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Session 2009 - 10
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Delegated Legislation Committee Debates



The Committee consisted of the following Members:

Chairman: Robert Key
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 OFT’s 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 credit—factors that were quite outside its control. It made substantial efforts to reduce the regime’s 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 one—obviously the licences cover all sorts of businesses—may 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.
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.
 
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