The
Committee consisted of the following
Members:
Chairman:
Mr.
Martyn
Jones
†
Benyon,
Mr. Richard
(Newbury)
(Con)
†
Burgon,
Colin
(Elmet)
(Lab)
†
Burrowes,
Mr. David
(Enfield, Southgate)
(Con)
†
Chapman,
Ben
(Wirral, South)
(Lab)
†
Cunningham,
Tony
(Workington)
(Lab)
†
Ellwood,
Mr. Tobias
(Bournemouth, East)
(Con)
Howarth,
David
(Cambridge)
(LD)
†
Kramer,
Susan
(Richmond Park)
(LD)
†
McCartney,
Mr. Ian
(Minister for
Trade)
†
Mackinlay,
Andrew
(Thurrock)
(Lab)
†
Prisk,
Mr. Mark
(Hertford and Stortford)
(Con)
Stringer,
Graham
(Manchester, Blackley)
(Lab)
†
Turner,
Mr. Neil
(Wigan)
(Lab)
James
Davies, Glenn McKee, Committee
Clerks
†
attended the Committee
European
Standing
Committee
Tuesday 23
January
2007
[Mr.
Martyn Jones
in the
Chair]
Consumer Credit
4.30
pm
The
Minister for Trade (Mr. Ian McCartney):
My
portfolio has so far today meant speeches or briefings on the seal
trade, city strategy, carbon emissions trading, northern Uganda and the
great lakes and the cat and dog fur trade, and I now welcome a debate
on the European draft directive on consumer credit. The subject is
technical but, as hon. Members know, I tend to approach such Committees
in a non-partisan way and try to engage and involve people who have an
interest in the subject and accommodate the worries of those who oppose
the motion, clarify matters for them or even suggest negotiating
strategies. That works well because of our colleagues in the European
Parliament with whom we work closely on a bipartisan-British basis on
issues, particularly when we have reached a common agreement on the
approach to be taken to the negotiations that must take
place.
It will help
the Committee if I describe the main objectives of the
Commission’s proposal for a new consumer credit directive. They
are to establish the conditions for a genuine internal market and to
ensure a high level of consumer protection. The Government share those
objectives, but our attitude to the proposal must depend on the extent
to which we think that it will meet
them.
As
for whether the current proposal could establish the conditions for a
genuine internal market in consumer credit, I must say that we have
some doubts about the fundamental approach taken to overcoming barriers
to trade. The differences between national consumer protection regimes
are not necessarily the key barrier to cross-border trade. There are
other barriers, including language, cultural differences, consumer
preferences, local knowledge, and administrative and legal
practice.
To establish
the barriers to a single market, several key questions need to be
answered and taken into account in discussions with the Parliament, the
Commission and those who negotiate on behalf of countries. Are credit
providers willing to lend cross-border? Are consumers willing to borrow
cross-border? What types of credit are offered or used cross-border and
which are of a domestic nature? What conditions are needed to encourage
lenders to set up operations in other member
states?
It
is doubtful that lenders would be willing to run the risk of lending to
consumers in other member states across borders. The industry itself,
the British Banking Association, has said in consultations that a
better approach might be to focus on how to encourage scale entry
because, as I have already set out, it makes little difference to the
consumer whether lenders supply their product credit cross-border or
from within the state itself. Therefore, the lenders’ ability to
establish themselves
in different member states is also a key factor in opening up the market
to greater competition and the directive should take account of
that.
Although
some harmonisation of consumer protection legislation might be helpful
in a single market, that would not in itself create a single market by
encouraging lenders to lend across borders. That is because a range of
factors other than differences in consumer protection levels are far
more significant in determining whether a lender enters another market.
For example, the extent to which the lender could access relevant
credit data about consumers that would enable him or her to take
risk-based decisions is an issue that is not solved by the proposed
directive. A better approach might therefore be to look at what the
barriers to lenders establishing themselves in the member states really
are.
The second
objective of the proposed directive is to ensure a high level of
consumer protection. Like most member states, we already have a high
level of consumer protection and we do not believe that the directive
would add significantly to it. For the United Kingdom, as for a number
of other member states, the matter is more about ensuring that existing
levels of protection are not reduced as a result of harmonisation
rather than about improving the level of protection in the United
Kingdom. In some respects, we are worried that the proposal might
actually lower standards unless we can secure necessary
improvements.
For
example, we are still particularly worried about the provisions on
advertising. We would no longer be able to require a typical APR for
credit adverts making implied claims such as cheap loans available,
without triggering the full information requirements under the
directive that we believe could be disproportionate. The provisions on
pre-contractual and contractual information would prevent the United
Kingdom from maintaining certain existing consumer protection
requirements while, at the same time, requiring additional information
that would not be beneficial to consumers and might even lead to
information overload, thus obscuring key facts, and could impose a
disproportionate burden on
lenders.
The
requirement that tables setting out how the capital borrowed reduces
during the life of a loan should be included for some agreements is
excessive, as there is evidence that consumers do not find such tables
particularly helpful. However, there is a doubt about the ability to
require lenders to include wealth warnings as part of the information
provided with a credit agreement. We believe that that is a useful
consumer protection provision as it encourages consumers to think
carefully before taking out credit. We in Britain are at the leading
edge on wealth warnings and on the potential for increasing that type
of
information.
The
provisions on early repayment would also cause difficulties because the
current text would lead to a disproportionate charge for early
repayment which would be unfair to consumers and beat the objective of
seeking early repayment. However, it is important to look at the
progress that we have made to date, which showsthe benefits to
UK consumers of engaging in this issue. The current proposals are an
improvement on the previous 2004 version because they would have a less
disruptive effect on our domestic regime and would leave us more
freedom to introduce or maintain provisions concerning those credit
agreements that fall outside the directive's scope.
We achieved significant
improvements to the text during negotiations conducted under the
Finnish presidency, although I stress that the negotiations are not
complete, and those changes have not yet been formally endorsed by the
Council or the European Parliament, so colleagues’ comments on
the matter are
important.
