Mr.
Love: I am not surprised by the Minister’s
response. As I understand, a similar response was given during
discussion on the Equality Bill. Although I accept the argument that it
is primarily for elected bodies rather than non-elected regulators to
implement such a duty, it is somewhat surprising and less than
consistent to introduce it to local government, for example, where
regulators such as local trading standards officers will have such a
duty imposed on them, but national regulators will
not. It is a somewhat inconsistent argument, but I will let that
stand.
Not
introducing a new clause of this nature will weaken our ability to
address some of the significant disadvantages that vulnerable consumers
experience. However, we must allow the Equality Bill to be enacted to
see how that develops over a number of years. I hope that the Minister
responsible will monitor the situation to see whether the terms of the
Equality Bill rise to the needs of the most vulnerable people in our
society. If not, I hope that the Government will come back to this in
the future, because it is critical that we address some of these
points, particularly at this difficult economic time. If we do not, the
inequality and unfairness in our society will play out in a way that is
not to the benefit of major sections of our community. Although I
accept the Minister’s argument and the Government have a good
record in this regard, we need to consider these points very carefully
in the
future. However,
on the basis of the Minister’s contribution to the debate and
the argument that he made about the impact that new clause 4 would have
on the FSA, I beg to ask leave to withdraw the new clause.
Clause, by
leave, withdrawn.
New Clause
5Restrictions
on provision of credit limit
increases ‘(1) A consumer
credit firm which provides an increase in credit limit otherwise than
in accordance with this section commits an
offence. (2) Credit limit
increases may be provided only to a person who has asked to receive
such an increase. (3) This
request may take the form: (a)
of a specific one-off request from a person,
or (b) of a decision by a
person to opt in to being offered a limit
increase. (4) In the case of
section 3(b), the consumer credit firm may offer a person a limit
increase, but must gain specific approval from the person before
providing this increase. (5) In
the case of section 3(b), a person may choose to opt out of receiving
offers of limit increases at any time by informing the consumer credit
firm, and their request must be processed with immediate
effect. (6) A consumer credit
firm must undertake proper credit checks and an assessment of the
person’s ability to repay before offering an increase in their
credit limit.’.—(Mr.
Breed.) Brought
up, and read the First
time.
Mr.
Breed: I beg to move, That the clause be read a Second
Time.
Before
speaking in support of the new clause, I want to refer hon. Members
back to clause 27, which we discussed earlier in our proceedings.
Clause 27 restricted the provision of credit card cheques. I see new
clause 5 as being complementary to clause 27.
A couple of
the provisions within clause 27 are very similar to those that I am
proposing in new clause 5. Clause 27(2)
says: “Credit
card cheques may be provided only to a person who has asked for
them.” It
also
says: “The
number of cheques provided in respect of a request must not exceed
three (or, if less, the number requested).”
We
have been talking about consumer protection and perhaps to a certain
extent this is legislation that tries to protect the consumer against
themselves. That may seem a little strange. However, clause 27, which
has passed our scrutiny, seeks to stop the unsolicited distribution of
credit card cheques. Thousands, if not hundreds of thousands, of such
cheques are distributed, but only a very small number are ever taken up
and often only by people who are already in rather desperate
circumstances.
As I say, new
clause 5 seeks to complement clause 27 by amending the Consumer Credit
Act 1974 in a similar way, to prevent unsolicited increases in credit
card limits. I suspect that we may all have been subjected to such
unsolicited increases at some stage. The first time that someone
realises that the limit on their credit card has been increased may be
the first time that they see the new limit on their credit card
statement; perhaps they have not even been advised that the company has
decided to increase their limit.
Unsolicited
increases in credit limits can, on perhaps a relatively small number of
occasions, put off the evil day, as it were, for people who are already
under pressure regarding their credit card and who have not yet
recognised that they have to reorder their financial affairs. Then, out
of the blue, they see their credit card limit increased and bingo, the
pressure is off. They can make additional borrowing on the card and
relieve the immediate problem, thinking—as we all do—that
that will be the last time and that they will now get to grips with
everything. Of course, they are then in an even worse position than
before.
New clause 5
has six subsections. Subsection (2)
says: “Credit
limit increases may be provided only to a person who has asked to
receive such an
increase.” It
is rather similar to clause 27, which says that people have to ask for
their credit card
cheques.
