The
Committee consisted of the following
Members:
Ancram,
Mr. Michael
(Devizes)
(Con)
Brennan,
Kevin
(Minister for Further Education, Skills, Apprenticeships and
Consumer Affairs)
Dhanda,
Mr. Parmjit
(Gloucester)
(Lab)
Djanogly,
Mr. Jonathan
(Huntingdon)
(Con)
Duddridge,
James
(Rochford and Southend, East)
(Con)
Gray,
Mr. James
(North Wiltshire)
(Con)
Hemming,
John
(Birmingham, Yardley)
(LD)
Heppell,
Mr. John
(Nottingham, East)
(Lab)
Keeble,
Ms Sally
(Northampton, North)
(Lab)
McGovern,
Mr. Jim
(Dundee, West)
(Lab)
Naysmith,
Dr. Doug
(Bristol, North-West)
(Lab/Co-op)
Sharma,
Mr. Virendra
(Ealing, Southall)
(Lab)
Singh,
Mr. Marsha
(Bradford, West)
(Lab)
Smith,
Geraldine
(Morecambe and Lunesdale)
(Lab)
Taylor,
Mr. Ian
(Esher and Walton)
(Con)
Thurso,
John
(Caithness, Sutherland and Easter Ross)
(LD)
Mark Oxborough, Committee
Clerk
attended the
Committee
Third
Delegated Legislation
Committee
Tuesday
19 January
2010
[Robert
Key in the
Chair]
Draft
Consumer Credit Act 1974 (Fees) Order
2010
4.30
pm
The
Minister for Further Education, Skills, Apprenticeships and Consumer
Affairs (Kevin Brennan): I beg to
move,
That
the Committee has considered the draft Consumer Credit Act 1974 (Fees)
Order
2010.
It
is a pleasure to serve under your chairmanship, Mr. Key,
for, I think, the first
time.
This
statutory instrument applies to the Office of Fair Trading, which
regulates credit businesses, prevents unfit persons from legally
entering the market and ensures that fit businesses adopt appropriate
standards of behaviour in their dealings with consumers. The
OFTs activities are funded under a licensing regime that was
established under the Consumer Credit Act
1974.
The
Government's aim is that fees for statutory services should be set to
recover the full cost of the service. However, under current legal
arrangements, when the OFT sets the level of the licence fee it is not
permitted to include any element to recover past deficits.
This order
would grant the OFT the power to set the consumer credit licence fees
payable when applying for a new licence, a renewal or a variation to a
licence at a level that means the OFT can recover past deficits in
licence fee
income.
The
OFT has already faced this issue in 2008-09, due largely to the
economic downturn and the squeeze on creditfactors that were
quite outside its control. It made substantial efforts to reduce the
regimes operating costs, but a deficit of £98,000
remained at the end of that year. However, the measures it took to
achieve this are not sustainable in the medium term if consumer
protection is to remain robust. This is especially true in the light of
the fact that in recent years we granted greater powers to the OFT to
enhance consumer protection.
The OFT
therefore needs the option of recovering past deficits. Although the
order would give it that, there would be no automatic increase in
licensing fees. All fee increases, whether simply to cover future costs
or to include an element for past deficits, will still have to be
approved by Ministers at the Department of Business, Innovation and
Skills and the Treasury. In examining OFT fee proposals, we will look
for continuing efficiencies and ensure that the financial burden to be
laid on businesses will be no more than is needed to deliver an
effective consumer protection
regime.
4.32
pm
Mr.
Jonathan Djanogly (Huntingdon) (Con): We do not have any
particular problems with the order, but some questions arise from a
reading of the regulatory impact assessment, and I shall be grateful if
the Minister comments on them.
The regulatory
impact assessment
states:
If
this deficit persists, the resources available to OFT will be reduced
and its ability to carry out activities aimed at ensuring compliance
with the Consumer Credit Act will be
impaired.
What
will will be impaired mean in
practice?
