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Standing Committee Debates
Consumer Credit Bill

Consumer Credit Bill

Column Number: 73

Standing Committee D

The Committee consisted of the following Members:


†Derek Conway, David Taylor

†Bailey, Mr. Adrian (West Bromwich, West)
†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

Column Number: 75

Tuesday 28 June 2005

[Derek Conway in the Chair]

Consumer Credit Bill

10 am

Charles Hendry (Wealden) (Con): On a point of order, Mr. Conway. I am sorry to raise a point of order so early in the proceedings. You were here when we were discussing the Bill last Thursday and it may have struck you at the time that we tabled many interesting amendments, which the Minister made clear from the outset that he was unlikely to accept. Indeed, he was true to his word on that. What was rather more disappointing was that we put many questions to the Minister, which we hoped he would answer and give further details on before we came to a decision on the amendments and some of the clauses.

As you may recall, Mr. Conway, the Minister was rather slippery, if that is a parliamentary term. He did not manage to answer many of the questions put to him. Indeed, I cannot recall him answering any of them. Is there anything that you can do on behalf of Back Benchers and other hon. Members to ensure that the Minister answers the questions that are put to him? Otherwise, we may have to have Divisions on clauses, not because we disagree with them but because we do not have enough information to hand to make a judgment as to whether the clause is right or not, which would be very bad news for the Government. They are facing a humiliating defeat later today on identity cards and to face defeat after defeat in the course of the day on consumer credit issues would be too much.

The Chairman: Fortunately, the Chair is not responsible for the contents of the Minister’s speech or the questions he replies to, but of course the Opposition can call a Division, as can any other member of the Committee, on any item before it. I am sure that we shall all look forward to that during our deliberations.

Clause 23

Definitions of “consumer credit business” and “consumer hire business”

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

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): Good morning, Mr. Conway. I am hurt and saddened by that vicious attack, which was made so early during our deliberations today. I hope to be able to answer the many questions that the hon. Member for Wealden (Charles Hendry) will put today. With your
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permission, Mr. Conway, it may be worth saying that many of the questions put so far related to general aspects of the Bill and the regulations that flow from it.

I do not want to teach the hon. Gentleman to suck eggs, but he will remember from his time serving on previous Committees that the legislation is there to set the framework, while the detail of the framework comes from secondary legislation that is subject to consultation with the industry and the stakeholders. I am sure that, when the secondary legislation comes forward, he will be able to get the answers to many of his questions. I undertook to meet him, if he remembers, to discuss a particular issue and I hope that any outstanding answers will be available by the time we have that meeting.

Charles Hendry: It will be a long meeting.

Mr. Sutcliffe: We will see how it goes.

The clause amends the definitions of consumer credit business and consumer hire business. These definitions are important, because under section 21 of the Consumer Credit Act 1974, anyone who wants to conduct a consumer credit or hire business needs a licence. Amending the definitions changes the activities for which a licence is required.

There is a problem with the existing coverage of the licensing regime. It is not clear that businesses that purchase a portfolio of existing loans require a licence. The Department of Trade and Industry, the Office of Fair Trading and advice bodies have received complaints about businesses that purchase existing debts. Consumers are often confused about who is responsible for the contract and what controls there are on those businesses.

That is important because consumer detriment can arise from the way in which agreements are administered. Administering agreements can include varying the interest rate or changing the terms of the agreement, and agreements regulated by the 1974 Act can continue for many years. It is appropriate that a licence should be required to administer agreements. The OFT can then check that the person is fit to do so and regulate that activity.

The clause also ensures that a consumer credit or hire business will not be able to enforce its agreements once its licence has been revoked. That will help to avoid the situation which arose in the recent case of Mr. and Mrs. Meadows. As the lender was only administering the agreements, the OFT was unable to intervene.

Hon. Members will see that the definition of consumer credit business now covers businesses relating to the provision of credit by a person, or otherwise being a creditor. A creditor is a person who provides credit under an agreement or a person to whom the rights and duties under the agreement have passed by assignment or operation of the law.

The new definition ensures that businesses will need a licence even if they are no longer making new agreements. They will need a licence if they only administer existing agreements by taking over the rights and duties of the creditor. The same logic applies for the new definition of consumer hire business. The
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clause means that creditors exercising rights under an agreement are now within the regulatory regime. It means the OFT can ensure appropriate standards and protect consumers throughout the whole life of their agreement.

Question put and agreed to.

Clause 23 ordered to stand part of the Bill.

Clause 24

Debt administration etc.