A
number of the improvements that we have provisionally secured are
UK-specific, for example those on credit unions, Islamic home-purchase
plans, overdrafts, the ordering and form of key consumer information,
the right of withdrawal, and the definition of credit intermediaries.
In the final event, the Finnish presidency did not seek political
agreement at the December Competitiveness Council but the proposal is
still very much alive and negotiations will continue under the German
presidency.
Looking
to the future, the role of the European Parliament will be very
important. The Internal Market and Consumer Protection Committee of the
European Parliament recently made it clear that it was not happy with
the state of the proposal and the fact that it has not been subject to
proper impact assessment, a point that the UK made a number of times
during the discussion.
The
Parliament has therefore commissioned its own study of the impact of
the draft directive due in April 2007. I will inform Conservative and
Liberal Democrat Front-Bench spokespersons and other interested
colleagues about the outcome of that study. Nevertheless, at this stage
there is a strong possibility that the proposal will be put for
political agreement at the Council scheduled for 21 to 22 May. Should
that be the case, we may find ourselves facing the same decision as the
one that we faced recently in respect of our position on the
proposal.
I said in
my letter of 21 November to the Chairman of the European Scrutiny
Committee, my hon. Friend the Member for Linlithgow and East Falkirk
(Michael Connarty), that despite our concerns about the value of the
directive, the proposal had improved and was moving in the right
direction. I sought the Committee's agreement that the United Kingdom
should be free to support the proposal at the Competitiveness Council
if it took into account our key concerns. The Committee suggested that
we come back to debate the issue, which we are doing
today.
Of course, if
and when the proposal is put for political agreement we would need to
consider whether the final package was in our interests, but as we have
made significant headway I remain of the view that we need to be
prepared to agree to the final text as long as it takes into account
our key concerns.
In
the meantime, we are actively engaging with the presidency as the
negotiations proceed in order to build on our success in improving the
proposal to meet the needs of UK consumers and lenders, and I hope that
today’s debate will inform that process.
If there are any technical
questions that I cannot answer I will write to hon. Members and place a
copy of the correspondence in the Library. In any event, I will write
to hon. Members who take an interest in this matter to keep them
abreast of events and discussions as I did in respect of other
directives.
I
gave a commitment to Members of the European Parliament who represent
the political parties in the Room that I will also keep them abreast of
the discussions and negotiations so that they can take account of the
UK interest when the matter comes before the European
Parliament.
The
Chairman:
We now have until half-past 5 for questions to
the Minister. I ask hon. Members to be brief, and to ask one question
at a time. I am sure that there will be plenty of time for all hon.
Members who want to ask questions to do
so.
Mr.
Mark Prisk (Hertford and Stortford) (Con): Does the
Minister believe that as they stand the Commission’s proposals
for maximum harmonisation are
achievable?
Mr.
McCartney:
As I said, with a caveat, other member states
have the same concerns as we have. In view of the assessment being made
by the European Parliament, some hard negotiations and discussions will
take place in the next few days and weeks. One thing is certain: we
will be doing a great deal to ensure that there are amendments to take
account of our concerns.
I have already set out the
difficult areas in which we have already made progress and I hope that
we can make progress in other areas, but if that is not feasible we
will of course transmit it to the elected Members of the European
Parliament and to hon. Members of this House. I am happy to keep the
hon. Gentleman informed about those
discussions.
Colin
Burgon (Elmet) (Lab): Obviously, my right hon. Friend the
Minister is aware of the tremendous interest in and anguish over the
Farepak issue. Will he expand on the Commission’s proposals? In
what way would they or could they have affected the plight of those
people who experienced that—how shall we say?—horrendous
treatment at the hands of the naked forces of
capitalism?
Mr.
McCartney:
Well, I do not know about
naked.
Mr.
McCartney:
Pin-striped, maybe.
[Laughter.] I can
never lose it, can I?
As I have said on numerous
occasions, I have kept the House and, personally, Opposition
spokespeople abreast of events. We had a significant administrative
statement from the creditors on Friday, which I placed in the Library
with an accompanying short statement. The administrators in their
interim statement say:
“Farepak
did not adequately protect money from customers ... At the date of
the administrators appointment, intercompany debtors totalled
£37.05
million”.
They then set
out who those debtors are.
The
administrators also explain our work with them through the Farepak
response fund, and that they themselves have spent £100,000
helping us set up and administer the fund. I welcome that. It was a
tremendous gesture from the administrators, and they have written the
money off.
The administrators set out our
proposal for liquidator
powers:
“A
liquidator has wider powers of investigation than an administrator. In
addition, a liquidator has wider powers than an administrator to take
legal action against third parties where appropriate. Such legal action
could lead to fuller funds being realised for the benefit of the
creditors.
A
liquidator can also investigate when Farepak should have ceased trading
and take legal action for wrongful trading against any third party or
individual where
appropriate.
These are
some of the reasons why the joint administrators would recommend that
Farepak be placed in liquidation.”
I assume that the administrators will
soon take the legal steps to make that happen. A creditors committee
will also be set up, comprising customers, employees, trade suppliers
and HM Revenue and Customs. The committee will advise on future
action.
The
engagement of those who have suffered most from the situation is a
beguiling proposal. I cannot comment on anything other than that which
is in the public domain, because we await the administrators’
report to the Department of Trade and Industry. In addition, we are
putting alongside the administrator our investigations branch, which
normally does not enter a situation until the administrators have
reported.
We have
just received a scoping paper from the regulators for our
consideration, and when I have had further discussions, I shall make
available as much information as possible to the Front-Bench spokesmen
concerned and to the House. I hope that that helps my hon.
Friend.
Mr.
David Burrowes (Enfield, Southgate) (Con): Does the
Minister share the Financial Services Consumer Panel’s view that
exemptions in the directive for loans under €300 are
unacceptable, particularly given their attraction to many of the most
vulnerable people who seek to obtain such loans? Will he renegotiate
that part of the directive and continue to call for a lower threshold
in the interests of the most vulnerable?
