Mr.
Breed: I thank the Minister for his comments, from which I
take great heart. I am minded to say that if we are waiting for the
review, why have we got clause 27 in the Bill? It seems to impinge on
that same review.
Ian
Pearson: The issue of credit card cheques has already been
consulted on. We are consulting on the issue that the hon. Gentleman
raised; that is the
reason.
Mr.
Breed: That is a very brief explanation. I see the issues
as complementary in many respects. If we merely stop credit card
cheques being issued, we do not really address the fundamental point,
whereas the new clause does seek to address it. I accept that it would
be useful to wait for the review. I hope that the required legislation
will be introduced as swiftly as possible. We might see the back of the
recession in the next year or two, but I suspect that its implications
and effects will last for a long time and will put pressures on
individuals and families. The danger of significantly increasing
personal debt during a perhaps fragile economic recovery means that
there could be serious social problems in the future, so I hope that
when the review is done, new legislation will be introduced. On that
basis, I beg to ask leave to withdraw the new
clause. Clause,
by leave, withdrawn.
New Clause
6Amendment
of the Unfair Terms in Consumer Contract Regulations
1999 ‘(1) The Unfair Terms in
Consumer Contract Regulations 1999 (S.I. 1999/2083) is amended as
follows. (2) After regulation
6(1),
insert— “(1A)
Paragraph 2 shall not apply to contracts for the supply of financial
services.”. (3) After
regulation 6(2)
insert— “In so
far as it is in plain and intelligible language, the assessment of a
term in a contract for financial services shall not
relate— (a) to the
definition of the main subject matter of the contract,
or (b) to the adequacy of the
main price or remuneration, as against the goods or services supplied
in exchange. (4) Where a term
of a contract provides for the charging of a consumer and the
circumstances in which that charge can be imposed need not arise during
the term of the contract, then such price or remuneration shall not
fall within the main price or remuneration for the purposes of
paragraph
3. (5) If for
the purposes of paragraph 3 there is doubt about what represents the
main price or remuneration, the interpretation which is most favourable
to the consumer shall
prevail.”’.—(Mr.
Breed.) Brought
up, and read the First time.
Mr.
Breed: I beg to move, That the clause be read a Second
time. New
clause 6 relates to a fairly topical issue, I suppose: bank charges. I
do not know how many cases hon. Members have had of constituents being
extremely unhappy with the bank charges that they have been subjected
to. Of course, we were all enjoined to await the outcome of the Supreme
Court case, and then, to utter disappointment and dismay, the banks won
the day and many consumers and our constituents were extremely angry,
if not
disappointed. The
result of the Supreme Court’s decision on bank charges has had a
major effect on the public’s opinion of banks and banking, just
as bonuses did. The public feel that the taxpayer has bailed out the
banks, while the banks have been allowed to charge unfair rates for the
work that they have done. In fact, the OFT estimated that in 2006 the
UK banks took £2.6 billion from their customers in unauthorised
overdraft charges. Many people believe that, in many cases, those
charges were disproportionate to the work involved in dealing with
sometimes rather modest overdrafts. What is certain is that there has
been a consumer backlash, with hundreds of thousands of people
reclaiming the money that they were charged. We all know that there was
a large number of cases, which, I suspect, put a particular strain on
the Financial Ombudsman Service, and indeed the county
courts.
Mr.
Tyrie: I agree strongly, again, with the direction that
the hon. Gentleman is coming from. May I raise a similar point about
whether consumers know and are clear about the costs that might be
incurred in taking certain actions? Do they even know, for example,
what the real cost is of running a current account—of so-called
free banking, which is a myth? The real cost is the gap between the
amount that they are charged and the prevailing base rate, which is
what the banks get. If consumers could be informed of that information
in some way—there have been proposals of that type—could
we not move to a position where transparency can do most of the heavy
lifting?
People would
be able to compete on the basis of accurate information about the
relative merits of each account. Is that not exactly what happened in
the insurance industry? We have now moved over to search engines that
can give us detailed information about what we will really be charged
for car or home insurance, for example. Is that not where we need to be
with banks?
Mr.
Breed: I think that that is right. Transparency is a great
help. As many know, I come from a banking background. Bank charges back
in the 1960s and 1970s were anything but transparent. We used to decide
what figure would be appropriate and charge it, and if anybody
complained, we came to an agreement with them, which was not exactly
good either.
Today,
charges can be laid down in great reams of terms and conditions, but
that is no more transparent than anything else. Seemingly every quarter
or every other quarter, I get a new little booklet with new terms and
conditions written in legalese. I just accept it and hope that, having
banked with the same bank for nearly 50 years, I will not get done, but
many people have fallen foul of the terms and conditions and been
charged huge amounts of money for transgressing limits without
realising that doing so would have such an effect.
