Consumer Credit (Regulation and Advice) Bill

House of Commons

Session 2010 - 11
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Other Bills before Parliament

Consumer Credit (Regulation and Advice) Bill

Consumer Credit (Regulation and Advice) Bill
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A
Bill
To
impose certain limits on consumer credit interest rates and charges; to
establish a levy on credit and debit card providers to fund the provision of
debt advice services; to give powers to local authorities to restrict the
provision of premises for licensed consumer credit agencies within a local
area; to make provision regarding the availability of certain financial services
products at branches of the Post Office; to make other measures relating to the
regulation of, and availability of advice on, consumer credit; and for
connected purposes.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—
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Cost of credit and enforceability of agreements
(1)
No agreement regulated by the Consumer Credit Act 1974 is enforceable if the
total cost of credit charged under that agreement or the total cost of
transactions linked to that agreement exceeds any relevant limits set by the
OFT under sections 2 and 3.
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(2)
Where a consumer credit agreement is found to be unlawful by virtue of
subsection (1) that agreement and any linked agreement shall be unenforceable
and the lender and any agent acting on its behalf shall be liable to—
(a)
a fine determined by the OFT in accordance with section 5; and
(b)
the revocation of the lender’s Consumer Credit Licence.
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OFT’s powers to set limits on costs of credit
(1)
The OFT must set a reasonable limit on the total cost chargeable for credit by
lenders in any part of the consumer credit market (“a limit”) if—
(a)
it identifies that a lack of effective price competition is causing
consumer detriment in that part of the consumer credit market, or
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(b)
it identifies that charges in that part of the consumer credit market
reflect an unacceptably high level of credit risk and irresponsible
lending practice.

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Consumer Credit (Regulation and Advice) Bill
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(2)
Any limit set by the OFT—
(a)
must reflect the cost of providing credit in a properly functioning
competitive credit market or be designed to eliminate excessive risk
taking by consumer credit lenders and borrowers,
(b)
must be expressed as the maximum total charge for credit permissible
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per £100 advanced, calculated on an annualised basis, and
(c)
may reflect the different duration of credit agreements.
(3)
In setting or considering whether or not to set a limit the OFT must consider—
(a)
the degree of price competition in the relevant market,
(b)
the level of consumer detriment caused by any identified lack of price
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competition in the relevant market,
(c)
the likely impact of any limit on the supply of affordable and
responsible credit products in the relevant market, and
(d)
the desirability of eliminating excessive risk taking and irresponsible
practices from the relevant market.
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(4)
The OFT must, within 6 months of the day on which this Act comes into force,
decide whether or not to set a limit for each part of the consumer credit market
and must publish its decision and the reasons for it.
(5)
The OFT must review the decision made under subsection (4) at least every 12
months after the publication of the decision and must publish those reviews,
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including the reasons for the further decisons it has made.
(6)
Before making decisions under subsections (4) and (5) the OFT must consult
the Debt Commissioner.
(7)
The OFT may (with not less than 14 days’ published notice) vary any limits to
reflect wider macroeconomic conditions including but not limited to changes
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in the Bank of England’s base lending rate.
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Limits on cost of transactions linked to credit agreements
(1)
Where the OFT has set a limit under section 2 it may also set limits on the cost
of transactions linked to such credit agreements if it finds evidence that—
(a)
the limit is likely to be avoided by the use of such linked transactions
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by lenders, or
(b)
there is likely to be a degree of consumer detriment.
(2)
Linked transactions include—
(a)
the cash price of a good which is being offered for sale on credit terms,
and
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(b)
related insurance or collection services.
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Publication of limits
When the OFT sets a limit under section 2 or sets a limit on the cost of
transactions linked to credit agreements under section 3 the OFT must take
reasonable steps to ensure that such limits are, within 1 month of the limit
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being set—
(a)
published in the London Gazette,
(b)
publicised throughout the credit industry,
(c)
notified to relevant consumer groups, and