Mr.
McCartney:
The hon. Gentleman makes a valid point. More
than that, however, we must ensure that the proposal and the directive
assess the vulnerable. That must fit in neatly with other proposals
about advice services and assistance to vulnerable consumers. The hon.
Gentleman’s point was well made, and it will form part of our
discussions to try to improve the
directive.
Susan
Kramer (Richmond Park) (LD): May I pick up on a previous
question? Which of the directive’s measures that dilute existing
UK consumer protection would the Minister be prepared to accept? In
that light, would the directive have had any impact one way or the
other on the Farepak issue?
Mr.
McCartney:
I do not believe that the directive would have
had any impact one way or the other. That is why I have asked the
regulators to provide us with a scoping report, and why we must take
into account the administrators’ eventual proposals and any
proposals from the investigation by the investigations
branch.
We also have the Pomeroy inquiry
from the Treasury, which is to report before the Budget on financial
exclusion and related matters. I suggest to the hon. Lady that Brian
Pomeroy would welcome any contributions, suggestions and ideas to a
bipartisan inquiry. At some point, the Government will have to come to
the House with proposals. Both what is left of that particular aspect
of the retail industry and the banks are very much interested in coming
forward with workable proposals that protect both the legitimate rights
of consumers and the legitimate companies that continue to operate in
that
marketplace.
Mr.
Prisk:
On that note, in the Minister’s opinion,
what are the implications of the current text concerning credit unions?
He has spoken about those particular organisations with good passion,
which we very much support. What are the
implications?
Mr.
McCartney:
We have seen improvements in this area of the
text, which was terrifically important. There is now a common approach
across the House that credit unions are an effective base for securing
both savings and potentially low charges for people seeking loans. We
have a multi-million pound development plan now operating for the
extension of credit unions. I am hoping that in the development of
social inclusion policy the interrelationship between credit unions and
the wider banking system can be improved. Indeed, I had such
discussions recently with the deputy chair of Barclays bank, because
Barclays is one of those investing in the development of credit
unions.
I went to see
the then Commissioner about the original proposal—recently the
Commissioner changed and I have not yet met the new one. I stressed
improvements for credit unions, which we have agreed to do. I will
write to my hon. Friend—if I can call him that—both about
the proposal as it stands and, if helpful, about the relationship
between that and general policies for promoting credit
unions.
Mr.
Burrowes:
Given that the UK personal debt is escalating
and exceeds £1.25 trillion, has the Minister had any discussions
with his European counterparts about preventing lenders increasing
overdraft and credit facilities without borrowers’ requests,
which again affects the most
vulnerable?
Mr.
McCartney:
Again, I have not personally
been part of the negotiations, which have taken place at official
level. When negotiations go to the Competitiveness Council, either the
Secretary of State for Trade and Industry, my right hon. Friend the
Member for Edinburgh, South-West (Mr. Darling), or I will
participate. Rest assured, the general thrust of the hon.
Gentleman’s question will be part of our
discussions.
What
is critically important is that, first, any proposal in the directive
protects the vulnerable consumer. Secondly, in opening up the
marketplace we must recognise that there are vulnerable consumers not
only in the UK but across the market. Many of the nations that have
come into the Community recently have potentially significant
vulnerable consumers. We are not just negotiating on UK interests and
vulnerable consumers. We must ensure that the directive can, on the one
hand, give the capacity
to extend the ability for appropriate credit across the Union in certain
circumstances. However, at the same time, we must ensure that, first,
there is no diminution of the current legislation—as I set out
in my opening statement and which is critically important—and,
secondly, alongside that, there are practical measures in each country
to ensure that vulnerable consumers are not put at a
disadvantage.
Mr.
Richard Benyon (Newbury) (Con): I see that the directive
includes an exemption for pawnbroking. Can the Minister explain the
reason? Does he believe that we need EU-wide consumer protection in
this area as
well?
Mr.
McCartney:
I will write to the hon. Gentleman—I am
not up on the issue of pawnbroking. I think that the last time I
visited a pawnbroker’s was during the miners’ strike in
1972. In general terms, the directive attempts to ensure that wherever
credit is made available there should be protection for those who seek
it and legal certainty about the credit arrangement. Whether
organisations are based in France or the UK, or whether they are
cross-border organisations, the rules that regulate them should be
broadly similar.
On
promoting different forms of relationships, one of the reasons for
doubts among the banking organisations is that they do not believe that
the current proposals meet the needs of consumers in cross-border
activity. That is another issue that we will discuss in trying to
improve the proposal. However, I apologise to the hon. Gentleman, but I
will have to write to him about his general
point.
Mr.
Prisk:
Alongside pawnbroking, hire purchase has been
excluded. Given that that is an important financial product and service
in the UK—more so perhaps than in any other market—does
the Minister recognise the imbalance that the exclusion would cause,
and will he therefore negotiate against it?
Mr.
McCartney:
I must add one point to what I said to the hon.
Member for Newbury. Whatever happens in pawnbroking, it will still be
covered by the Consumer Credit Act 2006—so if he has something
to flog, he will be
okay.
Leaving
aside our concern about whether the proposal will achieve what it sets
out to achieve, the general view is that mainstream credit products
should be covered. The uneven scope of the application of the directive
is something that the industry has pointed to a number of
times—I am assuming, given the question, that the industry has
rightly briefed the hon. Member for Hertford and Stortford, in the same
way that it has expressed its concerns to us. It is therefore important
that credit products can compete on a non-discriminatory basis, in
order to prevent the market from becoming distorted. An exemption from
the directive’s requirements could include a degree of unfair
discrimination.
Exemptions
and special treatments can be justified in two sets of circumstances.
The first is where the product is not subject to competition in the
usual sense, such as with credit unions and student loans, because it
is a niche product and serves a specialised segment of domestic
consumers, in support of public policy objectives. The
second is where the nature of the product is such that different rules
are needed, as with overdrafts. We believe that the current text of the
proposal excludes hire purchase-type agreements. Logically, that might
be wrong, as they are legitimate products in the wider marketplace. The
issue is therefore one of the areas in which discussions will continue.