As we know,
the banks and the OFT agreed to a test case in the High Court to
determine whether the OFT had the power to decide whether the
banks’ terms and conditions were unfair. We were all happy to
wait for the judgment, although it seemed to take an inordinately long
time, because it was felt that that was ultimately the best way
forward. Perhaps it would not have been the same if our provisions on
collective proceedings had been passed.
The OFT has
the power to assess the fairness of the terms in consumer contracts,
subject to limits laid down in the Unfair Terms in Consumer Contracts
Regulations 1999, statutory instrument 2083, which implemented European
Council directive 93/13/EEC. Regulation 6(2) states
that “the
assessment of fairness of a term shall not relate...to the
adequacy of the price or remuneration, as against the goods or services
supplied in
exchange.” In
other words, the value for money equation is excluded. The Court of
Appeal held that the exclusion applied only to the core price terms of
the contract, not to ancillary terms such as charges for unauthorised
overdrafts and other bits and pieces. That would have allowed the OFT
to assess the banks’ terms and conditions and decide what
constitutes a fair charge for entering into an unauthorised overdraft.
Many of us were not terribly surprised to hear that it might cost the
bank an estimated £2 or £3 to administer an unauthorised
overdraft, but some banks were charging £30 for the
transgression. Rob
Marris (Wolverhampton, South-West) (Lab): I must say that
I am uneasy about the amendment, as it is widely drawn, but on that
point, the figure of £3 compared to £30 is already
covered in the law of our country. A contract can include a penalty
that is not enforceable at law or a genuine pre-estimate of loss, to
use the technical term, which is enforceable at law. If the banks are
charging £30 for something that costs about £3, the
courts would determine that to be a penalty and not enforceable. That
has been the law for 100 years in this
country.
Mr.
Breed: Although the High Court might have taken a decision
along those lines, we know that that was not the ultimate
interpretation of the current
regulations.
Rob
Marris: That is precisely the problem. The OFT case was
brought under the unfair contract terms regulations; I am talking about
something completely different: a basic element of contract law in
England and Wales that was not ventilated at all in that court case.
The court case was based on the wrong
issue.
Mr.
Breed: That may well be the case, but that does not
exclude the opportunity to change the current unfair terms of trade. We
could then have a belt and braces operation, which may be a way of
mitigating what many consumers feel completely sore about, perhaps
including many of the hon. Gentleman’s constituents. I do not
know the situation in his constituency, but I had more than 50
constituents waiting with bated breath to see what was going to
happen.
However, we
all know that the banks appealed the High Court decision and that the
Supreme Court disagreed with the Court of Appeal’s ruling,
holding that the charges for unauthorised overdrafts fell within the
exclusion. In the Supreme Court judgment, Lord Walker commented
that “Ministers
and Parliament had decided to transpose the directive as it stood,
rather than to confer the higher degree of consumer protection afforded
by the national laws of some other member states and that Parliament
might wish to consider whether to revisit that
decision.” We
certainly could consider whether we want to “revisit that
decision”.
Whether or
not new clause 6 is the most appropriate way to address the situation,
it is certainly one way to address it or to put it back to what the
High Court understood it to be, as opposed to what the Supreme Court
ultimately ruled it was.
I
understand—perhaps the Minister can confirm this—that the
normal route to achieve that change would be via the Department for
Business, Innovation and Skills reissuing the unfair terms of contract
regulations, which would perhaps clarify the situation. However, I
understand that that is unlikely at present, as the European Union is
considering a new consumer rights directive that may, in due course,
amend those regulations. Nevertheless, we are concerned that no action
will be taken in the UK until that happens, and there is no certainty
that a new consumer rights directive will come into force, even within
the next five years. Even if it does come into force, it may require
amending.
I acknowledge
the assistance I have received with new clause 6 from the Consumers
Association, to which I gratefully pay tribute. It was extremely
closely involved in the bank charges case, of course. It has also
assisted in the drafting of new clause 6, which seeks to make changes
to put the situation back to what it was, as the High Court wanted but
the Supreme Court did not.
Of course,
the great problem is that new clause 6 will not be retrospective, and I
would not suggest that it should be. Nevertheless, there is a
requirement on this House—perhaps especially at this
time—at least to address the situation with bank charges, which
has caused so much concern, hardship, anger and frustration to so many
people, and not just because of their own personal circumstances. Many
people have incurred very significant bank charges, which they have
found difficult to repay. Also, the situation with bank charges has
contributed to the whole psyche of the British public concerning how
they see the British banking system, which is a great shame. The
bankers have brought some criticism on themselves because of the
bonuses and the debacle of our having to bail them out. However, I
thought there might have been some recognition that, even if all the
money could not be paid back, we could still find a more reasonable,
equitable, sensible and transparent way of dealing with bank
charges.
