Consumer Credit Bill


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James Brokenshire: I wanted to follow up a point that I briefly alluded to earlier. The Minister might have addressed it, so I apologise if I missed it. The clause inserts proposed new clause 25A into the 1974 Act, but is different from where similar language crops up elsewhere in the Bill. For example, clause 54 inserts into the 1974 Act proposed new section 39C, subsection (3) of which states:

    “No statement of policy shall be published without the approval of the Secretary of State.”

No such provision is included in clause 30. Some forthcoming amendments concern the perhaps unfettered nature of the OFT’s powers. Can the Minister explain why that thought process is adopted elsewhere in Bill, but not in clause 30?

Mr. Sutcliffe: We had an excellent discussion about the amendment that my right hon. Friend the Member for Leeds, West tabled, but it would be useful to set out the basis of the clause. Clause 29 introduces the broader fitness test, which the OFT uses to decide whether someone is fit to hold a consumer credit licence. Clause 29 requires the OFT to prepare and publish guidance on how fitness will be determined. The OFT will be required to consult on fitness guidance before the new fitness test comes into effect. If the OFT revises its fitness guidance, it must publish and have regard to the most recent version. Hon. Members will see the draft guidance in the information packs which will be subject to consultation after Royal Assent. The basis of that is to explain that the policy decision that comes later is clear and precise about what we are trying to achieve.

The only part of the legislation that requires the OFT to obtain ministerial clearance concerns a statement of policy in relation to civil penalties. That is a special case, which allows the OFT to impose fines for breaches under the licensing regime, which goes beyond its normal role as a market regulator. The Secretary of State’s approval is required in relation to civil penalties. That is the difference. I hope that that helps the hon. Gentleman.

James Brokenshire: I wonder if I could press the Minister. I suppose that in some respects I am looking for consistency. There is a clear inconsistency. I hear what the Minister says about the distinction between a regulatory and a quasi-judicial approach. However, I
 
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think that I am right in saying that three other clauses contain similar provisions. The next one that we shall come to is clause 42, which would insert a new clause 33A into the 1974 Act, in relation to which I shall in all likelihood raise the same issue, as the same point about consistency applies.

That is particularly so as, in clause 30, proposed new section 25A(3) of the 1974 Act says:

    “The guidance shall be published in such manner as the OFT thinks fit”

and proposed new subsection (4) says:

    “In preparing or revising the guidance the OFT shall consult such persons as it thinks fit.”

That is the concept that I am trying to get hold of. The OFT’s powers are quite wide and the idea of the Secretary of State having a role, which is accepted in subsequent clauses, could be helpfully applied in clause 30 and the other example to which I have referred. I ask the Minister to consider trying to rein in the OFT’s powers and to maintain checks and balances.

Mr. Sutcliffe: We will return to the issue in further discussions on the OFT’s powers. If the hon. Gentleman has time, it might help to look at the issues arising from the Enterprise Act 2002; the differences between responsibilities and the reasons the Government tried to prevent Ministers from interfering in pure competition issues. That is where the different roles come from. In the context of the Bill, ministerial involvement relates to civil penalties and similar matters that a regulator should not be able to impose unilaterally. It should come back to the Government for guidance.

11.30 am

The OFT is not unfettered. As I said to the hon. Member for Wealden, it is responsible in terms of the concordat on how it should operate. There is the annual report and the OFT can be challenged. It has regular meetings with the Secretary of State and other Ministers and there is an opportunity to question what it does. It must act reasonably and proportionately.

The difficulty with the clause is that there is clearly a fundamental difference between us, as was proved by the fact that the amendment was pushed to a vote. Whatever I say about this clause will not convince Opposition Members. I hope that I have explained to the hon. Member for Hornchurch why the differences exist and how the issues relating to the Enterprise Act 2002 might be helpful.

James Brokenshire: I thank the Minister for his comments and I will probably take his advice on the 2002 Act. I am grateful for his guidance and assistance, but I reserve my position on the consistency argument. It is a matter of when something strays between a regulatory function and a penalty-type function. In some ways, that may relate to the second example in terms of requirements, which we will debate later.

Question put and agreed to.

Clause 30 ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.


 
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Clause 32

Winding-up of standard licensee’s business

Amendment made: No. 26, in clause 32, page 26, line 17, at end insert—

    ‘(   )   Without prejudice to the generality of paragraph (c) of subsection (3), a requirement specified under that paragraph may have the effect of—

      (a)   preventing a named person from being an employee of a person carrying on activities under the authorisation, or restricting the activities he may engage in as an employee of such a person; or

      (b)   preventing a named person from doing something, or restricting his doing something, in connection with activities being carried on by a person under the authorisation;

      (c)   securing that access to premises is given to officers of the OFT for the purpose of enabling them to inspect documents or to observe the carrying on of activities.’. —[Mr. Sutcliffe.]

