Mr. Edward (Wantage) (Con)
†Wright, Mr. Iain (Hartlepool) (Lab)
Geoffrey Farrar, Emily Commander, Committee Clerks

† attended the Committee

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Thursday 23 June 2005

[David Taylor in the Chair]

Consumer Credit Bill

8.55 am

The Chairman: I have one or two preliminary announcements. I remind the Committee that there is a money resolution and a Ways and Means resolution in connection with the Bill, copies of which are available in the Room. I also remind hon. Members that adequate notice should be given of amendments. As a general rule, my co-Chairman and I do not intend to call starred amendments. Finally, all hon. Members should ensure that mobile phones, pagers and related equipment are turned off or on silent mode during the Committee’s proceedings.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I beg to move,


    (1)   during proceedings on the Consumer Credit Bill, in addition to its first meeting at 8.55 a.m. on Thursday 23rd June, the Standing Committee shall meet at—

      (a)   2.00 p.m. on Thursday 23rd June;

      (b)   10.00 a.m. and 4.30 p.m. on Tuesday 28th June; and

      (c)   8.55 a.m. and 2.00 p.m. on Thursday 30th June;

    (2)   the Bill be considered in the following order, namely, Clauses 1 to 55, Schedule 1, Clauses 56 to 59, Schedule 2, Clauses 60 to 69, Schedule 3, Clause 70, Schedule 4, Clause 71, new Clauses, new Schedules and remaining proceedings on the Bill;

    (3)   proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 5.00 p.m. on Thursday 30th June.

I welcome you to the Chair, Mr. Taylor. Most mornings, I have the great pleasure of taking my breakfast with you. I know that that will not affect the impartiality of your approach to the Committee, but it is good to know that a friend sits in the Chair.

As you will know from Second Reading, we all care about the Bill, which means a lot to our constituents. We have consulted on it extensively with the industry and consumer groups, and I know that the Committee will look in great detail at many of the issues that were raised on Second Reading.

I am delighted, Mr. Taylor, that your co-Chair is the hon. Member for Old Bexley and Sidcup (Derek Conway). Like me, he is a former Whip. I used to work with him in the Whips Office, so I feel at home with the Chairs of our Committee.

I am pleased to welcome the hon. Member for Wealden (Charles Hendry) as the Opposition Front-Bench spokesperson. I know that he will bring words of wisdom to the Committee during our deliberations. I am also happy to see the Opposition Whip and my own Whip working closely together to ensure, I hope, that the Bill’s passage is speedy, but thorough.

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I welcome the hon. Member for North Norfolk (Norman Lamb), who leads for the Liberals, and his colleague, the hon. Member for Argyll and Bute (Mr. Reid). I extend a special welcome to the new Members of Parliament who are serving on the Committee. I hope that they will enjoy it and that their experience will stand them in good stead in the House. They will see at first hand how Bills are scrutinised line by line.

There is a great deal of knowledge and expertise in the Committee. That is certainly true of the experienced Members on the Labour Benches, and I look forward with interest to the many points that they will raise with me. I always say that it is good to have been a Whip, because I still have the files on many of my older hon. Friends. If we disagree, I am sure that I can find ways of convincing them.

Charles Hendry (Wealden) (Con): I join the Minister in welcoming you to the Chair, Mr. Taylor? Conservative Members also look forward to serving under your chairmanship and that of my hon. Friend the Member for Old Bexley and Sidcup. At times, the Minister probably had a more harmonious relationship with my hon. Friend, Whip to Whip, than some Conservative Back Benchers did. It remains to be seen quite how things will work in Committee, although I have dined with my hon. Friend rather more often that I have had breakfast with him. I tend to have breakfast with my children, which is not quite so useful for gaining an insight into how the Committee may be run. Indeed, our conversation this morning was about how to pronounce diplodocus, the name of a type of dinosaur. That might be useful for certain aspects of politics, but it is not particularly useful for dealing with consumer credit legislation, although I know that some Labour Members see the Conservative party as close to the dinosaurs. Let us pass swiftly over that, however, and deal with the meat of the Committee.

I am extremely grateful to the Minister for his generous words, and I shall endeavour to live up to them. Throughout our discussions so far, he has shown a determination to take a constructive and co-operative approach, and we welcome that. This is important legislation, and we all welcome the attempt to ensure that both sides of the House agree wherever possible. Nevertheless, we are a little disappointed that we have not seen more detail so far. That issue came up regularly on Second Reading, and I think that it will recur in Committee. I hope that the Minister can be tempted, despite his Whip-like resolution, to give us more detail on some areas. The industry and borrowers are both keen to have that in order to understand the full implications of the legislation and the way in which it will move forward.