1.45
pm Subsection
(3) of new clause 5
says: “This
request may take the
form: (a) of a
specific one-off request from a person,
or (b) of a
decision by a person to opt in to being offered a limit
increase.” In
other words, credit card companies may offer the opportunity to
increase limits to a considerable number of customers. If such an offer
is made to a particular customer, that customer or consumer
specifically has to opt in. A consumer credit firm may offer someone a
limit increase, but must gain specific approval from that person before
providing the increase. Even if they put out a general offer, it cannot
take place until the offer has been clearly taken up by the individual
consumer.
Subsection
(5) states that
“a person may
choose to opt out of receiving offers of limit increases at any time by
informing the consumer credit firm, and their request must be
processed”. It
is rather like not wanting to receive all sorts of advertising material
through the post. People should be able to say, “I do not want
to be continually badgered by the credit card company to increase the
limit. If I require an increase, I will request it, but in the meantime
please take me off your list for any further
offers.” Subsection
(6) states that
“A
consumer credit firm must undertake proper credit checks and an
assessment of the person’s ability to pay before offering an
increase in their credit limit.”
It
would mean that credit firms were not able indiscriminately to send a
load of unsolicited increase offers without making a proper
investigation of whether individual consumers were able to make their
payments. I accept that, in many respects, it would inhibit the
business of credit companies, which will obviously want to increase
their business. However, the potential to exploit the weaknesses of
some consumers, who may already have over-borrowed, giving them the
opportunity to become even more over-borrowed through the receipt of
unsolicited increases in their credit card limit is something that we
should seriously consider.
Mr.
Hoban: I sense that the hon. Gentleman may be near the end
of his remarks. The approach of credit card companies in offering
increases in limits—it is called “low and
grow”—is to give the customer a low limit, and increase
it over time as the customer demonstrates the ability to handle that
level of credit. Banning unsolicited increases will mean either that
fewer credit cards are issued, or that credit cards issued to new
customers do not have a low limit; people will be offered a higher
limit. That may not be the optimal outcome. What impact does he believe
the new clause will have on those starting
offers?
Mr.
Breed: I thank the hon. Gentleman for that intervention,
as it raises some interesting points. First, a proper assessment will
need to be made before a decision is made to provide a credit limit.
The credit card company will have to ensure that it takes all necessary
information into account in assessing the customer’s ability to
repay. That is the essential factor. They should take account of
repayments for all borrowings and the usual household bills, and of
disposable income.
A proper
assessment would have to be made. Deciding whether to pitch it low, and
well within a person’s ability to pay, or at the top of his
ability to pay, would be a policy decision for the credit card company.
It would be entirely up to the company if it wanted to try something
out on a particular individual, on a low-and-grow basis. Whatever the
limit, however, the company would have to demonstrate that the customer
could pay. I see no problem with that. The only problem will be if the
company assessed a limit above the customer’s ability to pay.
That would not be appropriate.
Mr.
Hoban: Would the hon. Gentleman be content if someone at
the credit card company said, “I think that this person, based
on my assessment of their credit risk, should have a credit limit of,
say £5,000.” Under the current regime the company might
give that customer a credit limit of only £1,000 and see how the
customer copes before increasing the limit in stages towards
£5,000. Would the hon. Gentleman be happy to go straight to that
£5,000
limit?
Mr.
Breed: I would only agree if that were requested. What I
would not want to see is the customer being quite happy with a
£1,000 limit, but then being told, “Okay, we’re
going to give you a £5,000 limit because we reckon you can
afford to pay up to £5,000.” The proper relationship
between a customer and the provider is for the customer to seek what he
or she requires. If he or she requires to go to £5,000 straight
away and the assessment and ability to repay can demonstrate that such
a limit would be appropriate, I do not have any qualms. Most of the
time with a “low and grow” limit,
we are already on the edge of what can be done. The
aim is often to attract business. There is already a credit card
balance with another company and people are trying to attract that
balance, which they often do by offering interest-free periods for
balance transfers and
such. I
do not want to stifle—if that is the right word—the
relationship between the consumer and the credit card company, but I
want to restrain the unsolicited aspects and operations of the credit
card companies. Many people—the vast majority—are quite
capable of saying, “Thank you very much, but I am not going to
use it. I pay off my balance every month anyway, so it does not really
matter whether I have a limit of £2,000, £4,000 or
£10,000.” However, for a significant number of
people—I have already said we should be looking at vulnerable
younger people in particular—the opportunity to creep up the
limit, on an unsolicited basis, is too much of a temptation, and that
does not need to be part of the credit cards’
armoury. My
amendment is entirely complementary to clause 27, which was
pretty uncontroversial, at least in Committee. If we are going to
restrain the use of credit card cheques, my amendment has a similar
aspect. That does not in any way stop someone from applying for an
increase in their credit card limit, or the credit card company from
offering a limit increase, but it would have to be based on the
assessment of the customer’s ability to pay and, clearly, on the
consumer accepting that offer themselves and not just being able to
take advantage of it because it was given
unsolicited. As
I said, the proposal is complementary to clause 27 and, for some
people, a safeguard against their own better judgment. Citizens Advice
and other bodies far too often see people who have taken advantage of
unsolicited increases in their credit card limits and got themselves
into more trouble. Had they been stopped or had it been prevented at a
much earlier stage, their chances of getting themselves back on the
straight and narrow again would be much
easier. Mr.