Again, I will keep the hon. Gentleman informed of progress on
that.
Susan
Kramer:
The Minister has explained to us clearly that the
directive is a consumer credit directive, but what consultation with
consumers is he aware of in Europe? We have a sense that consumers have
not been broadly asked about the issues, which has added to the
difficulties in coming to a final
conclusion.
Mr.
McCartney:
From our perspective, it is important that
consumer organisations are engaged in consultation. Indeed, things
sometimes go wider than that in the Department of Trade and Industry.
We put in place proposals such that those groups can influence the
outcome of any proposal, because they are the experts at the coal-face,
as it were. There are European-based consumer organisations that have
relationships with the European Commission, although I cannot comment
on whether they have, appropriately or otherwise, been consulted. I
would hope that they have been, because they should be. From our
perspective, not only are we relaxed but, more than that, we are
positive towards that.
With any
changes that take place or any eventual agreement that is reached, it
is also important that consumer bodies and elected Members are widely
consulted about how any proposal is implemented. As important as any
negotiation about a directive being agreed is the implementation
strategy. Without a proper strategy, involving the industry and
consumer groups, a good idea can go wrong in its implementation. I give
the hon. Lady that
assurance.
As for what
has happened in Europe so far, if the hon. Lady is asking about the
general nature of the directive, because that has been put to her by
consumer bodies, I will check with the Commission exactly what we have
been doing with regard to consultation and let her
know.
Mr.
Burrowes:
Article 8 does not mention data sharing between
organisations in member states. An important issue for UK consumer
credit protection is allowing lenders access to student loan data. Do
the Minister and the Government have plans to protect people from
spiralling levels of debt and to allow UK lenders access to student
loan databases?
Mr.
McCartney:
That question has been raised outside the
context of the directive, although it is a reasonable question to
ask.
Appropriate
levels of data sharing was one of the issues raised in the discussions
and consultations over the directive, and rightly so. It is critically
important that someone based in the UK who wants to offer their
services in another part of the European Union is able to make and
appropriately utilise a risk assessment, as I said earlier. The hon.
Gentleman’s question goes further than the directive, to an area
of general public
policy. There has been a significant debate with banking and other
lending institutions about working with the Government to ensure better
data sharing as a way of protecting not only the lender, but those who
are getting into debt and are being offered easy lending proposals. If
appropriate information was available, some of those arrangements would
not be offered, given the subsequent problems that they cause. The
issue is important in general, as well as specifically to the
Committee. It is a subject that the BBA and others have flagged
up.
On
the data sharing consultation on student loans, the Department for
Education and Skills is looking at the issue and hon. Members from
across the House have raised it. In DTI questions or perhaps an
Adjournment debate, I gave a commitment that we would move to try to
ensure that the thrust of what the hon. Member for Enfield, Southgate
said would become policy. I apologise if that is not the case. I do not
wish to mislead people, but I believe that I gave a commitment on the
issue in the House and my Department is consulting on making good on
that commitment.
Mr.
Prisk:
The Minister rightly referred to the barriers to
cross-border credit provisions. Of particular concern to the industry
is the fact that many of the proposals being offered by the Commission
are not practical. The industry view is that scale entry offers a
useful alternative. What is the Minister’s
opinion?
Mr.
McCartney:
I am a little worried about being so much in
agreement with the hon. Gentleman. He is absolutely right and in my
opening statement, I put great emphasis on the issue. Not only are the
industry’s proposals legitimate, but they may well be the way to
proceed to ensure that any directive that is approved is effective in
opening the single market in the sector.
Susan
Kramer:
On a minor matter of clarification, is it fair to
say that the present draft directive does not fully recognise the
relative merits or otherwise of an effective APR measure? For example,
applying an APR to an overdraft would give an extremely misleading
indication of the cost and interest rates involved. Does the directive
handle such a case at present?
Mr.
McCartney:
Again, that is a fair and legitimate point, and
goes to the major issue of wealth warnings on APRs. The Competition
Commission requires a specific warning for store cards with an APR of
more than 25 per cent. The warning
states:
“The
rate of interest charged on your account may be higher than on other
sources of credit available to you. It may be costly for you to leave
balances owing on your account after the interest free
period.”
We are expecting
to put into force a new wealth warning through the Consumer Act 2006.
It will
state:
“If you
make only a minimum payment each month, it will take you longer and
cost you more to clear your
balance”,
and will also
warn of the dangers of missed payments.
We are concerned that
the directive does not generally reach that threshold. It is one of
those areas of consumer protection where we would like to expand the
health warnings, not reduce them.
Mr.
Prisk:
The Minister referred in his opening remarks to the
absence of a Commission-sponsored impact assessment. Given the
importance of the industry in the United Kingdom, have the Government
commissioned their own study of the impact in the UK? This is a
significant part of UK industry and I would assume that the Government
would not proceed with negotiations without firm evidence on which to
base them.
Mr.
McCartney:
My understanding is that prior to my coming to
this post there was a consultation, and I will ensure that the hon.
Gentleman receives a copy of that. We will work closely with regard to
the European Parliament’s proposal because, as I said in my
opening statement, we agree entirely with what the European Parliament
has said on the matter. We will work closely within that and will
ensure that the UK interests and those who promote those interests can
have an input into the assessment.
Susan
Kramer:
Again on a point of clarification, the directive
has clearly changed significantly from the original draft and the
Minister expects to see yet further changes before it is fit for
signing. I am somewhat confused about the timing of the planned impact
assessment or cost-benefit analysis that is to be carried out by the
Commission and whether it will be widely available for people to see
before the final decision has to be made or whether it will come
afterwards as a sort of post-event
analysis.
Mr.
McCartney:
Again, that is a fair point. Let us understand
that there has been no formal European Union assessment, and that that
has been a bone of contention between us and the European Commission,
as it has been for a number of other organisations. Of course, as I
said earlier, the European Parliament has not taken that into its own
hands but has agreed to do an assessment.