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

Mr. Sutcliffe: This clause inserts into the 1974 Act a new type of ancillary credit business—debt administration. Businesses that administer debts on behalf of others will need a licence. Debt administration means performing duties under a consumer credit or hire agreement on behalf of the creditor or owner; or exercising or enforcing rights on behalf of the creditor or owner, not including debt collection. The clause ensures that a licence is needed to administer agreements if the person administering is not the creditor or owner.

The way in which duties are performed or rights are exercised can have a significant effect upon the debtor. They include varying the interest rate or the terms of the agreement. Clearly, there is potential for detriment arising from that behaviour. The clause complements clause 23, which amends the definitions of consumer credit businesses and consumer hire businesses, to ensure that a licence is required for a creditor or an owner to administer agreements.

The Department of Trade and Industry, the OFT and citizens advice bureaux have received some complaints about debt purchasing companies. Debt purchasing of the kind we are concerned with in this clause is when businesses purchase portfolios of existing loans and administer them.

Consumers are sometimes confused about who their contract is with, and surprised to find debt purchasers are not treated in the same way as the licensed original lender. Consumers deal with whoever is administering their loan, and it is difficult to tell whether they are the creditor or someone acting on behalf of the creditor. It follows that, if creditors require a licence to administer their own agreements, someone administering agreements on their behalf should be subject to the same regulation and fitness requirements.

Under clause 23, a debt purchaser who became a creditor or owner when he purchased the loan would require a licence. However, if the creditor or owner subcontracted the administration of his loan agreements to a third party, clause 24 means that the third party would require a debt administration licence. The combination of clauses 23 and 24 is important, as it will ensure that the OFT can protect consumers throughout the life of their agreement.

It has been suggested that the clause would impose a requirement to be licensed on retailers who do no more than hold on to a card at the point of sale when
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requested to do so by the card issuer. It is certainly not the Government’s intention to include that in the definition of debt administration. If on reflection the clause is wrong in that respect, the Government will table an amendment to clarify the position.

Charles Hendry: I am grateful to the Minister for that clarification. I am grateful to him also for showing flexibility over the issues relating to retailers. Will he tell the Committee what powers there are to strike people off if they have been acting improperly when granted a licence? Do they have a right of appeal? What guidelines will be issued about what makes a person suitable or unsuitable for debt administration? For example, if they have a criminal record, will that be enough to make them unsuitable, or will it be written off in time, as with all criminal records? Will he clarify the situation with regard to Criminal Records Bureau checks on individuals involved in debt administration, particularly given the contact that they may have with often vulnerable people?

Mr. Sutcliffe: Again, the hon. Gentleman raises perfectly fair questions. They will be dealt with as we discuss the clauses and consider the powers and responsibilities of the OFT. The fitness test will certainly apply. The general principle that applies to most financial services applies in these circumstances. The detailed issues about the powers and the specific roles of the OFT and the Consumer Credit Appeals Tribunal will become clearer. The OFT has the power to revoke licences, and the procedures are the same for licence holders, including the right of appeal. We shall go through that in more detail as we discuss later clauses.

Question put and agreed to.

Clause 24 ordered to stand part of the Bill.

Clause 25

Credit information services

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

Mr. Sutcliffe: This clause introduces a new category of ancillary credit business—the provision of credit information services. Credit information service providers will require a licence. New subsections (7B) and (7C) describe what credit information services are. They cover businesses that help individuals to locate and to correct records about their financial standing. That help can be advising an individual or taking steps on their behalf.

New subsection (7D) describes a credit information agency, which is the body that might hold records about an individual’s financial standing. It may be a business that undertakes activity regulated under the legislation or undertakes related activities.

New subsection (7C) lists the steps that the credit information service provider takes that mean that it requires a licence. Those steps are ascertaining whether a credit information agency holds information relevant to the financial standing of their
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client; finding out what that information is; and correcting it or ensuring that it is deleted or not passed on. Subsections (3) to (5) make consequential amendments to include credit information services elsewhere in the 1974 Act.

Hon. Members may know that credit information services are more commonly provided by credit repair firms. Those firms investigate a person’s credit record. If they find incorrect entries on records, they can, on behalf of the borrower, ask for those entries to be corrected. There is nothing to stop consumers asking for entries to be corrected themselves. People can write to one of the credit reference agencies enclosing a cheque for £2 to receive a copy of their credit record. If there are mistakes, they can ask for them to be corrected. The Information Commissioner’s office publishes a useful leaflet entitled “No Credit?”, which explains clearly the steps that a consumer can take.

