Banking Bill

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Dr. Pugh: I speak to new clause 16, which stands in my name and that of my hon. Friend the Member for South-East Cornwall, but I shall also say something about new clause 15, which seems to be an attempt to impose sensible regulation on the timing and manner of mortgage repossession where tenants are concerned. It sets out some very legitimate social concerns that should be considered formally by the courts. I have just one concern about such an amendment, although to some extent the hon. Lady has responded to it already. We do not want to create a toolkit for delay, evasion or the perpetuation of unsustainable situations by putting off the inevitable. In such circumstances, a complex series of relationships will have been entered into, and they should not be unpicked precipitously or without care and thought.
To some extent, the same applies to new clause 16. Proposed new section 35B(1) and (8)—in many ways the shortest and most comprehensible subsections of what is quite a long new clause—address the nub of the matter. The new clause has been developed over time. I am not saying that it is business in progress, but obviously it could stand to be revised in the light of any critique from the Minister. However, it addresses an important consideration: we all agree that repossessions by banks—this Bill deals only with repossessions by banks—should take place in a considered way and by application to courts. It is perfectly possible for that not to happen and for the banks simply to foreclose under common law, for people not to know their rights or to be advised on them inadequately, and for there to be no considered and careful court process. That can be unfortunate and lead to a bad outcome, particularly when we remember, or have it brought to our attention, that many mortgage repossessions are prompted by strained personal circumstances, such as divorce. That kind of thing does not happen often. Where such big and traumatic events do occur, when situations were entered into with care and consideration, the exit should equally be marked with care and consideration.
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If there is the option of an exchange of letters and the banks using powers to foreclose on the deal, which is not illegitimate and is allowed at the moment, things may not turn out perfectly or as we would wish, and will not reflect the balance of interests between the parties adequately. I think that the measure has the support of Shelter; I stand to be corrected on that, but I am fairly confident that it does. It closes a loophole in British law, which most of us are not aware of in the first place. It would be better if it was not there.
Mr. Gauke: I am grateful to the hon. Members who proposed the new clauses; they have highlighted an issue of growing concern. We know that the Council of Mortgage Lenders has predicted 45,000 repossessions this year and there are concerns that the number might rise next year. There are worries that the balance between the rights of mortgagees and mortgagors is inappropriate, particularly regarding the important issue of repossessions occurring without a court order, which was raised by the hon. Member for Southport.
No doubt, the Minister will give us his assessment of whether the new clauses would achieve their objectives. Whether the Banking Bill is the appropriate vehicle for addressing these matters is, again, an issue for debate. The issues touched upon by the new clauses are important, and given the state of the economy and the likely level of repossessions over the months ahead, it is right that we have the opportunity to debate these matters at this stage. All serious politicians will give a great deal of thought to them in the months ahead.
Ian Pearson: The Government welcome the opportunity to discuss the important issue of the protection of home owners in arrears and facing repossession proceedings. We have acted on it in a number of areas in recent weeks and months. I stress that we want all borrowers to be treated fairly and, particularly during difficult times, we want to ensure that appropriate actions are taken.
The two new clauses both concern repossession hearings. New clause 15 concerns the treatment of tenants in mortgaged properties subject to repossession. It aims to protect tenants and licensees who do not have a right to remain when a lender takes possession. Those occupiers should be allowed adequate time to make alternative arrangements. The key provision of the new clause is that the court should have discretion to allow the occupier of such a property up to three months in total to make alternative arrangements, before the date set by the court for the possession order to take effect. The provision is supported by others for notices to be served before and during possession proceedings.
I understand that, in practice, the proposal may be little different from the present law, although it could help to clarify it. At present, an occupier should receive at least 14 days’ notice of the possession hearing and may apply to the court to be joined in the possession action. The courts already have the power to allow such occupiers a reasonable amount of time to move out if their circumstances justify it. That is achieved without the additional expense and trouble that would be caused by the proliferation of notices that appear to be suggested in the amendment.