On the subject of that impact
assessment, a consultant has been appointed to carry the task forward
and they are looking to have that assessment due in April 2007. We are
working with UK stakeholders to engage with the consultant to help to
ensure that the right conclusions are reached. We are working and
ensuring that resources are available to ensure that we can influence
that.
It is a pity
that the European Commission has not carried out the assessment itself,
although as I understand it when the original proposal was submitted to
the Council in 2002 there was no requirement to carry out a technical
assessment. The Commission has stuck rigidly by the decision since
2002, despite the changing nature of the proposals. I give an absolute
assurance that the impact assessments that are now being carried out
will go alongside the consultation that we carried out before I came to
this post. Resources will be put in to try to influence the outcome of
the assessment by the European Parliament.
Mr.
Prisk:
May I clarify the question? Although it is the
primary responsibility of the Commission, the Council of Ministers has
also had many opportunities under various presidencies to commission an
impact assessment. Why, in the Minister’s opinion, have the
presidencies of the Council of Ministers not done
so?
Mr.
McCartney:
I have not a clue, to be honest. I was not
around at the time. I am not opting out, but the truth is that whatever
discussions took place the Commission was given carte blanche in 2002
and that did not include a requirement to conduct an assessment. Ever
since then, as I have made clear, we have been attempting to get them
to do an assessment. Now the other institution, the Parliament, has the
capacity to do that and it will do that. It is engaged in that and we
are using our resources to influence the outcome. I am sorry, but that
is not a cop-out; it is a truthful statement. As to why it did not
happen at various Council meetings, I do not have a clue. It has gone
on since 2002, but now that we have the process of an assessment, we
should use it to its fullest extent to influence the outcome of the
review.
Mr.
Prisk:
I think that on 17 January the German presidency
held the latest Council working group. Can the Minister tell the
Committee what the outcome was of that meeting and what papers can we
see that would enable us to debate the
matter?
Mr.
McCartney:
I apologise, but I did not catch the question.
Would the hon. Gentleman repeat it?
Mr.
Prisk:
On 17 January, the German presidency held what I
understand was the latest Council working group. What was the outcome
of that meeting, and what papers can we
see?
Mr.
McCartney:
I have been told from the gods that there are
no papers available, but in the interests of transparency I will get a
note on what the discussions were. I am making a general assumption
here and if I am wrong, I apologise in advance: the new presidency is
having a range of those working meetings, and they are about all of the
ongoing work from previous presidencies. They would be about working
out the current position of negotiations with each country, the
likelihood of agreement, what work needs to take place, what issues
remain outstanding for each of the countries concerned and whether
those are absolute red lines or are negotiable—are there any
show-stoppers?
Out of that,
I assume that the presidency will consider what it is going to do with
the European Commission in relation to the impact assessment being
carried out by the Parliament. I assume that discussions will take
place in those areas and, as always, at an official level. There will
be a series of meetings of that type across the new presidency, in
which it takes the opportunity to become fully aware of how the ground
lies in issues that might have to be resolved during the presidency.
However, as I say, rather than just giving a guesstimate, I will give
both the hon. Member for Richmond Park and the hon. Gentleman a note on
that.
Mr.
Prisk:
Further to that, the question of added value is
critical here. I understand that the German presidency has invited the
Government to consider what added value could be achieved. That is
about the potential for a radical reshaping. In the absence of papers
from the meeting last week, is the Minister able to tell us his view on
where the added value could be radically changed in order to deal with
many of the issues raised earlier today?
Mr.
McCartney:
The areas of added value in my
statement—which included credit unions and credit Islamic
finance among other areas—were those thatwe consider
incredibly important. Why? They are important because we have
sophisticated consumer credit protection legislation and whatever
happens in terms of a broad-based directive, it should not impinge on
the standards of that legislation.
What are the barriers,
perceived or otherwise, to getting a single market? Does the directive
tackle those barriers sufficiently well? My answer to that was no and
my statement set out reasons why—technical reasons that we need
to work on. Even if we do work on those, get improvements in some of
the areas that I referred to and ensure that there is no diminution of
our capacity to operate effectively in our own marketplace in terms of
consumer protection, at some point a proposal will be put to the
Competitiveness Council which will hopefully be acceptable to
us.
In terms of
the industry itself, as I said in my opening statement to the British
bankers—and I was asked a second question by the hon.
Gentleman’s colleague and I confirm for him—these are
areas in which there is a common interest and approach and we will try
to implement them. However, let us remember that in doing that we will
have to take a number of countries with us. Not all countries are on
board for all the things that we want to do. For example, Islamic
finance and mortgages is not an issue in all countries—it is for
many of them, but not for all. Not all of them have the same issues
around credit unions or consumer protection because they operate in
different ways.
Therefore it is important that
while negotiations are taking place, we maximise overall benefit for
the UK and then make an assessment. That is why the discussions are to
take place; and as I said to the hon. Gentleman and repeat now, I will
relate any change in circumstances not only to hon. Members but to our
European Members of Parliament on an all-party basis.
The discussions will need to
proceed in the ways that I have set out and then hopefully we will get
fuller amendments made. We need to be prepared for the matter to go to
Council, but it may not because, for example, the impact assessment may
be done by the European Parliament in a way that is helpful; or it may
well be that further extended discussions need to take place. I cannot
pre-judge that. All I can say to the hon. Gentleman is that I welcome
the fact that the European Parliament has agreed to do this work. I had
hoped that the Commission would do it; it has not. But that may affect
whether it goes to the Council. I do not want to second-guess that and
give the hon. Gentleman a clever-dick answer. I will come back to the
hon. Member for Richmond Park and the hon. Gentleman with a report on
the point reached in
discussions.
Mr.
Prisk:
I understand what the Minister is
saying.
Mr.
McCartney:
I am glad that you do.
[Interruption.]
Mr.