The Bill has already had a Second Reading and been through Committee in the last Parliament, when my hon. Friend the Member for Tewkesbury (Mr. Robertson) tabled many amendments. We do not plan to revisit the issues raised then as many people would see that as a waste of time—the Minister showed that he was unwilling to give way and amend the legislation
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on many issues—but we have tabled a range of new amendments that go to the heart of relevant issues, particularly that of clarity.

In general, following discussions with the Minister and through the usual channels, we are satisfied with the programme motion and the time that has been made available to us.

Norman Lamb (North Norfolk) (LD): I, too, welcome you to the Chair, Mr. Taylor. I am sure that it will be a pleasure for all of us to serve under your wise chairmanship.

I shall keep my remarks short. The arguments have been rehearsed many times, so they do not bear repeating too many more times. There is a substantial measure of agreement about the Bill and its value and importance. It is long overdue, so it is good that it comes now. None the less, it does not cover two areas with which there are significant problems. The first is data sharing, which seems to be at the root of the problem for many people who get into real difficulties taking on debts with substantial numbers of lenders. They end up with cumulative debts that they cannot manage, yet that information has not been shared adequately.

A solution could be achieved through voluntary agreement by the industry, perhaps with a steer from the Minister to push it in the right direction. The banking code is there to achieve such things; I believe that Which? put forward a sensible, practical suggestion that there could be a standard wording in credit agreements to allow borrowers to consent to the sharing of information in return for commitments as to how it would be shared and the limitations on that. What does the Minister have to say on that? If there were some encouragement from him, there might be some progress. The issue has been talked about for a long time, but no progress has been made.

The other issue that is not covered in the Bill is the calculation of interest. It is great that there is a single APR on credit cards, but that is pretty meaningless in terms of achieving greater transparency if there are 10 different methods of calculating interest. No one can tell from the single APR what the interest cost will be. Unless there is a move toward a scenario in which one can see the cost of credit in pounds and pence, or there is a measure of agreement, perhaps through the banking code, on a single method of calculating interest, there will still be a complete lack of transparency in terms of borrowers understanding how much credit will cost them. I would welcome a response from the Minister on how he sees those outstanding issues being tackled.

I share the concerns of the hon. Member for Wealden about lack of clarity, specifically surrounding the test of unreasonableness and how it will be interpreted. It seems to me that it will end up being interpreted by a court, so that courts will be giving guidance rather than Parliament. That is not an attractive proposition.

However, we are happy with the programme motion, given that it has been debated so often. I would welcome a response from the Minister.

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Mr. Sutcliffe: I am pleased that the Opposition find the timetable appropriate, and I welcome the comments about not going over old ground in too much detail. I shall try to answer in Committee and, ultimately, on Report the charge of lack of clarity.

We must be careful about seeing the Bill in isolation from the other things that are taking place around consumer credit, consumer and financial education and indebtedness. Hon. Members may be aware of the indebtedness strategy that the Government announced last year. We are also trying to do many other things to co-ordinate a response, particularly to those people who find themselves in hardship.

The issue of data sharing to ensure that there is some movement is close to my heart, so I shall be pushing it during discussions on the Bill and elsewhere.

Norman Lamb: I wonder whether the Minister would say whether that idea could work. What advice has he had on that matter? Is it worth discussing it with the industry?

The Chairman: Order. I think that the issues being raised are probably relevant to the clause to be debated later on.

Mr. Sutcliffe: Thank you for your guidance, Mr. Taylor—and for my not having to answer the question. That is always helpful. We will return to that matter later in the debate, but there are clearly issues that we need to discuss. The programme motion is appropriate and I look forward to a considered debate.

Question put and agreed to.

Clause 1

Definition of “individual”

Question proposed, That the clause stand part of the Bill.

Mr. Sutcliffe: Clause 1 amends the definition of “individual” in section 189(1) of the Consumer Credit Act 1974. The definition is important, because an agreement is only a consumer credit, or consumer hire, agreement as defined by the Act and is, therefore, capable of being regulated by the Act if the debtor or hirer under the agreement is an individual under the definition in section 189(1). The current definition gives an extended meaning to “individual”, including partnerships and other unincorporated bodies or persons of any size, so long as the members of the partnership or unincorporated bodies are not exclusively bodies corporate.