We need to ensure that the interests of ordinary families caught up in other people’s repossessions are properly protected. The Civil Procedure Rule Committee, which is the statutory body responsible for the development of rules of court, will be considering what notice of a mortgagee’s possession proceedings should be given to occupiers. The committee is the appropriate forum in which to decide whether further procedural protections are necessary.
The new clause provides that the occupier can be required to pay the lender for the use of the property during the relevant period. That is only reasonable, and it is broadly similar to the way tenants would be treated under the current law. I recognise that there are issues raised by the new clause tabled by my hon. Friend the Member for Northampton, North and, as I indicated, we are actively considering them.
I turn to new clause 16. As I said at the outset, the Government wish to see all borrowers treated fairly, and a key element is that lenders treat repossession as a last resort. At present, lenders seeking to evict borrowers from residential property will normally go to court to get a possession order. In those cases the court has power to delay or prevent the making or operation of the possession order, where it appears that the borrower can pay off the arrears within a reasonable time, while not falling further behind with future payments. That limitation recognises that a mortgage is a debt and ultimately, if we are to ensure that there are lenders willing to provide funds to home owners and home buyers, the debt has to be repaid.
The new clause would remove the remedy of foreclosure from residential properties. I understand that the remedy is little used but we need to consider properly what the implications of closing it off would be, before deciding that it can be abolished. The new clause would also restrict the ability of lenders to recover the costs of possession proceedings and proceedings to recover money, by making such recovery subject to the precondition of obtaining a court order.
I am sure that we have all received letters from constituents about excessive costs charged by mortgagees and added to the mortgage debt, so I understand the concern driving the new clause. However, if it is the intention that lenders may not recover their costs without a court order, we need to be careful that the provision does not increase those costs by requiring court action in every case. There is a danger of generating unnecessary litigation for the parties and the courts, which could feed through into higher borrowing costs to the detriment of borrowers generally.
We need to look at all the issues together. The new clauses address only the actions of banks, but clearly building societies and other lenders need to be considered. In relation to new clause 16, we also need to consider carefully how any restriction on the power of sale will interact with existing mortgages, where the power of sale forms part of the contractual rights of the lender. The Justice Secretary is actively considering whether further action should be taken in relation to repossession cases. We are committed to working with lenders, regulators and the judiciary to ensure that timely action is taken in response to problems.
The Government have already taken specific action. We have made clear our concern for families in financial difficulty and facing repossession. We are actively working with lenders, regulators and the judiciary to ensure that borrowers are treated fairly. In 2004 the Government extended the scope of Financial Services Authority regulation to cover mortgages. FSA regulation ensures that borrowers are afforded important protections and have appropriate means of redress. On 22 October the Master of the Rolls approved a new protocol for possession proceedings. It is intended to ensure that lenders and borrowers use every effort to ensure that there is a genuine attempt to find other solutions.
The protocol will come into force from tomorrow, and we will continue to provide advice and assistance through the courts and other agencies to individuals with mortgage payment problems. We will consider the policy issues underlying the amendments, and with that assurance I hope that my hon. Friend will withdraw the new clause.
The Chairman: Dr. Pugh, do you want to respond?
Dr. Pugh: I thank the Minister for his thorough and thoughtful response, which recognised the issue and dealt with it, but indicated some of the work that may need to be done in an amendment to address it satisfactorily. I shall read carefully what he said and consider the details, but I shall not press the new clause, which was a probing provision and has done exactly what it should do.
Ms Keeble: I very much welcome the commitment to consider the issues, and the concern about people who face repossession of their homes and tenants who are living in privately rented properties subject to repossession. However, the explanation that has been provided is wide of the reality facing many people. If a social tenant receives notice only 14 days before the hearing that their landlord is being taken to court, and the next step is to be told that the bailiffs are coming round to evict them, it does not give them much opportunity to try to join in the proceedings or to tell the court what is happening. The court making the decision may not have a mechanism for the tenant even to be made aware of what is happening with the eviction, and might unwittingly make a vulnerable large family with a number of children homeless when there is not much other housing around.
I hope that the review will be careful, and that I and others with an interest can have input in some of the discussions so that we can decide what best practice should be. However, I completely recognise that this is probably not the time or place to press the new clause to a vote, so I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.

