Consumer Credit Bill

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Mr. Sutcliffe: Schedule 2 will be inserted into schedule 17 of the Financial Services and Markets Act 2000. It sets out more detail about the operation of
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the consumer credit jurisdiction introduced by clause 59.

The schedule will require the FOS to make procedural rules for the operation of the consumer credit jurisdiction. The rules must set down a time limit within which complaints can be referred to ADR, which can be extended only by an ombudsman. The FOS can also require all holders of standard licences to establish and maintain internal complaints handling procedures, and it can make rules to say that a complaint will not be dealt with until the consumer has exhausted those procedures.

Within the rules, the FOS will set out the process to be followed for the reference of complaints, their investigation, their consideration and their determination by an ombudsman. The FOS will be able to dismiss frivolous or vexatious complaints and provide that, in the early stages, the complaint can be handled by a member of FOS staff other than the ombudsman.

The schedule enables the FOS to make rules specifying the fees that licensees must pay for the ADR scheme and provides that the payment of any compensation awarded by the ombudsman may be enforced through a court. It also sets out the procedure that the FOS must follow when making, amending or revoking any rules. The FOS is required to hold a public consultation before making any rules. Before the rules can be made final, they must be approved by the Financial Services Authority. The FOS must also take steps to make the approved rules available to the public. Finally, new paragraph 16F sets out the steps the FOS must take to verify the rules.

The schedule is necessary to ensure that the FOS rules and procedures are clear and comprehensive. It allows the FOS to make the rules it needs to ensure the ADR scheme is as effective and transparent as possible for both consumers and business.

Charles Hendry: I would be grateful for a couple of points of clarification.

First, the fee section in new paragraph 16C states:

    ''Consumer credit rules may require a respondent to pay to the scheme operator such fees as may be specified in the rules.''

Can the Minister make it more clear what those fees will be for? Will they be penalties or fines? What will they be for and why will people be paying those fees to the scheme operator?

Secondly, the paragraph on procedure for consumer credit rules, new paragraph 16E, reads:

    ''If the scheme operator makes any consumer credit rules, it must give a copy of the them to the Authority without delay.''

What does the Minister mean by the reference to making consumer credit rules? There has been a lot of debate and discussion as the Bill has gone through Committee, and that may be the clarification that we have all sought. Is there the scope to avoid issues going to court, for example, by having rules and guidelines clarified and set down so that both lenders and borrowers have a clearer understanding of what is permissible under the legislation? If that is the case, that would be very welcome.
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Mr. Sutcliffe: The fees for the ADR will make it work and will cover the costs of the scheme. It will be possible, I think, for the first two cases to be free for businesses, but the fees relate to the cost of the overall scheme.

The overlap with the courts can arise in two ways. First, the consumer might want to make a complaint to the FOS, but the firm might start court proceedings. Where the court considers it appropriate, it can stay those proceedings while the consumer makes the complaint to the FOS. Secondly, the complaint might be taken straight to the FOS, but the ombudsman might consider that the courts would be better suited to deal with it. However, the FOS can informally discuss things and try to reach an informal arrangement. It can also decline to deal with a case if it involves a third party over which it has no jurisdiction or if the complaint appears to be solely about the legitimate exercise of a firm's commercial judgment in setting an interest rate and it would be more appropriate for the court to consider the rate-setting on the basis of expert evidence.

In general, there is no prescribed mechanism for how the FOS and the courts will work together in practice, but we anticipate that they will co-operate and complement each other. The idea is to have an informal set of circumstances before the case proceeds to the formal FOS decision. If the FOS cannot deal with the case, it can go to the court. Equally, the court can refer an issue to the FOS.

That is a good way of dealing with these difficult situations. The process will not be off-putting for consumers, because most things will be in writing, and their representatives can be involved. That is a good way of trying to resolve difficulties within the context of the Bill's overall aim of achieving greater transparency, with pressure on lenders to lend responsibly and on people fully to understand their rights.