Prisk:
I am trying to be
generous—wearing a pin-striped suit as I am. I should like to
know from the Minister, what does he regard as unacceptable in terms
of a diminution of consumer protection? I understand that he has to
bring other nations with him in any negotiations, but I am keen to know
what he—a doughty champion, if I may describe him as such,
protecting vulnerable consumers—regards as unacceptable in that
diminution. That important line runs to the heart of the
Bill.
Mr.
McCartney:
As a health warning strategy, it is very
important. All the protections that we put into the Consumer Credit Act
2006, to refurbish the previous Act, were inserted in general terms
with all-party support, which is critical. We have done a lot of work
to get the high-quality protections that we have in the general
framework, and the intention in harmonising the proposals should be not
to undermine any aspects of that. So it is critical that in our
discussions we ensure that that does not happen. I set out our areas of
concern in my opening statement. Hon. Members should rest assured that
in our discussions and in the direction that we have taken so far, we
have been successful in ensuring that the harmonisation proposal will
not undermine our work, which would not be
acceptable.
We are not
isolated. Many of our colleagues in member states with a threshold of
consumer protection that is just as high as ours are also concerned to
ensure that that remains the case. We are not in the wilderness or
shouting in the dark hoping that something will happen. We want to
maintain the current level of protection, not to undermine existing or
refurbished legislation or legislation that we have still to enact by
regulation, which will increase, not reduce, health
warnings.
The
Chairman:
It seems that no more hon. Members want to ask
questions, so we move to the subject of the
debate.
Motion
made, and Question
proposed,
That
the Committee takes note of European Union Document No. 13193/05,
modified draft Directive on credit agreements for consumers amending
Council Directive 93/13/EC; further notes the Government’s
current negotiating line; and supports the Government’s actions
in this area.—[Mr.
McCartney.]
5.12
pm
Mr.
Prisk:
The Conservatives welcome the opportunity to
discuss the vital issue of consumer credit and, obviously, the proposed
directive. In doing so, it is important to remember that the UK
consumer credit market is by far the largest single national market
within the European Union, equating to 30 per cent. of the entire
market. Any regulatory changes will not only be of concern to
consumers, but matter to a significant number of financial and retail
businesses that are important employers.
The
directive, which dates back to 1987, deliberately tried to set out
minimum standards for consumer protection. It also helped various
Governments of both political persuasions to make changes and
improvements to consumer law in subsequent years. It is fair to say,
however, that the market has changed considerably in the interim. After
consultations in June 2001, the
Commission set out several key aims, of which the Minister mentioned
two. Perhaps I should set out what I understand the three aims to be.
The first is, as he said, to create a genuine internal market. The
second is to ensure a high level of consumer protection across that
market. The last is to clarify EU-wide legislation on consumer
credit.
At the heart
of the Commission’s approach is the concept of maximum
harmonisation, in sharp contrast to the current law, but that concept
is undesirable in principle and, I suspect, completely infeasible. It
will damage the diverse and fast-changing consumer credit markets,
because it will not allow them to change and adapt to different
circumstances. A one-size-fits-all approach will reduce the
industry’s ability to respond and will not reflect the sharply
different national market conditions, so maximising harmonisation will
be bad for the consumer.
Ironically, the idea of
maximising harmonisation contradicts the EU’s principles of
subsidiarity. In being unduly bureaucratic, it will also run counter to
the Commission’s agenda of better regulation. On a practical
note, the Commission’s approach to maximising harmonisation
fails to realise that cross-border lending will not proceed unless
lenders can assess the risks on the borrower and be sure that they can
collect the debt. The latter problem is particularly complex. How do
court recoveries work in different countries? What do they cost, how do
they operate and how are they
enforced?
On all those
issues the directive is silent. In the absence of proposals to tackle
different debt collection rules and practices, cross-border lending
will therefore not increase. Having listened to the industry’s
view, it is clear to me that the majority view among those active in
the marketplace is that the directive as it stands will lead to lower
credit volumes, not higher, less cross-border credit and weaker
consumer protection, particularly in countries such as the UK, where we
already have a reasonably sophisticated and developed set of credit
regulations.
Consumer
protection is of special importance. The Consumer Credit Act 2006, the
most recent such Act, was considered on a cross-party basis; as the
Minister knows well, I am keen to see us work together to encourage the
best standards in the industry. The danger is, however, that in that
quest for the same rules across the European Union, the Commission
will—I am using the Government’s own
words—“significantly dilute” consumer protection.
That cannot be in anyone’s interests. When the Minister replies
to the debate, perhaps he will tell us how he intends to keep our
standards and what reassurances can he give, beyond those that he gave
us in respect of earlier questions, about the position of the UK in
future negotiations? In short, will he guarantee to us that any
agreement reached in May will not substantially reduce the protection
of British
consumers?
As
to the legislative process, the Council of Ministers must share with
the Commission the fact that it has not taken any action, as we have
heard in the question session, in preparing a proper impact assessment.
In other words, it promoted a measure without having any verifiable
evidence on which to do so. The process has gone forward without that
evidence over several years and many presidencies of the Council. I
suspect that
many of our constituents would find it extraordinary that a measure of
such significance could be discussed, deliberated, adjusted and
proceeded with, without being based on any verifiable and independent
information.
Given
the potential impact on businesses and consumers, that is a matter of
the gravest concern. My Conservative colleagues in the European
Parliament have consistently led the way in calling for an assessment.
They have rightly asserted that under the inter-institutional agreement
on better lawmaking,the council has a legal obligation.
However, neither the Commission nor the Council have responded. As we
heard in the question session, the Parliament itself commissioned a
German firm to undertake the study. Parliamentarians in Europe were
right to challenge the Commission, and even though it is fair to say
that, as I understood from the Minister’s remarks, the text may
have changed since the study was commissioned, I would still commend
the work not only of my own colleagues, but of other Members of the
European Parliament, to insist that such a study be
undertaken.