The
RIA
continues:
The
solution is intended to give OFT the power to balance annual
discrepancies between income and expenditure over a longer period and
ensure that shortfalls, caused by variations in application numbers and
type, can be met from fee income paid subsequently.
How many applications
for consumer credit licences have been made in each of the past five
years? Why does the Minister think that the number has been declining?
What was the deficit last year, and what is the expected deficit this
year? Will any increase in fees be implemented in one go, or introduced
over time? Will the fee increases be the same for all licensees, or
will they be based on the size of the
licensee?
4.34
pm
John
Hemming (Birmingham, Yardley) (LD): Given the pressure of
time, I shall simply say that the proposals seem entirely reasonable,
as long as there is some constraint on what the OFT charges. Given that
it under-charged in the past, it is perhaps reasonable to allow it to
charge for deficits now, provided the charges are limited, sensible and
proportionate and recognise the costs to
business.
Kevin
Brennan: I thank hon. Members for those helpful
contributions and
questions.
The
hon. Member for Huntingdon asked about the potential detriment to the
consumer caused by inability to recover past deficits. In other words,
he asked how OFT services could be impaired. Its expenditure could be
reduced and its ability to carry out activities in ensuring compliance
with the Consumer Credit Act could be impaired. Insufficient resources
could impair its activities in ensuring that only fit and competent
persons are permitted to engage in consumer credit business. Ensuring
that those in the market follow legal requirements under the relevant
legislation and guidance is also important. If appropriate levels of
compliance were not maintained, consumer detriment might result from
exposure to businesses that were not fully fit or competent to carry
out their activities in the consumer credit
market.
The
hon. Gentleman asked about fee income, which he is right to say has
been declining. From memory, I think that the number of applications
has reduced from about 30,000 to about 22,000 or 20,000 in the past
year. There could be a number of reasons why. We have no particular
evidence to suggest that one reason is the change that was introduced
in the 2006 Act, which clarified the question of who should apply for a
licence. The compliance requirement also became greater. Those who
previously obtained a licence simply because they thought they might
need oneobviously the licences cover all sorts of
businessesmay have realised on closer examination that they did
not need a licence. Clearly, the economic downturn will also have had
an effect on the number of businesses operating in the
market.
As I said
earlier, after the measures taken by the OFT were introduced, the
deficit last year amounted to some £98,000. That was the exact
figure. Had it not taken those measures, the figure would have been
closer to
£2 million, which would have meant a significant
shortfall in income. I am assured by the OFT that it sees no need to
raise fees in the coming financial year, so businesses need not be
concerned that the situation will lead to a sudden increase. I can also
give an assurance to the hon. Gentleman that, as a Minister, I would
not approve any fees proposed under this measure which related to past
deficitsdeficits that are already in the past, if he knows what
I mean. The intention is to deal with any future past deficits, if that
is not too much of a contradiction in terms. In other words, if this
issue arises again in future, at least the OFT will have the option to
attempt to achieve recovery. It is not envisaged that there will be a
single large hike in fees in the very near
future.
On
the question whether fee increases would be the same for everyone or
relate to the size of the business, which the hon. Gentleman asked
about, the OFT is
undertaking a review on the fee structure. Currently, there are only two
levels of feeone for the sole trader, and one for all other
businesses. It is timely for us to review that arrangement, to see
whether we might in future structure the fees so as to relate more to
the risk involved in the businesss activities, as well to its
size.
I was going to write to the hon. Gentleman with details of the five-year figures he asked for, but inspiration has arrived late in the day and I do now have the figures on the number of licensing applications over the past five years. To save myself a letter, I will tell him now. The number of applications was as follows: in 2004-05, 30,298; in 2005-06, 27,827; in 2006-07, 28,360; in 2007-08, 28,143; and in 2008-09, 21,837. With those clarifications, I once again commend the statutory instrument to the Committee.
Question
put and agreed
to.
4.39
pm
Committee
rose.