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Lord Henley: My Lords, again, I believe that this is an unnecessary amendment. I assume that the noble

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Lord is seeking to create another independent assessor, similar to the independent assessor for the Student Loans Company, to offer assistance with loans taken out with private sector institutions.

I think that I have made it clear, in speaking to a similar amendment at an earlier stage--colleagues have made it clear in another place when dealing with other amendments--that there is no need for the establishment of an additional complaints procedure to cover private sector lenders. The Banking and Building Societies Ombudsmen are already there to do just that job. I see no point in wasting the taxpayer's money simply to duplicate them.

Officials in my department have spoken to the Banking Ombudsman. They have learnt first-hand, and reported to me, what powers he does and does not have. He has emphasised to my officials that he sees absolutely no reason why complaints about loans from banks under the twin-track scheme should not be within his remit.

The ombudsman will look into any personal complaint of substance about a bank's business. That is how wide-ranging his powers are. In particular, he has assured us that he will always look into a complaint about a loan rejection if the complainant has some evidence to back up his complaint. Any student with a genuine complaint will have that evidence. The ombudsman can demand from a lender whatever information he needs in order to make a decision about the complaint, including, in the case of a loan rejection, supporting evidence for the lender's original refusal. If the lender refuses to give him any of this information, he is forced to assume that they had insufficient evidence to refuse the loan in the first place and his recommendation would thus be in the customer's favour.

I believe that the ombudsman will offer an independent safeguard of exactly the sort which the noble Lord requires for private sector applicants and borrowers, and one which all the major high street banks and building societies, which fund the ombudsman schemes, are fully signed up to. Therefore, I believe that the amendment is unnecessary and I hope that the noble Lord will find it possible to withdraw it.

Lord Morris of Castle Morris: My Lords, yes, I shall. That is the best reply that I have had from the Minister during our several hours of debate. The Minister has given us some information. He has taken the trouble to rouse his officials and to get them out, asking the ombudsman exactly what he does. The Minister has put on the record exactly what we have been asking for all along. I would have been happy to be assured that we could have either a new assessor or the extended powers of the assessors of the Student Loans Company. As far as I was able to jot them down, the Minister's words that the ombudsman will look into any complaint, that he can demand information from any lender, and that he can take action if he is not satisfied go a very long way towards giving me what I want. I cannot think that I could want any more. I am grateful to the Minister and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Lord Tope moved Amendment No. 7:

After Clause 1, insert the following new clause--

Statement of reasons

(". The Secretary of State shall require any person to whom subsidy is to be paid who refuses to make a private sector student loan to an eligible student to provide the student with a statement of reasons for the refusal.").

The noble Lord said: My Lords, the statement which the Minister has just made helps considerably with this amendment, but I should like to press and probe him a little further. The amendment seeks to provide that the student, the borrower, should be given the reasons for the refusal. A similar amendment was moved in Committee by the noble Lord, Lord Morris of Castle Morris, in response to which the Minister said:

    "It would be quite wrong to impose particular rules on how private companies should deal with loan applications ... They must be free to reject applications; and they must be free to decide what to tell such applicants".--[Official Report, 12/3/96; cols. 791-2.]
I am not sure that I accept that such companies "must be free". We have talked much in previous debates and in this debate about possible effects on creditworthiness. I think that it is desirable to require lenders to give to applicants a simple statement of their reasons for refusal. I do not think that request would be too onerous for the lenders.

I turn now to the position of the ombudsman, which the Minister helpfully clarified and elucidated. I believe that I heard him say just now--perhaps he will clarify this when he replies--and he said in Committee that the ombudsman will look into complaints about an institution's refusal to offer a loan provided that the complainant has a piece of evidence of substance that the institution acted unfairly or illegally with regard to the granting of a loan. I believe that the Minister referred just now to a complaint having to be one "of substance". While one does not wish to encourage frivolous complaints, one is bound to ask how a complainant can establish whether or not his complaint has substance if he has been given no reason for the refusal of his application.

I believe that it would be entirely consistent if the Minister went a little further in the assurances just given and agreed that in the first place applicants, not just the ombudsman, should be given such a statement so that before they made their complaints to the ombudsman they could judge whether or not they had complaints of substance. The ombudsman could then decide whether or not to take the matter on from there.

In moving the amendment, I remind the noble Lord, Lord Morris of Castle Morris, that this matter can be taken just a little further. One can ask for a little more. I look forward to receiving the Minister's assurances. I beg to move.