Charles Hendry: I am genuinely grateful to the Minister for that clarification. To use his own words, it was good, but not excellent. I would be grateful, however, if he could go into a bit more detail about the fees. Is he saying that people might be charged for using the financial ombudsman service? When we refer constituents to the local government ombudsman or the parliamentary ombudsman, there is no charge for using them. I am not clear whether the fees that we are talking about are for people who make an application to the ombudsman to have their case reviewed or whether they are for something entirely different. Are other ombudsmen able to charge fees in the same way?

Mr. Sutcliffe: Again, I am grateful to the hon. Gentleman, and I apologise to the Committee for not explaining the point clearly. The fees are a levy on business. The business world will have to pay a levy towards the cost of the ADR scheme, but there will be no cost to the individual who makes a complaint to the FOS. As I said, the levy will sometimes mean that the first two cases are free for business and will not attract a charge, although subsequent cases will. I make it clear, however, that the service is free to consumers. I hope that that clarifies the point.
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Question put and agreed to.

Schedule 2, as amended, agreed to.

Clause 60

Funding of ombudsman scheme

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

Mr. Sutcliffe: I hope that my remarks on clause 60 will further clarify the funding of the ombudsman's scheme for the Committee. The clause sets out the arrangements for the funding of the compulsory ADR. In line with the best practice principles underpinning the funding of the ADR scheme, it should be self-funding and free to the consumer. As the clause states, all standard licence holders not already covered by the compulsory jurisdiction will pay to cover the costs of the FOS in setting up and running the consumer credit ADR.

Those costs will be met in two ways. First, businesses under the jurisdiction of the FOS will be charged a small levy, which will be set by the FOS with the approval of the Financial Services Authority. The levy is likely to be between £10 and £20 per year.

Secondly, a case fee will be payable by those businesses whose complainants are considered under the ADR scheme. The fee will also be set by the FOS with the approval of the FSA and is likely to be about £360 per case. The majority of firms will never pay the case fee. It is unlikely that all complaints will require ADR, and those firms that now come before the FOS get the first two cases a year free. The ADR levy will be collected by the OFT with the licence fees, and the money will be passed on to the FOS. The OFT is best placed to collect the money, as it already has details of the all Consumer Credit Act licences. The OFT can charge extra for costs incurred in collecting the levy, and the FOS will periodically reimburse the OFT. The clause is necessary to provide funding for the ADR scheme. I hope that I have made it clear to the Committee what we seek to achieve.

Charles Hendry: I am grateful to the Minister for that explanation. I draw his attention to proposed new section 234A(9), which states:

    ''As soon as practicable after the end of—

    (a) each financial year of the scheme operator, or

    (b) if the OFT and the scheme operator agree that this paragraph is to apply instead of paragraph (a) for the time being, each period agreed by them, the scheme operator must pay to the OFT an amount representing the extent to which collection costs are covered in accordance with subsection (2) by the total amount of the contributions paid by the OFT to it during the year or (as the case may be) the agreed period.''

I take it that that means that the OFT should be reimbursed by the ombudsman for its costs. What happens with trading standards departments? As we heard earlier, they will be carrying out some of that work on behalf of the OFT. Will they be eligible to have their costs covered for work that they have done for the OFT? In that regard, subsection (10) of the proposed new section would appear to be a difficulty, because it states:

    ''Amounts received by the OFT from the scheme operator are to be retained by it for the purpose of meeting its costs.''

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That suggests that the OFT would not be able to pass on funds to trading standards departments. Will they be covered for the costs that they incur? Will subsection (10) allow money passed to the OFT to be passed on to trading standards departments to reflect the work that they have done?

Mr. Sutcliffe: I can understand where the hon. Gentleman is coming from, but we are talking about the working of the ADR scheme, and it is not envisaged that trading standards departments will be involved in the collection process. The OFT will do that, so there will be no need for the OFT to reimburse trading standards departments.

Question put and agreed to.

Clause 60 ordered to stand part of the Bill.

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