Andrew Tyrie (Chichester) (Con): I strongly agree with the
hon. Gentleman’s objective in the amendment. His intentions must
be right. We have worked on some such issues together in the Treasury
Committee. I wonder only whether there might be another route, a route
through greater transparency, which we have discussed in Committee to a
degree. Such transparency could be furthered by bolstering competition
in the
sector.
Mr.
Breed: I am sure that there could be. Competition in the
sector is pretty fierce, hence the great offers to take balances for
extended periods with no interest. There is quite a demand. If anyone
goes to buy a pair of shoes somewhere, they are often harangued more
about whether they would like to buy them with a store card than about
the shoes
themselves.
Mr.
Tyrie: But is not that competition without full
transparency, and without people fully realising what they are
buying?
Mr.
Breed: The hon. Gentleman is right. We have said that
there should be more health warnings—if that is the right
description—on credit card statements, particularly asking
people whether they realise that, if they made the minimum payment and
no other withdrawals, it
would still take them 10 years to repay the balance. We should make
clearer exactly what the credit card debts entail. Many of us would
like to see an increase in the minimum payment and a greater
explanation of the way in which interest is charged because it differs
between credit companies. Some take it straight away; some take it on
the last balance first basis, but for many people—to protect
them sometimes from themselves—without huge inconvenience to
anyone else, we could ask credit card companies to ensure that they do
not send out unsolicited increases in credit. They can certainly offer
increases, but the offers must be properly accepted by the consumer in
the knowledge of what they are letting themselves in for, and there
must be a proper assessment by the credit card company before any such
offers are
made.
Ian
Pearson: The Government are concerned about the issue,
which is why we are considering taking action in such areas as part of
the current review of credit card and store card regulation. However,
it would be inappropriate to introduce reform before the review has
been completed. As the hon. Member for South-East Cornwall knows, the
consultation document was published in October and the consultation
period ends next week. We are consulting on a wide-ranging package of
measures, including possible restrictions on unsolicited limit
increases. One of the reasons that the Government introduced the review
of the regulation of credit and store cards was to assess the potential
impact of any changes—legislative or otherwise—to the
current
arrangements. When
there is evidence that industry practice is balanced against the
interest of consumers, particularly the most vulnerable, the Government
will take strong action, but not before we have examined the responses
to the consultation. We have called on credit card companies and
consumer representatives to submit evidence in support of their
arguments, and we look forward to assessing what they have to
say. There
was a helpful exchange between the hon. Members for Fareham and for
South-East Cornwall. It showed some of the potential unintended
consequences if we do not get matters right, and why we want to make
sure that we examine the issue thoroughly. During the passage of the
Bill, we have considered the issue of the Government making helpful
nudges and trying to achieve better social outcomes through
choice-editing, setting sensible defaults or, in this case, drafting
legislation on limits. That is something that a Government should be
considering, but we need to do it on the right evidence
base. Another
point to bear in mind is that the review is looking at linked issues
that bear on all aspects of store card business, namely, the allocation
of customer payments, the level of minimum payments, to which the hon.
Member for South-East Cornwall referred, the re-pricing of outstanding
debt and the need for further information requirements, as well as
unsolicited credit limits. An important aspect is to consider the
linked effect of the various options being considered. To be clear, we
want a consumer-friendly outcome working on the most important issues
for consumers, and introducing legislation now would pre-empt the
outcome of the
review. I
must point out that the new clause is technically defective. It
contains a number of key expressions that are not defined under the
Bill. Had an amendment been inserted into the Consumer Credit Act 1974,
at least the term “credit limit” would have been clear.
The new
clause is also not complete in that it does not
include a consequential amendment to schedule 1, setting out the
sanction in respect of the offence. None the less, the debate has been
helpful. It has highlighted the fact that we are all concerned about
the issue. A review is going on, and the Government will want to take
action if they believe that the balance of interests is against
consumers. With my comments in mind, I hope that the hon. Member for
South-East Cornwall will withdraw the
motion. 2
pm
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