I recognise that some people may never be able to take such action themselves, or may prefer that someone else does it for them. That is fine when the service being provided is legitimate. The OFT would have no problem in licensing legitimate companies that can prove that they are fit.

The problem comes when credit repair companies promise more than they have the legal power to deliver, thus misleading consumers by suggesting that they are able to repair their credit record. They do not say that they can remove only the incorrect entries. Adverse entries on a person’s credit record cannot be removed if they are correct. Some credit repair companies do not make that clear to customers.

In some cases, consumers pay a large sum to the company and receive nothing in return. One company that was investigated by the radio programme “You and Yours” charges £80 to undertake credit repair. It told the reporter that they could clear the file of any record of bad debts, even if he had defaulted on those debts. All too often, those claims are targeted at consumers who already have financial problems and believe that a better credit rating would enable them to borrow more.

Credit repair companies that encourage customers to lie about entries on their credit record are, of course, committing fraud. Currently, the OFT has limited powers to target the rogues in the market, although it has issued consumer warnings about credit repair firms.

Bringing credit information services under the licensing regime ensures that fit businesses can get a licence. The OFT will be able to use its information-gathering powers and, if necessary, to impose requirements on licences. Those that are not fit to provide credit information services will not be given a licence. If they then trade without a licence, they will be committing a criminal offence. We are ensuring that rogues are kept out of the market and that the OFT can maintain appropriate standards among credit information services.

Column Number: 80

Charles Hendry: I am grateful to the Minister for such a detailed explanation of the clause and of the thinking behind it. I assure him of our support in this area. All of us have had distressing constituency cases in which people have come to us and said that they are unable to borrow because they have been told that they have a bad debt rating, when in fact that rating relates to someone who lived in the house a while before or to a student who happened to live there. To have the issue made clearer is something that we should welcome.

I welcome the fact that the Government announced yesterday that they are setting up a £45 million fund on debt advice. Will some of that fund be used specifically in this area? It seems that many people are simply not aware of credit repair firms, their right to obtain information for a fee and how they go about trying to correct incorrect information that is on file. Does the Minister envisage some of that funding being used to make sure that people are not put in this invidious situation?

10.15 am

Mr. Sutcliffe: Even I can answer this question; it says yes. Clearly, I welcome the hon. Gentleman’s support for the clause. I am pleased to have given the explanation I did on the clause. It is clear that we are trying to make sure that the rogues that promise things that cannot be delivered are removed from the marketplace.

I am delighted that the £45 million is being made available for financial inclusion. It will consider the range of education support. That £45 million will come to the Department for Trade and Industry. We must work out the detail, but a broad range of programmes will come in bids from a variety of agencies, including Citizens Advice, and other debt counselling and money advice services, to offer a range of support to people throughout the levels. A key element of the Bill in the context of financial inclusion and education is to give people as much information as possible.

I welcome the hon. Gentleman’s support for the clause and for the funding. The measure is apolitical in that we all agree that the work is necessary and must be done. I am happy to talk to him about how to develop the fund as we go along.

Question put and agreed to.

Clause 25 ordered to stand part of the Bill.

Clause 26 ordered to stand part of the Bill.

Clause 27

Charge on applicants for licences etc.

Mr. Sutcliffe: I beg to move amendment No. 25, in clause 27, page 21, line 22, at end insert—

    ‘(   )   In section 189 of that Act (definitions) after subsection (1) insert—

    “(1A)   In sections 36E(3), 70(4), 73(4) and 75(2) and paragraphs 14 and 15 of Schedule 1A ‘costs’, in relation to proceedings in Scotland, means expenses.”.’.

Column Number: 81

The Chairman: With this it will be convenient to discuss amendment No. 30, in schedule 4, page 69, line 38, at end insert—

      ‘(aa)   the definition of “costs”;’.

Mr. Sutcliffe: This is a technical amendment to make it clear that the definition of costs applies only to those of legal proceedings in Scotland. When costs apply to other things, such as those involved in collecting money to set up the FOS, the amendment makes it clear that the definition in section 189 of the 1974 Act is not relevant. That also applies to amendment No. 30.

Amendment agreed to.

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

Mr. Sutcliffe: We move on to issues relating to the Office of Fair Trading. Licence applicants will be required to pay a charge towards the OFT’s costs of carrying out its functions. That is the same as under the current system. Payment will be required on application and periodically after that, probably every five years.