Bodies corporate are not included in the definition of “individual”, so they have no protection as debtors or hirers under the Act. Medium-sized and large partnerships, as hon. Members will know, are often highly sophisticated businesses, such as international firms of lawyers and accountants, which can look after themselves and do not require the protections afforded to ordinary consumers. Having said that, the Government recognise the need to foster and protect small businesses to encourage enterprise in Britain. In order that they may grow, many small businesses
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require access to ready credit, such as credit cards or hire purchase. Many of those starting out in business operate with little distinction between their private and business lives. Such businesses also have similar or lower levels of credit equities and face similar risks to ordinary consumers in relation to their borrowing. That is why the clause amends the definition of “individual” to include partnerships of only three or fewer people.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2

Removal of financial limits etc.

Question proposed, That the clause stand part of the Bill.

Mr. Sutcliffe: The clause removes the current financial limit for regulation under the 1974 Act. The financial limit defines those consumer credit and consumer hire agreements that are currently protected under the Act. At present only agreements providing credit or requiring hire payments up to the £25,000 limit are protected. The initial limit of £5,000, which was a considerable sum in 1974, was raised to £15,000 in 1985, and the current £25,000 limit was introduced in 1998. For many consumers £25,000 is no longer a substantial amount of borrowing. The average debt consolidation loan now exceeds that sum. Clauses 1 and 2 remove the financial limit that applies to consumer credit and hire agreements.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3

Exemption relating to high net worth debtors and hirers

Charles Hendry: I beg to move amendment No. 1, in page 2, line 8, leave out ‘the agreement includes’.

The Chairman: With this it will be convenient to discuss the following amendments: No. 2, in page 2, line 8, after ‘declaration’, insert ‘is’.

No. 3, in page 2, line 14, after ‘agreement’, insert

    ‘at the time that agreement is signed’.

No. 4, in page 2, line 26, at end insert

    ‘unless supported by independently verified documentation’.

No. 5, in page 2, line 29, leave out ‘one year’ and insert ‘two years’.

No. 6, in page 2, line 39, leave out

    ‘must have been made in relation to each of them’

and insert

    ‘may be made by either of them’.

Charles Hendry: The clause relates to the exemption for high net worth debtors and hirers on agreements undertaken by people of a high net worth, who are
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currently exempt from the regulation under the 1974 Act providing certain tests are met and that the individual makes a declaration agreeing to forgo the protection offered by a regulated agreement.

We agree in principle with the exemption. It is a key factor for British business and UK lending institutions. Many people of high net worth come to the United Kingdom because of the nature of our financial systems and structures, and we need to protect that industry without neglecting the interest of customers. The measure is crucial to maintain what we in the UK call large sum borrowing; otherwise people may shift their custom to offshore centres, which could prove damaging to our economy.

We need to understand the nature of such people. They are mobile, often have more than one home and borrow huge sums at very short notice, and there is no shortage of people keen to lend to them. If we make it hard for them to borrow in the United Kingdom, there are plenty of other places. That world may not be familiar to Members of Parliament, although the new Northern Ireland Minister may know it; but those who discover themselves on a Caribbean island with a spare butler but are not quite sure what to do with him may decide instead, and at short notice, to buy a new yacht. The circumstances in which such issues arise are not common, but they are important for those affected. If delays are built into the system, people can turn elsewhere and borrow from other sources.

We are keen to have more detail on what the Government have in mind, particularly about the specified amount of income and assets mentioned in subsection (2)(a) of proposed new section 16A, which states:

    “received during the previous financial year income of a specified description totalling an amount of not less then the specified amount”.

It would help if the Minister were to say what he has in mind about specified amounts.

Under the Bill, the declaration must be made in the agreement itself, which will place an unnecessary bureaucratic burden on credit and hire businesses. Lenders would be forced to maintain a separate suite of agreements containing the specified declaration, a process that would prove costly and time-consuming, yet time is often of the essence as people want the money quickly. Such costs are likely to be passed on to the consumer, and the time involved would drive people elsewhere.

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The changes proposed in amendments Nos. 1 and 2 would allow the declaration to be made in a separate document, which would be sensible and in the interests of consumers. The document would be lodged permanently, and borrowers would merely have to confirm that it still applies, as set out in amendment No. 3, by adding in the words

    “at the time that agreement is signed”.

Subsection (3)(a) provides that a statement:

    “may not be made by the person in relation to whom it is made”.

Amendment No. 4 would add the words:

    “unless supported by independently verified documentation”.

That seeks to address the issue of too much bureaucracy; it would allow greater flexibility yet still protect the interests of the consumer.

Amendment No. 5 would allow for greater flexibility by extending the life of such statements to two years rather than one, especially as protections are already included.

