Clause
88
Payment
by instalments: making and enforcing charging
orders
Mr.
Bellingham:
I beg to move amendment No. 136, in
clause 88, page 57, line 5, at
end insert—
‘(9) Where the
judgment that is the subject of a charging order application relates to
an agreement regulated by the Consumer Credit Act 1974, the court shall
not make a charging order if an order under sections 129 to 135 of that
Act is
appropriate.’.
The
Chairman:
With this it will be convenient to discuss
amendment No. 137, in clause 88, page 57, line 32, at end
insert—
‘(4F) Where the
judgment relates to an agreement regulated by the Consumer Credit Act
1974, the court shall not enforce the charge by an order for
sale.’.
Mr.
Bellingham:
I will not detain the Committeevery
long on the amendments. The clause deals with charging orders. I have a
specific concern about the
Consumer Credit Act 1974 and various issues relating to agreements under
that Act. The amendments are designed to resolve a possible conflict
between the Bill and the 1974 Act. As it stands, the Bill might permit
an unsecured creditor to obtain additional security for the
debt.
When an
unsecured creditor lends money or provides goods they incorporate in
the price of the overall arrangement the concept that the debt is
unsecured. That is inherent in the contract and the deal that is being
done. If a secured debt were created, no doubt the cost of it to the
debtor would be cheaper. The Bill gives an unsecured creditor the value
of security. Generally speaking, for people who are not very well off,
it means a charging order on their home. The clause introduces changes
to the Charging Orders Act 1979, which provide creditors with a way of
enforcing a court judgment by placing a charge on the debtor’s
property.
A creditor
who uses that procedure can secure a previously unsecured debt. A
creditor who obtains a charging order can obtain a court order to sell
off assets, subject to the charge, although obviously such sale orders
are pretty rare. The Bill proposes that, even though there is an
agreement between the creditor and the debtor for the repayment of the
debt by agreed instalments and the debtor is keeping up those
instalments, the creditor can obtain a charging order and ultimately
bear down against the debtor’s home and arrange to have it sold
off.
That concern has
been put to me and my hon. Friends by Citizens Advice and other
organisations. It relates to the interface between the Bill as it
stands and agreements made under the Consumer Credit
Act 1974. If we are looking at a package involving a debt agreement,
different guidelines and ground rules will obviously apply to that debt
if it is unsecured. The creditor should not be able, however, to gain
extra security through the backdoor.
These are probing amendments. I
should be grateful if the Minister put my mind at rest about whether
there is a conflict between existing legislation and the Bill as it
stands. What we do not want is to give additional, unforeseen,
unintended rights to creditors that could well apply at the expense of
debtors.
10.15
am
Simon
Hughes:
I, too, shall be brief. My hon. Friend the Member
for Cardiff, Central mischievously saidto me that I should
thank the hon. Member for North-West Norfolk for so effectively
deploying, sentence by sentence and word for word, the arguments put by
our noble Friend Lord Thomas of Gresford in the other place. I will
tell our noble Friend that the hon. Gentleman put the case
well.
There was an
interesting little debate in the other place on this issue on 14
December, but at the end of it no one, including those who
participated, were entirely clear about the outcome. I have read it
twice, and I think we are all trying to get a third stab at
it.
I stand to be
corrected, but as I understand it, if somebody is paying off by
instalments an unsecured loan on a car, for example, the issue is
whether it should be possible for the creditor to come back and say,
“You have kept up your instalments and paid the money, but
I want more now. I want to secure the loan and have a charging order,
and I will put a charge over your garden shed, garage or house.”
Should it be possible for someone who has honoured their obligations
and paid up—there is no question of their having
defaulted—to be the subject of a stronger remedy? The Consumers Association was
concerned that that would tip the balance wrongly on the side of the
creditor and against the debtor. We would argue that a good, paying
debtor should not be subject to further impositions on their property
if they have kept to the agreement that they entered
into.
Vera
Baird:
I heard the hon. Member for North-West Norfolk
compliment the hon. Member for North Southwark and Bermondsey on the
way he put his argument, but as the former was reading from the speech
made in the Lords by the latter’s party colleague, I have some
doubts about what was said. I shall put my argument first and then
consider the detail of what has been raised, and I shall be happy to
give way if I do not get to the points the hon. Gentlemen are concerned
about, although I think I have grasped
them.