The OFT will issue a general notice setting out the level of the charges and it is likely that the licence charge will increase from its current level. Approval of the Secretary of State and the Treasury will be required before charges are set. The OFT may set licence charges according to the category or sub-category of activity entered into. That will reflect the cost of monitoring. Narrow licences may attract a reduced charge, but licences in high risk sectors may attract a higher charge and some types of licensees will not have to pay an application or maintenance charge.

The increased charge will fund more effective monitoring of licensees. That will ensure that they remain fit to hold a licence, including visits to premises when appropriate, and will enable the OFT to use the additional powers in the Bill to investigate applicants and licensees.

Charles Hendry: I am grateful for the chance to ask some questions. The Minister said that the OFT will consult widely, but who will be consulted once the charges are set? Will there be a right of appeal if firms believe that the charges are too high? Can the Minister give a clearer idea of what the level of the licence charges may be? He said in ministerial-speak that they will increase from the current level. Everything increases under this Government and goes up. Can he give us a ball park figure? Will the increase be £500, £5,000 or £50,000? At the moment, we do not have a feel for what the figure will be, other than that it will be rather more than at present.

Will the Minister also comment on the need to fund the activities of trading standards services? The guidance from the OFT says that the new work for trading standards services will require new money. Paragraph 12 of the guidance states:

    “It is therefore envisaged that costs related to these new powers and functions will represent additional costs to the system.”

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Does the Minister expect that some of the licence funding through the OFT will also fund the trading standards services? If not, where will that funding come from? Can he indicate what costs will be on trading standards offices? We are all aware that local authorities are consistently anxious about additional responsibilities being put on them without funding being provided to pay for those services. It seems that this may be another of those responsibilities and that they will be expected to take on new staff, which will involve training and additional running costs. Where will the money come from to pay for the extra activities of the trading standards offices?

Mr. Sutcliffe: Again, those are legitimate questions, but they were not asked in a friendly way. Attacking the Government’s record on rising costs is unfair. All the costs are proportionate to the requirements and in keeping with our better regulation approach.

Charles Hendry: Can the Minister tell me one charge that has gone down in the past eight years?

Mr. Sutcliffe: Not immediately, but I am sure that I can find one for the hon. Gentleman. I undertake to write to the hon. Gentleman about that.

The clause explains how the charges would work and the OFT’s responsibilities. We are not talking about a repetitive licensing regime, in the sense that once a license is issued the OFT has the opportunity to look at the people who are not operating appropriately. To return to the earlier point of order, I set out lots of information for members of the Committee because I knew that they would be interested in many of the issues that have been raised. There is a note in the material that we sent out on the charges that the OFT is likely to charge. I refer the hon. Gentleman to that note.Even if charges doubled, that would only take the cost for limited companies to £550 for five years. The charge compares favourably with those set under other licensing regimes, and will help consumers and fair-dealing businesses to reap financial benefits.

I am pleased that the hon. Gentleman raised the role of trading standards, as there are lots of issues concerning the future of trading standards. It is worthwhile saying how much the Government appreciate the work of trading standards. That is why the Hampton review is considering a consumer and trading standards agency, which will highlight further the work of trading standards. There will have to be discussions with local government about the funding of trading standards work, and the costs of the licensing regime should reflect the ability to fund such work. There will be more detailed discussions once the consultation document on the proposed consumer and trading standards agency goes out, and that will include discussions with local government about how to take things forward. Again, like the hon. Gentleman, I am very appreciative of the work that trading standards does.

Charles Hendry: May I push the Minister a little further? Is he saying that new money will be provided to local authorities for the extended role for trading
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standards? Without a guarantee of new money, local authorities will have to cut services elsewhere or consider raising council tax. That will be a great concern to councils that are already hard pressed.

Mr. Sutcliffe: Clearly, we do not want to do that. The licensing charges will reflect the costs to the organisations involved, which will include trading standards. I am making a more general point about the future of trading standards, which the proposed CTSA, through Hampton, will affect.

Mike Penning (Hemel Hempstead) (Con): Can the Minister clarify further how the mechanism will work? Will money be taken through one licence and given to trading standards officers in our local authorities, which, as my hon. Friend the Member for Wealden said, are stretched to the limit already?

Mr. Sutcliffe: Do not become upset and confused that we are going to transfer the powers across. The money will go to the OFT, which will then look at the requirements and the resources that are needed. The money will come through the OFT, through the licensing charges. The OFT will pay the full cost to the trading standards authorities involved.

Mike Penning: Just to clarify the point, will the OFT fund local authorities in that respect?

Mr. Sutcliffe: Certainly not. The OFT will fund that element of the requirements.

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Prepared 29 June 2005