The
bank charges case has been deeply damaging to our banking industry as a
whole. I do not know whether the banks themselves recognise that;
perhaps they do not really care. However, it will cause lasting damage.
The relationship between an individual and their bank may not be the
same as that between a patient and a doctor, but there are some
similarities, in the sense that people need that trust, that
recognition and that hoped-for reasonable response from the other
party.
For
many people, the banks’ use of the appeal system through the
Supreme Court—whereby they avoided paying back charges that, by
any measure, were extortionate in many cases and totally
disproportionate in a great many others—placed shame on the
banks and our banking system. Even if new clause 6 is not accepted, it
at least attempts to put back into the public arena the fact that
Parliament is prepared to revisit and deal with this issue, as we have
been encouraged to do, and to treat it seriously, so that we get
fairness and transparency and restore some of the good name that banks
in general used to have not so very long
ago.
2.15
pm
Mr.
Love: I certainly echo the hon. Gentleman’s comment
about the damage done to our banking industry by this particular
difficulty, but I understand that the banks are on record as suggesting
that a change of the kind outlined in the new clause could mean the end
of free banking—although it is not entirely free—as they
introduce costs in other ways. Is he concerned that reducing the
penalty or administrative charge for overdrafts would simply cause
those costs to emerge in some other part of the banking
industry?
Mr.
Breed: That has always been a danger. As the hon.
Gentleman knows, I have said in the Treasury Committee that we should
beware of getting what we ask for. We should recognise in creating such
measures that the banks will recoup the revenue that they think they
require in other ways.
At present,
the system lacks complete transparency, as the hon. Member for
Chichester said. So-called free banking is not transparent, in the
sense that others pay the cost. Some charges peripheral to the basic
terms and conditions are wholly inappropriate, and we need a whole new
regime. Perhaps other aspects coming down the track will make the banks
think again; that could be a danger. However, I believe that
competition, if we ensure that it exists, will sort some of that
out.
Until now,
the banks have been able to get away with what has not been their
finest hour. A recognition of what has gone on in the past, what
consumers feel and the degree of transparency necessary should make
them respond. However, in case they do not, the new clause is an
opportunity to assure the public that Parliament takes the matter
seriously.
Ian
Pearson: The new clause is very clever, but it is
extremely sweeping and would extend to contingent charges across the
whole financial services sector. It goes well beyond bank lending,
which the hon. Gentleman discussed, to include savings and investments,
insurance, debit and credit cards, pensions, payment services and other
consumer financial
services. The
Government understand the concerns of consumers affected by the Supreme
Court judgment, and I appreciate how the hon. Gentleman has raised the
new clause, but as he will be aware, we have
announced that we will work with the Office of Fair Trading, consumer
groups and the banks to agree a fairer, simpler and more transparent
system of bank charges in future. We have not ruled out further
measures if a voluntary approach does not produce results.
I would
expect that if no voluntary approach is successfully implemented, a
Government would want to take action. However, a voluntary solution has
the
advantage that it can quickly adapt to changes in the market. Any
regulatory solution will need to be carefully thought through. We must
maintain price competition and avoid unintended consequences from firms
deciding to compensate for any revenue reduction by developing new
forms of
charge. The
hon. Gentleman mentioned the Unfair Terms in Consumer Contracts
Regulations 1999 as a vehicle for any necessary amendments if we chose
to go down the legislative route. I am advised that as it would be a
major step, any such amendment would be likely to require primary
legislation. That is something to be considered. However, we strongly
take the view that a voluntary approach is likely to be more speedy,
and we hope that it will have the impact that we want, so that
consumers get a fair
deal. The
hon. Gentleman also spoke of proposed changes under the consumer rights
directive. That may be a suitable vehicle for future reforms, but that
will depend on the progress with that directive. He will be aware that
it has been under discussion in Europe for some time.
On the wider
point, with regard to what the new clause proposes for all financial
sectors, I am not convinced that a case has been made. We should not
lightly intervene in commercial decision making in a competitive
market. It has been the long-standing policy of successive Governments
that we should rely on competition to make markets fair. It is a
fundamental tenet of this Government’s thinking that we should
intervene only if there is a demonstrable market failure that cannot be
fixed by other means.
The new
clause would have far-reaching and possibly unintended consequences. As
well as carefully considering all the options, we would want to ensure
that a full consultation with interested stakeholders took place before
we considered the introduction of price regulation. In effect, the hon.
Gentleman is asking the Government to get involved with price
regulation across the financial services sector in the area in
question. We want to take action in response to the Supreme Court case,
but we seek to do it on a voluntary basis. We have not ruled out taking
legislative action, but we should not have such a wide-ranging power,
as it could have unintended consequences that have not been considered.
With those assurances, I hope that the hon. Gentleman will seek leave
to withdraw the new clause.
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