Finally, amendment No. 6 is about life partners. We think it appropriate that if life partners such as a husband and wife borrow jointly, but the income is concentrated in one individual’s name, that only one partner need certify. In other words, certification would not be necessary for both partners. The declaration would still be a mandatory requirement, so there would be no detrimental effect upon consumer protection. In fact, providing the declaration in a separate document is more likely to draw attention to its meaning and substance.

Mr. Sutcliffe: May I say at the outset that I understand where the hon. Gentleman is coming from. However, the amendments may be misconceived.

It is important is that the declaration forms part of the agreement at the time when it is made. Amendment No. 1 would make the declaration separate to the agreement. It could mean that consumers were provided with the required declaration at a different time, and that they may not necessarily have to sign it at the same time. That could create confusion.

The clause does not require lenders to prepare a separate collection of agreements specifically for high net worth debtors. Lenders are free to prepare agreements in the manner that they find most convenient so long as they comply with the relevant legal requirements. It is important that the declaration is made at the same time that the agreement is made.

Amendment No. 2 is in a similar vein, It proceeds on an incorrect assumption and seems misconceived. I hope that that theme is not adopted throughout the Committee stage.

John Battle (Leeds, West) (Lab): I am sure it will be.

Mr. Sutcliffe: Perhaps so; I shall try to find other words to describe the amendments.

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It is important that the declaration forms part of the agreement at the time it is made. Like amendment No. 1, amendment No. 2 would allow the declaration to be separate from the agreement. Amendment No. 3 involves the same point: it is important that the agreement should be made at the same time as the declaration.

9.15 am

Charles Hendry: Does the Minister fully understand the nature of the agreements? People want to borrow substantial sums at short notice. If they must go through a process of extensive paperwork, which might often include having to file it while abroad and get it verified and sent back here, they will simply go to other lending markets where they can get the money without that system of bureaucracy. We are talking about an important part of a British industry. Does the Minister understand the danger of his approach?

Mr. Sutcliffe: I do. In previous discussions we discussed the provision as the helicopter clause—because it might apply to people who wanted to buy or hire a helicopter at short notice and did not have ready funds available. They could step outside the normal protections to get the high-worth definition. I understand the hon. Gentleman’s argument. We received an approach from the industry to prevent a move out of the market to foreign parts, perhaps elsewhere in Europe, and we were careful to allow discussion about ensuring that rights would be protected and that there would be flexibility. We are happy that the clauses are appropriate and proportionate.

Norman Lamb: The Minister says that the measure was a response to representations from the industry. Was the framework in the Bill discussed with the people whom the Minister’s Department spoke to, and did they say that they would be satisfied with it?

Mr. Sutcliffe: Clearly, there has been a great deal of discussion, throughout, from the time of the consumer credit White Paper, about issues affecting the consumer credit market, which is very mature in the UK compared with what is happening elsewhere in Europe and the wider world. An approach was made and we listened sympathetically to what was said; we think that we have arrived at the most proportionate and flexible solution that still safeguards consumer rights.

I am happy with what we have established. I understand what the hon. Member for Wealden says, but matters would be further complicated because of the two types of agreement. He asked about consultation on the figure that we had in mind, and we shall consult further on that in detail in relation to the statutory instruments that will arise from the Bill. We originally proposed a gross annual income of £100,000 and net assets of £250,000. Those could not be in non-liquid assets such as the person’s share in the principal
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home and pension funds. The figures reflect those used by the Financial Services Authority to define a sophisticated investor.

James Brokenshire (Hornchurch) (Con): The regime that is being created with respect to high net worth debtors, or high net worth individuals, is, as far as I can see, quite similar to provisions in the Financial Services and Markets Act 2000 about what is meant by financial promotion and agreements where it would be sensible for a sophisticated investor to be excluded. As to what the Minister said about thresholds, some consistency between the two regimes is needed; will he comment on whether they are consistent with each other?

Mr. Sutcliffe: We believe that to be the case, and that is the reason for setting the figures in question, but we are prepared to consult on whether they are appropriate, during the period relating to the statutory instruments. The expertise that the hon. Gentleman brings to the Committee, in the form of knowledge of the FSA, is welcome.

There is nothing to stop the borrower lodging the current statement of high net worth with a lender and leaving it with him as long as it is current, but borrowers should make the declaration each time they enter into an agreement, stating where they want the advantage or the exemption. The two should lie alongside each other.

Charles Hendry: For further clarification, is the Minister saying that, once the documentation has been filed and lodged, it can be used for separate borrowing? In other words, if he wants to borrow for a helicopter this week and a yacht in two weeks’ time, as one does, once that documentation has been lodged, will it be sufficient to confirm that it still applies on subsequent occasions, or would all the documentation have to be resubmitted on a second occasion?

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Prepared 24 June 2005