Consumer Credit (Regulation and Advice) Bill
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(d)
notified to relevant advice agencies.
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Level of fines
(1)
The OFT may impose a fine on any lender who exceeds a limit or a limit on the
cost of transactions linked to credit agreements.
(2)
A fine imposed by virtue of subsection (1) must not exceed 10% of that lender’s
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annual turnover.
(3)
When setting a fine the OFT must have regard to—
(a)
the length of time that the lender has been operating in the market,
(b)
the lender’s previous record regarding limits,
(c)
the lender’s previous record regarding the cost of transactions linked to
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credit agreements, and
(d)
the annual turnover of the lender in its most recent annual accounts.
(4)
A lender upon which a fine is imposed by the OFT pursuant to this section has
the right to appeal to the Secretary of State within 28 days of being notified by
the OFT of that fine.
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(5)
On receiving an appeal under subsection (4) the Secretary of State may—
(a)
uphold the right of the OFT to impose the fine,
(b)
vary the amount of the fine,
(c)
waive the fine, or
(d)
take such other action as the Secretary of State considers appropriate.
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Duties of the Financial Ombudsman Service
(1)
Section 228 of the Financial Services and Markets Act 2000 is amended as
follows.
(2)
After subsection (2) insert—
“(2A)
In respect of its consumer credit jurisdiction the ombudsman shall have
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regard to any limits on the cost of credit or on the cost of transactions
linked to credit agreements imposed by the OFT pursuant to sections 2
or 3 of the Consumer Credit (Regulation and Advice) Act 2011.
(2B)
The ombudsman must publish, on an annual basis, details of all
consumer credit decisions where it has found the cost of credit to be
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unfair or unreasonable.
(2C)
When making an assessment as to whether the cost of credit is fair and
reasonable, the ombudsman must consider—
(a)
the total charge for credit at the time of the original agreement
at the outset of the credit relationship with the lender,
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(b)
the impact of any repeat lending or modification of agreements
on the total cost of credit paid by the borrower over the lifetime
of the credit relationship,
(c)
the cost of any linked transactions to the credit agreement
throughout the relationship, and
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(d)
the cumulative cost of default charges applied to the borrower’s
account throughout the relationship.”.

Consumer Credit (Regulation and Advice) Bill
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Debt Commissioner
(1)
There is to be a Debt Commissioner.
(2)
The Schedule has effect with respect to the Debt Commissioner.
(3)
The Debt Commissioner must administer funding for the provision of debt
advice.
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(4)
The funds allocated under subsection (3) must be provided for entirely
through the mechanism in section 8.
(5)
The operational costs of the Debt Commissioner must not exceed 1% of the
total funds provided under section 8.
(6)
The Debt Commissioner must advise the OFT on suitable levels for any limits
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on the total cost chargeable for credit.
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Funding for the Debt Commissioner and money advice services
(1)
Section 6A of the Consumer Credit Act 1974 is amended as follows.
(2)
In subsection (1), after “Act” insert “plus an additional contribution to cover the
operational costs of the Debt Commissioner and to support the funding of debt
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advice services.”
(3)
After subsection (4) insert—
“(5)
The OFT shall be responsible for paying the additional contribution
referred to in section (1) to the Debt Commissioner in accordance with
the content of a Memorandum of Understanding to be drawn up
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between the two parties within 3 months of this Act or any Part of this
Act coming into force.”
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Powers of local authorities
(1)
The Secretary of State must by regulations made by statutory instrument
amend the Town and Country Planning (Use Classes) Order 1987 (S.I. 1987/
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764) (“TCPUC 1987”), so that any holder of a Consumer Credit Licence which
is not also regulated by the Financial Services Authority for the purpose of
taking deposits, is removed from the A2 Use Class as defined in TCPUC 1987
and placed in a new category.
(2)
The Secretary of State must lay regulations under subsection (1) before
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Parliament before the end of the period of 12 months beginning with the day
on which this Act is passed.
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Availability of credit union services through the Post Office network
(1)
The Secretary of State must by regulations made by statutory instrument
amend the Postal Services Act 2000 to make provision for the availability of
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credit union services through the Post Office network.
(2)
The Secretary of State must lay regulations under subsection (1) before
Parliament before the end of the period of 12 months beginning with the day
on which this Act is passed.