First, we are
concerned that amendments Nos. 136 and 137 could be seen to interfere
unduly with judicial impartiality and discretion when considering
whether to grant an application for a charging order or
anorder for sale—they are, of course, quite separate
applications and procedures—in the case of debts that are
regulated under the Consumer Credit Act 1974. Clearly, judges will
consider applications for the granting of those orders in a proper way,
but to require them to favour the debtor is dangerously close to
leaving them open to a charge of
bias.
The issue has
been raised several times before, when the judicial viewpoint was that
judges did not wish to have the responsibility to take the risk of
looking as if their impartiality might be compromised. Their stance has
not changed; in fact, Baroness Butler-Sloss, speaking in the Grand
Committee in the other place on 14 December, reinforced the need for
any decision about the granting of a charging order to be a judicial
one subject to discretion and not in any way
trammelled.
When
judges consider whether to grant a charging order or, indeed, take the
later step by granting an order for sale, they are looking at a
judgment debt. The originating source of the debt is by and large
immaterial, and it would be inappropriate to place a restriction only
on debts regulated by the Consumer Credit Act 1974. The creditor, who
has legitimately obtained the judgment, has the right to seek
enforcement by the most appropriate means available, including by way
of a charging order or an order for sale. Equally, the judge has the
right to decide whether he or she shall have one or not.
Broadly, two concerns have been
aired. The first is obtaining priority by being able to secure a debt
that would otherwise not have priority. In fact, the terminology in the
statute is such that the debt does not become a secured debt by the
charging order process. It is the judgment that is secured on the
property, so there is not an inappropriate impact on priority. I hope
that that covers one issue.
The other issue is whether a
charging order should be available to somebody when, as the hon. Member
for North Southwark and Bermondsey put it, the judgment debtor is
complying with their obligations to pay. Let me make it clear that we
are not talking about an order for sale on the property; we are talking
only about charging the debt on the property. That is intended to avoid
the mischief of a person agreeing to pay £4 a week off a
£10,000 debt when they have a property somewhere that was
perhaps not known about when the original agreement was made. They will
now be totally free to simply sell the property off, bring into their
own resources an amount of money—for example
£100,000—and carry on paying the debt off at a low level.
It is far better for the creditor to have what would in every other
circumstance lie as a dormant order over the property unless and until
there is a need to apply for a sale. Such security should be left in
place so that if an occurrence such as the one I have described takes
place, people have the security and can get the money back
appropriately rather than waiting for the instalments to tick over for
years and years. However, I emphasise that there is a big difference
between a charging order that simply sits on a property and an order
for sale. There is a completely separate, additional procedure for the
order for
sale.
Mr.
Brooks Newmark (Braintree) (Con): I hope that the Minister
will indulge me in this question. Is she saying that somehow the person
who owes the money has deceived by not listing their assets? Usually,
when someone has an obligation they must list all their assets and if
they do not, they have broken the law in some way. Alternatively, is
the Minister saying that if somebody suddenly wins the lottery or
inherits a new house, there is a new asset to which a creditor can have
an attachment? It would be helpful if that could be
clarified.
Vera
Baird:
It could probably be either. Yes, of course, if
somebody did not disclose their assets when required to by the court,
they would have broken the
law. We are talking about the need for a quick remedy to deal with that
problem. Such a remedy is available by charging any property that comes
to the creditor’s notice through the court process in the way
that Ihave described. On the other situation, if somebody
inherited something or, as the hon. Gentleman says, won the lottery and
bought something that could be charged, it is realistic that, the
circumstances of the debtor having changed, there is an ability to make
use of that change.
Mr.
Newmark:
I understand the first point that the Minister
has made. However, on the second point, let us say that,
hypothetically, I have a debt to which my assets are attached. Let us
say that I then clear my debt obligations in the instalments that were,
for example, laid out by the hon. Member for North Southwark and
Bermondsey, pay off what I have agreed that I owe and suddenly five
years later, I inherit a house or receive another asset. Is the
Minister saying that the court has the ability to grandfather a
decision that was made earlier and attach the asset so that the full
amount that was owed rather than the part that was paid off would have
to be paid off five or 10 years
later?
Vera
Baird:
The first requirement is the debt, so if a debt has
all been paid off, the ability to charge any property does not exist
because there is no debt. Thatis condition number one. If the
hon. Gentleman is talking about some form of compromise between parties
and unpicking that compromise by means of
this—
Mr.
Newmark:
If I am not explaining myself,I
apologise. I am saying that usually in a debt negotiation, I cannot say
that—
It being twenty-five minutes
past Ten o’clock,
The Chairman
adjourned the
Committee without Question put,
pursuant to the Standing
Order.
Adjourned
till this day at One
o’clock.
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