New Clause 20

Duty of rescued bank to have regard to statements of Government policy
‘(1) This section applies in respect of any bank or other financial institution which is a “rescued bank” within the meaning of subsection (2).
(2) A bank or other financial institution is a rescued bank if—
(a) an order under section 3 (transfer of securities issued by an authorised UK deposit-taker) or section 6 (transfer of property, rights and liabilities of an authorised UK deposit-taker) of the Banking (Special Provisions) Act 2008 has been made in relation to it, or
(b) it has taken part in the bank recapitalisation fund announced by the Chancellor of the Exchequer on 8 October 2008, or
(c) it is subject to any of the stabilisation options provided for in sections 10 to 12 of this Act.
(3) A rescued bank must have regard to any statement of Government policy which may be designated by the Treasury for the purposes of this section.
(4) A statement may be designated for the purposes of this section whether it was made before or after the passing of this Act.’.—[Dr. Pugh.]
Brought up, and read the First time.
Dr. Pugh: I beg to move, that the clause be read a Second time.
In some ways, the new clause goes to the heart of the Bill, which is about remedies for rescuing banks. We all agree that collapsing banks are not a good thing, but it is possible that their collapse may not create a threat to the economy. There must be a reason for interfering in a bank’s misfortunes, and powers are being taken in the Bill to deal with those misfortunes, but for specific purposes.
One purpose might be that the bank is just too large to be allowed to fail, and its destiny may be the main or exclusive reason for worrying about it. More significantly, people talk about the interest not just of the bank, but of the economy beyond the bank and the various clients to whom it lends. Clearly, it is possible that when a bank is rescued it may recapitalise and save itself, and then punish its clients by calling in credit or issuing new loans—the reality is confronting us at the moment. Anecdotal and real evidence suggests that the hardening of the banks’ stance has been simultaneous with the Government’s charity to them. What we do to recapitalise banks may not achieve the objectives that Governments have in mind, and the banks may act contrary to what the Government intend.
One solution employed by the Chancellor is simply to gather bankers together and give them a good telling off. Obviously, that public pillorying will have some effect, but it may not have a radical effect or the strength that people desire. It does not by itself create an obligation. It is simply a telling off.
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New clause 20 would put into the Bill an explanation of what we have in mind when we capitalise a bank, which is that to some extent the recapitalisation process should coincide with wider economic stability. If the banks receive help they must have regard to advice from the Treasury and thus do precisely what they are expected to do and what they are clearly not doing in many circumstances at present.
To give a personal critique of my own amendment, one might question whether it is tough enough because it does not create arrangements to monitor whether banks are doing what the Treasury thinks they should not be doing, nor does it create a series of penal sanctions if they fail to have regard to Treasury advice. When framing the new clause, which is entirely in place within the Bill, we were torn between two alternatives.
First, it is not a good idea for the Treasury to micro-manage the lending policy of all banks. We accept that. The Treasury, qualified though it is, is not party to all the commercial transactions that banks are involved in and ought not itself to run the banks day to day. Equally, there is clear and evident fear that something goes wrong if banks are left to their own devices. There are thus two unacceptable alternatives: micro-managing banks is bad but so is leaving them to their own devices.
The new clause tries to address both concerns as delicately as possible. One could point to the absence of sanctions and simply state in the Bill that banks can still ignore the advice just as they can ignore the Chancellor, although it is harder for them to do that. If the provision was in the legislation, it would be very much part of recapitalisation—it would be incorporated in the recapitalisation process. It would still be legally possible for banks to flout the law and to ignore the spirit of the law, but it would be harder to do if the Bill made perfectly explicit the basis on which they had received funds from the state in the first place.
I shall not press the new clause to a vote. I will listen to the Minister’s response and see if he can give a reason why we should not proceed with it. The proposal is an attempt to solve a genuine problem. A scheme will be enshrined in law; it has a definite political objective—to recapitalise banks in order to stabilise the economy—but nothing in the Bill obliges banks to consider the wider interests of the economy or to heed the advice of the Treasury, which allowed them to have the funds in the first place.
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