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

Charles Hendry: I would be grateful to the Minister for a small clarification. Would access to premises be gained directly by officers of the OFT or by the local trading standards services acting on behalf of the OFT? If it is the trading standards department, that will impose an additional burden on its work load, which brings us back to who pays for that and whether the trading standards department will be reimbursed for such activities, or will it have to make the money up by cutting back in other areas.

Mr. Sutcliffe: As I understand it, officers acting on behalf of the OFT could be trading standards officers, but the cost would not be transferred to the local authority. It would be borne by the OFT.

Question put and agreed to.

Clause 32, as amended, ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

Clause 34

Definite and indefinite licences

Mr. Sutcliffe: I beg to move amendment No. 20, in clause 34, page 28, line 40, after ‘fit’, insert (subject to subsection (1E))’.

The Chairman: With this it will be convenient to discuss Government amendments Nos. 21 and 22.

Mr. Sutcliffe: These are technical amendments and I hope that the Committee understands their consequential nature in the light of what was agreed previously.

Amendment agreed to.

Amendments made: No. 21, in clause 34, page 29, line 4, at end insert—


 
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    ‘(1E)   Where a licence which has effect indefinitely is to be varied under section 30 or 31 for the purpose of limiting the licence’s duration, the variation shall provide for the licence to expire—

      (a)   in the case of a variation under section 30, at the end of such period from the time of the variation as is set out in the application for the variation; or

      (b)   in the case of a variation under section 31, at the end of such period from the time of the variation as the OFT thinks fit;

    but a period mentioned in paragraph (a) or (b) shall not exceed the prescribed period.’.

No. 22, in clause 34, page 29, line 13, leave out ‘(1D)’ and insert ‘(1E)’.—[Mr. Sutcliffe.]

Clause 34, as amended, ordered to stand part of the Bill.

Clause 35

Charges for indefinite licences

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

Charles Hendry: Can the Minister give us some additional guidance on the level of charges that he thinks likely for indefinite licences? Also, is there a right of appeal against termination? The explanatory notes state on page 19:

    “Failure to pay a periodic charge in respect of a standard licence during the payment period (or extended payment period) results in the licence being terminated and details of licences terminated for this reason must be kept on OFT’s public register.”

Is there a right of appeal against that? Otherwise it would seem that the OFT has a complete decision-making authority for something on which people would have a natural right to challenge it.

Mr. Sutcliffe: To help the Committee I shall set out what clause 35 does. Licence applicants and licence holders will be required to pay a charge towards the cost of the functions of the OFT. The clause requires licensees to pay a periodic charge, probably every five years. The periodic charge is necessary, given the move to indefinite standard licences as the norm. The periodic charge will keep the licence current. The OFT will issue a general notice setting a level of periodic charges—that is, the notice to which I referred earlier, which hon. Members have had. It is possible that the licence charge will increase from its current level, but the approval of the Secretary of State and Her Majesty’s Treasury will be required before changes are set.

To reflect the cost of monitoring, the OFT may set licence charges according to the category or sub-category of activity that is entered into. As we said, very narrow licences may attract a reduced charge and licensing very high-risk sectors may attract a higher charge. Sometimes a licensee may not have to pay an application or maintenance charge. Licensees will be required to pay the periodic charge offsetting the OFT’s general notice before the end of their payment period. The charge level will be set out by the OFT in the general notice. That notice will be issued a specified number of days before the end of a licensee’s payment period.


 
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The provision ensures that licensees will get sufficient notice of the level of the charge needed to maintain their licence. I said that a doubling would mean a fee in the region of £550. The payment period must apply and the specified number of days will be set by regulation. The charge, as has been said, will cover more effective monitoring of licensees, to ensure that they remain fit to hold the licence. That will include visits to business premises, where appropriate, and the OFT will be able to use additional powers that the Bill provides to investigate applicants and licensees.

There will be an appeal mechanism, through the appeal tribunal. That is why the guidance sets out clearly the steps to be taken and the time scale for notifications. That will ensure that legitimate businesses know what is expected of them in the relevant period.

Question put and agreed to.

Clause 35 ordered to stand part of the Bill.

Clauses 36 and 37 ordered to stand part of the Bill.

Clause 38

Power of OFT to impose requirements on licensees

Charles Hendry: I beg to move amendment No. 16, in clause 38, page 31, line 32, leave out subsection (1) and insert—

    ‘(1)   This section applies where the OFT has reasonable grounds for believing that a licensee or an associate or a former associate of a licensee—

      (a)   has engaged in conduct which breaches any provision of or under the 1974 Act;

      (b)   is engaging in such conduct; or

      (c)   is likely to engage in such conduct.’.