It would
be unfair to suggest that no useful progress had been made. The removal
of mortgages, surety and guarantor agreements from the scope of the
directive is welcome. I know from talking to people involved in the
industry that the British Bankers Association, the Finance and Leasing
Association and other industry leaders have all worked hard to secure
that. However, as the House of Lords recently heard in evidence, there
remain unclear legal definitions and needless demands for information
that could prove damaging to many of the UK leaders in the
sector.
I am
therefore still concerned about the current Government’s stance.
When first consulting on the directives, the Department of Trade and
Industry referred to the proposals, stating that
they
“place unnecessary
burdens on business, reduce consumer protection and do little to create
a competitive single market in consumer
credit”.
From the
Minister’s responses, it would seem that that may still be the
Government’s view on the substance of the text before us today,
but his message on the tactics, especially as set out in his letter of
9 January, seems mixed. On the one hand we are told that it is implied
that the German presidency wants to progress matters, but not
necessarily to reach a conclusion. On the other hand, we are told that
there is a strong likelihood—the Minister said a strong
possibility—that an agreement will be sought in May and that we
therefore need to press on.
Will the Minister explain the
basis for the expectation that such an agreement will be made in May?
Most importantly, does he agree that the discussions should now focus
on the added value of the directive, discussed a moment ago, rather
than trying to tinker with the existing
text?
There is much to
be concerned about in the proposals; maximum harmonisation is
undesirable in principle and will almost certainly prove unworkable in
practice. The dismal failure of the Commission and the Council of
Ministers to conduct a full impact assessment has left the proposals
without any base of evidence. It seems increasingly likely not only
that the directive will fail to fulfil the Commission’s original
aims, but more importantly, that consumers here in the UK could lose
out as a result of the proposals.
The
preparatory papers for the Committee make it clear that one of the
ongoing concerns has been the lack of up-to-date and accurate
information for us to consider. For example, how do we really know that
the text before us will be the same as the one that will emerge in
March? In the absence of the impact assessment, due only in April, how
can we ensure that the Government will not find themselves undermining
British businesses, given that they do not know the outcome of the
assessment now? Without clear commitments from the Minister about what
he is not prepared to negotiate away, how can we approve the
Government’s
actions?
I
shall set out our view. If the Government intend to accept maximum
harmonisation, needless and damaging red tape or a significant
reduction in consumer protection, we cannot and would not wish to
approve that. However, if the Government intend to press vigorously for
minimum harmonisation, the Minister tells us that he intends to demand
a full impact assessment on the new text and the Government’s
clear intention is not to commit us in the House to legislate without a
full further debate, we can approve of the Government’s
proceeding. I shall listen carefully to the Minister. I hope and trust
that he will respond positively to our
concerns.
5.27
pm
Susan
Kramer:
I appreciate the spirit in which
the Minister has come to the debate. He has spoken in a bipartisan way
and reinforced the sense of co-operation between Members of the
European Parliament across the parties in coping with, responding to
and improving this draft directive. I hope that this will be the final
draft.
My party very
much supports the single market of the European Union, which has been
good for consumers and business. However, we have been wary of the
directive from the beginning. We support the idea that credit should be
simplified for consumers across the European Union, that competition
should be stimulated, that the price of credit be reduced and that
wider choices should be on offer—all the goals inherent in the
notion of a single market. However, we see the removal of barriers to
mergers and acquisitions as the most important instrument of achieving
that in the consumer credit arena, so that banks and insurance
companies are genuinely able to buy each other across boundaries and
expand their businesses through such mechanisms. Barriers to the entry
of the various different national banks, insurance companies and
financial services institutions should be eliminated. We see that as
the best way to ensure that the widest opportunities are available in
the consumer credit
industry.
As
others have said—I shall not repeat this at length—the
consumer credit market is dictated by custom and local law. There are
issues of debt collection. To us it appears that subsidiarity should
tend to reign, rather than a universal approach. Like our colleagues in
the European Parliament, we supported the minimum harmonisation
approach; we are wary of the approach of maximum harmonisation.
However, in this text, the Government have achieved significant
improvements; it now looks more like “minimum-plus” than
maximum harmonisation. To the extent that we can manage that plus
number so that it is not to the disadvantage of the British consumer,
we would be supportive of that strategy.
I want to stress the importance
to us of the impact study or cost-benefit analysis, as it might more
usually be called, in understanding the implications of the directive,
particularly since the text has been a moving feast. That constant
change has been good news, because the change has seemed to us to be in
the right direction. We want to see the cost-benefit analysis so that
we can understand the impact both on the consumer and on British
business. I look forward in hope to the Minister’s assurances
that that will be available before the final steps to a decision are
made. We will want to look at that analysis before making any final
commitment.
Given the
reassurances that the Government have given us today, and which I
expect the Minister will repeat, we are supportive of the idea that the
process should be allowed to move forward. Consumer protection remains
of the highest importance, as does new opportunity for our consumers.
We look forward to the Government carrying that mandate forward and
reassuring us that they are doing so in a demonstrable and clear
way.
5.28
pm
Mr.
McCartney:
I thank the hon. Members for Hertford and
Stortford and for Richmond Park for the spirit in which today’s
debate has been conducted. I have made a number of commitments across
the piece on a range of issues, and I am sure that when we consult
Hansard tomorrow, we will see that that has been done in a
comprehensive way. I will send a note to hon. Members and put it in the
Library, so that all the commitments are given in one place, either on
additional information, consultation where appropriate or keeping in
touch with all the stakeholders, including elected Members of the
European Parliament. Hon. Members will be able to go back to their
respective stakeholders and others, and tell them exactly what came out
of the debate and how the Minister is proposing to take matters
forward.
All of us
want to try to ensure that discussion and debate will take place, and
that a conclusion is reached, whether it is at the Council, as
suggested, or later, depending on circumstances, any outcome of the
European Parliament’s discussion and other matters that are
outside of my control. Nevertheless, it is right to indicate to
Committees of the House and to political parties that an agreement
could be reached. People would be extremely uptight—at me in
particular, and quite rightly so, with the hands-on relationship I have
to have with this legislation—if I said, “I did not
really understand; there may well have been a debate and a vote, but I
am sorry, I have had to do what I have had to do.”