Lord Williams of Mostyn: My Lords, I believe that the noble Lord, Lord Tope's, arguments are correct. There is no reason in principle why commercial lenders should not be subject to some discipline other than that of the bare marketplace. In a large number of different activities commercial organisations have to do just

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that--for instance, in terms of how they treat the disabled who apply for employment or who work for them.

More fundamentally, this money comes in part from public funds. If the Government are committed to openness and transparency, there can be no sensible reason why, if a student has the bitter blow of a refusal of a private sector student loan, he or she should not know the reason for it. There are many reasons for that. First, if the lender who has to come to a decision is obliged to give reasons, the mere fact that reasons have to be given normally improves the decision-making process. Secondly, since this is in part public money (by virtue of the subsidy component) it should be seen to be dealt with in an open and appropriate way. Thirdly, a student is entitled as of right to know why he or she has been turned down. Fourthly, to underline what the noble Lord, Lord Tope, has said, without knowing the reason for the refusal the student is wholly disabled from mounting a sensible appeal.

Baroness Farrington of Ribbleton: My Lords, I speak in support of the amendment. I should like to ask the Minister how the Government seek to resolve the conflict between their replies on many occasions, which indicate that commercial judgment is at the heart of this legislation, and the oft repeated reply that it is a matter of student choice. This amendment will ensure that, where students are deprived of that choice by a decision, the reason for it is open and clear to those students concerned.

I should also like the Minister to explain how students may defend themselves on a future occasion. Given that the Government have refused to allow students to refrain from giving information on future occasions when they apply for jobs, mortgages or further credit at other stages in their careers, how can they defend themselves if they are not given details of the reasons for the refusal? That would be the only defence that students would have to protect them from a lifetime of possible discrimination by other credit facilitators, and those other fields as well.

6.15 p.m.

Lord Henley: My Lords, I deal first with the question of student choice. I do not accept the argument of the noble Baroness that there is any discrepancy in the case that we have put forward. I take a similar situation. Students have a choice about which university they go to. That is obviously dependent on the choice that the universities or institutions make about the students. The choice can never be total. Similarly, the student has a choice about going to one or more private sector institutions for a student loan. If he or she fails there, as a last resort there will be the choice of going back to the Student Loans Company.

I should like to deal with the point that the noble Lord, Lord Tope, made about the ombudsman and his worries, echoed to some extent by the noble Lord, Lord Williams, that students had to produce evidence for their complaints. The noble Lord quoted my words at Committee stage. I cannot remember my precise words, but this afternoon the words that I have used are "the complainant has some evidence to back up his complaint". The noble Lord, Lord Williams, says that if

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no reason is given the student can have no evidence. I do not accept that that is the case. For instance, there may be evidence of the application being treated in a frivolous manner by the institution. The mere lack of written reasons provided by the bank does not mean that it is impossible for the individual to produce any evidence to make his case to the ombudsman. Having said that, I am grateful that the noble Lord, Lord Tope, with the noble Lord, Lord Morris of Castle Morris, recognises the advantages of the banking ombudsman's writ running here and the fact that it deals with the earlier problem.

The case advanced by noble Lords opposite as to our reasons why student applicants should not be given this information is not valid. That is not our argument. We say that this must be very much a matter for private lenders to decide. They are the ones who, in the main, risk their own money. They must be free to reject applications and decide what to tell such applicants. What we want is the normal lending arrangement between the lender and borrower. That, rather than extensive regulation, is the best way to get the benefits of the improved service standards that will flow from private sector involvement. I said that in the main they were lending their own money. Noble Lords opposite have said that we are talking about public money in subsidy. But the money risked on loan will be largely that of private lenders. The best safeguards for students lie in the operation of choice in a diverse and competitive market. Student borrowers will have a choice. If they have concerns similar to those of the noble Lords, they can always take out public loans through the Student Loans Company.

Lastly, I reiterate that private lenders will not commit themselves to the twin-track approach unless they are keen to be major lenders to students. Therefore, they will be committed to ensuring that they get a large share of that market. I do not believe that they will achieve that by being over-selective or secretive in their dealings with student applicants. Therefore, I believe that it would be unreasonable and unnecessary to place on private lenders the restrictions in the new clause. I hope that the noble Lord will feel able to withdraw his amendment.

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