Improving regulation is, of course, a central aim of the Bill. Indeed, improved regulation is essential if we are to eliminate rogue lenders and unfair lending practices, which are the cause of financial difficulties for too many people. We need to recognise that the overwhelming majority of companies act responsibly and with consumers’ interests in mind. However, a minority do not, and those are the ones that we want to get rid of.

Expanding the powers of the OFT to deal with licensees is a major element of the way in which the Bill is intended to improve regulation. As I said on Second Reading, many hon. Members on both sides of the House have reservations about how much those increased powers will achieve the intended aim. Clause 38 is central to our concern.

The clause sets out the powers of the OFT to impose requirements on licensees where it is dissatisfied—the key word—with any conduct of business that is being carried out, or which it is proposed should be carried out, by

    “a licensee, or associate or former associate of the licensee”.

It allows the OFT, by notice, to impose special conditions on licensees to deal with such unfit conduct. Those special conditions, such as training, will be specific to a particular licence holder to ensure that the business is meeting its fitness requirements. The breach
 
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of a condition could lead to the OFT imposing a financial penalty on a licence holder or, ultimately, revoking, suspending or varying his licence.

In the right circumstances, the powers will be necessary and effective, but as with earlier problems, the clause is vague as drafted. The only guiding principle against which the OFT must consider imposing requirements is whether it is “dissatisfied” with a business or its conduct. That extremely vague description could cover absolutely anything. Indeed, there is no concept of objective justification whatever.

Dissatisfaction is not a term found elsewhere in law. By definition, anything less than full satisfaction involves some element of dissatisfaction. Dissatisfaction is certainly not the same as finding something unsatisfactory, but that is much closer to what we are considering and concerned about. It is not a term that distinguishes adequately between major and minor infringements, but surely it is essential that these actions are to be pursued properly and effectively.

Without greater objectivity, the clause could be dangerous and it leaves us open to the risk of excessive and unnecessary regulation, which will stifle the development of the credit industry and what it can offer the consumer. Indeed, the provisions give rise to serious concerns about their compatibility with human rights legislation. When considering identical provisions before the election, the Joint Committee on Human Rights wrote in its 15th report that it was concerned at the

    “entirely unfettered scope of this power”

and believed that the provision gave rise to

    “a significant risk of incompatibility”.

Amendment No. 16 is designed to remedy that situation. It introduces the element of objective justification that is so necessary by introducing a test of “reasonable grounds for believing” that something has been done wrongly, and by linking matters that may give rise to the OFT exercising its powers to licensing issues, such as a breach of the 1974 Act, as amended by the Bill.

By increasing objectivity, we will have a better chance of achieving our aim of improving regulation and thus of achieving better protection for the consumer.

Mr. Sutcliffe: I always endeavour to satisfy the hon. Gentleman, but clearly I am not going to on this occasion. I should add that I am not a lawyer, but I know that I am in the company of many distinguished lawyers on both sides of the Committee, and I hope that we do not get dragged too far into a debate about definition, although I understand the weight that the hon. Gentleman gives to the issue.

The Government believe that the amendment would severely limit the effectiveness and flexibility of the OFT’s power to impose requirements on licensees by limiting the circumstances in which it could impose those requirements. That would reduce consumer protection, as the OFT’s ability to improve the conduct of licensed businesses would be curtailed.


 
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We believe that the provisions are compatible with the European convention on human rights, and we have said so. Sufficient safeguards are already built into the Bill to stop the OFT abusing the powers in the clause. The OFT will publish guidance on how it will use these powers and, as I said, Committee members have notes on that guidance.

The OFT will have to let licensees know that it is minded to impose requirements, to explain why, and to give them the opportunity to make representations on the proposal. Appeals relating to other requirements can be made to the appeals tribunal, which provides a safeguard against the OFT exercising these powers unreasonably.

Given those guarantees, I hope that the hon. Gentleman will not seek to weaken the excellent consumer protection afforded by the Bill, and that he will withdraw the amendment.

Charles Hendry: As predicted, the Minister’s answer has not satisfied me, but we prefer to return to the matter on Report rather than pressing the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Mr. Sutcliffe: Clause 38 refers to the powers of the OFT to impose requirements on licensees. It enables the OFT to impose intermediate sanctions on licensees. Those sanctions are called requirements. Requirements are an important tool for the OFT to use to ensure an effective targeted licensing regime. The OFT’s powers are currently limited to refusing an application or granting a licence on different terms. It can also vary, revoke or suspend an existing licence.

The effect of those sanctions can be severe. They can, for example, prevent people from trading. The OFT adheres to the Cabinet Office enforcement concordat, and any regulatory action that it takes must be proportionate to the detriment caused. Therefore, it is able to act only in the most serious cases in which a person is simply not fit to hold a licence. In many cases, the OFT is powerless to address consumer detriment without withdrawing a licence, which would be a disproportionate response. For example, if there were problems within one branch of a national company, it would not be justifiable to revoke the whole of the company’s licence. A similar situation would occur if one employee were to intimidate customers when collecting debts. Such cases are not serious enough to call into question the fitness of a person to hold a licence, but the OFT should be able to protect consumers. That is why we have proposed this power to impose a requirement on licensees.