I want to try
to maximise the opportunity, even allowing for leftfield proposals and
for other circumstances, to keep abreast of events. We managed to do
that in the service directive. I know that that is more complex and
that there is potentially less agreement, although not among ourselves,
but with some of our European colleagues. I want to reassure hon.
Members that whatever I need to do to ensure that they get maximum
knowledge of what is going on will be done. I do not yet know whether
there will be a final outcome at the Competitiveness
Council, but as soon as I am certain about the processes, I will try to
ensure within that certainty to maximise the opportunities for
Members—including those from Opposition parties—to have
an input in discussions with me.
Mr.
Prisk:
I am grateful to the Minister for those indications
of wanting to ensure that Members across the House can follow the
discussions. May I take it from those remarks that it would be his
preference for the conclusion not to be reached in
May?
Mr.
McCartney:
As someone who has spent his lifetime as a
negotiator in various fields, I know that negotiators always feel that
they want to come to an agreement where there is maximum agreement with
their position. If such agreement is not on the side of the negotiator,
there is a capacity to delay decisions, and they will try to find an
alternative way forward. However, this is an issue on which there is a
qualified majority voting, so such a process may not available to
negotiators, good as they are. Indeed, in these areas we get
negotiators with whom I am glad that I did not have to negotiate in a
previous life. They are very skilled and experienced, so they will
maximise the opportunity to negotiate.
There will come a point where
we will need to have strategies. That is what the hon. Member for
Richmond Park and other hon. Members have mentioned. They are right. As
I said in my opening remarks and in my answers to questions, we are
opposed to the maximum harmonisation and do not regard it as a way
forward to get the benefits of a single market, which is what we want.
In fact, the British Bankers Association and others, and the
Government, are in the same
place.
Part of the
process has been to try to negotiate a position to maximise the
potential of the directive and to be in the place that we want to be
in. All of us involved in this discussion are in the same place. The
issue is whether we can negotiate the maximum potential for that
position. That is what we are trying to do in terms of the basis on
which we have gained
support.
So
far, the negotiating strategy has given us major changes on Islamic
home purchase plans, credit unions, overdrafts, the right of
withdrawal, information requirements and the definition of credit
intermediaries, which is important. It is also important to understand
that, in engaging with this matter actively, we are engaging with our
European colleagues who are of a similar mind to maximise support from
them in respect of the discussions and negotiations that take place. It
is therefore important that, as I said, we ensure that we do not have
harmonisation that undermines all the hard work that has been put in
over a long period to promote and enhance consumer
rights.
We have
already had this discussion and I do not want to repeat it. However,
just to give hon. Members a commitment, that is precisely one of the
areas in which it is critical that we get an outcome—despite the
fact that we are having to deal with qualified majority
voting—that maximises the potential for maintaining our rigorous
approach to this matter. Indeed, I should like to harmonise across
Europe so that people get the same rights that we have, particularly on
the warnings.
We are a leader in this area and it is important that we retain that
lead. I give an assurance to Committee members that I will try my best
to ensure that they feel that they are involved in the
process.
Will
there be added value? I am not convinced that the directive gives us
added value, even if we get further improvements. As I said, the hon.
Member for Hertford and Stortford and his colleagues, the hon. Member
for Richmond Park and myself, in various guises during this debate,
have considered ways of reducing other barriers to improve access to a
single market in this regard. We must continue with that discussion and
debate, not just in relation to the directive, but to ensure that the
stakeholders in the industry in the UK have certainty and feel that we
are on their side in respect of their gaining access to the wider
market. I give the hon. Gentleman that
assurance.
Discussing
the impact assessment is like crying over spilled milk. What happened
from 2002 has gone. What is important now is that we utilise our
resources to try to ensure that the impact assessment carried out by
the European Parliament is an effective tool, and not just in
negotiating. An assessment that is required to ensure that any
directive signed up to in a political council is transparent and should
lead to understanding and a realisation about what the impact will
be—not just for consumers, but in terms of the wider assessment
of what the directive is attempting to do. The impact assessment is
important. I think that I gave a commitment, which I repeat, that I am
happy to share with colleagues the work that we have done on this
matter and the responses that we have received. I hope that, when I
return to the office, I will not get a kick in the shins for making
that offer, because it seems reasonable in the
circumstances.
Finally,
let me deal with the viability of opposing the directive outright. I
think that if that is the position, it
will go down the tubes, as we used to say in negotiations with shop
stewards. Under qualified majority voting we have plan A, which is
working so far, and I have outlined that as succinctly as I can. Plan B
is part of the proposal that, as the hon. Lady said, is trying to
encourage others to maximise the potential to get to where we need to
be. I am optimistic that we can get there. If we are not going to get
there, I am hoping, as I agreed with the hon. Members for Hertford and
Stortford and for Richmond Park, to keep hon. Members in touch with
things so that they do not wake up, read something in the
Financial
Times,
The Guardian or even
The Daily Telegraph and
say, “Oh, the Minister hasn’t told
us.”
I know
that that stops short of an assurance on a debate or discussion, but I
cannot give such an assurance because some of the timetabling, and the
time scale, is outside my control. However, as soon as I have a sense
of what that is I will come back to hon. Members, reassure them and
maximise the time that I can provide for them to have some influence on
the outcome of the
proposals.
I hope that
I have helped Committee members in this rather technical discussion and
debate. I think that I now know more about the subject than when I
started, which, as a negotiator, is quite useful. I thank Committee
members for their
involvement.
Question
put and agreed
to.
Resolved,
That
the Committee takes note of European Union Document No. 13193/05,
modified draft Directive on credit agreements for consumers amending
Council Directive 93/13/EC; further notes the Government’s
current negotiating line; and supports the Government’s actions
in this
area.
Committee
rose at twenty-four minutes to Six
o’clock.