11.45 am

The clause requires the OFT to impose requirements on licensees if it is dissatisfied with a matter relating to the business. The requirement takes the form of a
 
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notice requiring the licensee to do, not to do or to cease doing something. It must relate to the licensable business, it must address the matter about which the OFT is dissatisfied and it must ensure that the problem or a similar one does not arise again.

The OFT can use the power to address a wide range of problems. If the problem is with certain employees explaining credit agreements to customers, training for employees might be imposed. It might provide that sales representatives in a named branch be trained to inform consumers how they can cancel their agreements. If a debt collector’s employees are unfairly pressurising consumers by calling very late at night, the requirement could stipulate that they call only between 8 am and 8 pm. The requirement may also refer to a person other than the licensee. However, it will be addressed to and binding on the licensee. It can require a particular person to undertake a specific activity such as not collecting debts in person.

I should like to explain a few details to the Committee. The first is why subsection (1) refers to associates and former associates of a licensee as well as to licensees. That is because a person who is an associate of an unfit person might apply for a licence. For example, a second-hand car dealer might have been refused a licence. If his son then applied for a licence, the OFT might wish to impose a requirement restricting the father’s involvement in the provision of credit.

The second point is that the OFT may take steps to impose a requirement alongside the application process. That would allow a requirement to bite as soon as a licence was issued. It also explains why the clause refers to proposals to carry on a business as well as businesses already in existence. Requirements are a vital new tool for the OFT to ensure a targeted and proportionate licensing regime. I hope that, with that explanation, hon. Members will be able to support the clause.

Charles Hendry: I am grateful to the Minister for that detailed explanation. Earlier in our discussion, when we spoke about the Criminal Records Bureau, he said that he would return to the issue when we were talking about the powers of the OFT. I wonder whether this would be a suitable moment to do that. It seems to me that there is an issue in relation to who would need to be checked by the CRB. We are talking about people who will be dealing with vulnerable people. Therefore it would be appropriate at this stage to have a greater understanding of what the Minister has in mind.

Mr. Sutcliffe: For the reasons that the hon. Gentleman has mentioned, discussions need to involve all the relevant authorities. The OFT is currently in discussion with all relevant authorities about the issues—whether police checks or other associated matters.

Question put and agreed to.

Clause 38 ordered to stand part of the Bill.


 
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Clause 39

Power of OFT to impose requirements on supervisory bodies

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

Mr. Sutcliffe: Because this is a matter of concern to the Committee, I shall explain what the clause does. It concerns the power of the OFT to impose requirements on supervisory bodies, and it enables the OFT to impose intermediate sanctions on group licence holders. Such sanctions are known as requirements. The OFT issues group licences to a particular group of persons involved in a consumer credit-related activity when it is in the public interest to do that rather than issuing many standard licences. The public interest test is usually met when those covered by the group licence undertake licensable business peripherally to their main business. For example, solicitors are covered by the Law Society group licence, and voluntary organisations by the licence of the National Association of Citizens Advice Bureaux.

In such cases, the group licence holder has a supervisory role. In effect, the OFT delegates its responsibility for checking that those covered by the group licences comply with the Act. The OFT’s role is to check that the supervisory bodies do so properly. The Bill contains a power under clause 38 for the OFT to impose requirements on licensees, as we have discussed. This power gives the OFT tools to respond proportionately to problems with a licensable business. It can impose a requirement on the licensee to do, or not to do, something if it is dissatisfied. We are trying to be consistent to ensure that the group licences are covered by this clause.

Question put and agreed to.

Clause 39 ordered to stand part of the Bill.

Clause 40

Supplementary provision relating to requirements

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

Mr. Sutcliffe: To assist the Committee, the clause sets out details relating to the OFT’s power to impose requirements on licensees, and supervisory bodies which hold a group licence. It provides that a notice imposing a requirement can specify when that requirement should be complied with. This may be a deadline, or a period during which it is in force. A requirement no longer applies when the licence it is related to expires.

Subsection (3) states that no compensation, or other redress, will be required. That is not the function of requirements, which are to ensure that a licence holder’s conduct is satisfactory to the OFT. Compensation, or making amends to individuals, should be pursued through the courts or the alternative dispute resolution mechanism.


 
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Subsections (4) to (7) relate to powers to vary or revoke requirements. The OFT may vary or revoke a requirement on its own motion. Affected persons are also able to apply to the OFT to vary or revoke a requirement. These affected persons are the licensee, or any person who is referred to by name in the requirement. The clause ensures that the power for OFT to impose requirements is an effective tool.

 
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