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On 15 March, the Government and the credit and store card industry jointly announced five new rights for consumers, including what we have called the right to repay. That right explicitly states that all consumer payments will be put against their higher interest rate debts first. All credit and store card companies have agreed to implement that change by the end of this year-something that we shall be very carefully monitoring. The change will need to be included in

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cards' terms and conditions, therefore making them enforceable by law. The requirement will also need to be incorporated into the Lending Standard Board's lending code, as well as that of the Finance & Leasing Association. Together, those two codes of practice cover the lending behaviour of all credit and store card companies in the UK.

In addition, the Government intend to put the broader agreement, which includes a wide range of changes in lending practice, on a statutory footing. I hope that, in the light of my assurances that the Government have already acted on the allocation of payments, and that the consumer credit industry is committed to reversing the practice as quickly as possible on a voluntary basis, my noble friend will feel able to withdraw his amendment.

With regard to Amendments 330A and 330B, I appreciate my noble friend's concerns about ensuring that consumers are made aware of events that might cause them detriment. However, I believe that government Amendment 205 addresses that concern thoroughly and that that view was echoed by the noble Baroness. This new clause widens the circumstances under which the FSA should disclose details of its enforcement actions against authorised firms and individuals so that the FSA is required to disclose information relating to decision notices as it considers appropriate. Currently, the FSA can disclose only information relating to a final notice, which follows any appeal to the tribunal, rather than a decision notice, which is issued after a firm has had the opportunity to make representations to the FSA but before the firm has had an opportunity to appeal. This new clause provides earlier transparency before any appeal has been heard but, importantly, after the FSA has heard the firm's view and concluded that there is a clear case to answer. Consumers will therefore now be able to benefit from earlier disclosure, and the FSA will retain its existing consumer protection tools, including the ability to vary a firm's permission if its continuing behaviour poses a threat. Therefore, while I sympathise with my noble friend's concerns, I believe that they are already met.

The noble Lord, Lord James of Blackheath, raised an issue that he described as a "dirty trick" relating to settlement processes. These are issues on which I will familiarise myself. I doubt whether they are likely to be embraced within the Financial Services Bill before the Committee this evening, but I will pursue the matter. The noble Lord, Lord James, will no doubt be aware that the Office of Fair Trading has said that it is looking at issues relating to investment banking and banking with a view to considering whether it wants to launch a more formal review. It is precisely the sort of argument that has been laid before the Committee by the noble Lord, Lord James, that excites a continuing belief that the banking industry needs to be subject to careful scrutiny because its behaviours in the past have so often run counter to treating customers fairly. That is clearly unacceptable to all sides of the Committee. With those closing comments, I beg my noble friend to withdraw his amendment.

Lord Mackay of Clashfern: In relation to the agreement reached with the credit card industry about the appropriation of payments, will the agreement affect

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existing credit card agreements, or is it an agreement only to change the rules for the future in relation to new agreements?

Lord Myners: I can express with a fairly high degree confidence that it relates to existing agreements. There is a large stock of credit and store cards in existence and while it would be a step forward to have new procedures for the flow of new cards, many of these agreements and cards have been in place for many years and I imagine that it would affect all agreements.

Even as I stand here, my confidence that it affects all agreements has increased dramatically, and I will not now need to write to the noble and learned Lord, Lord Mackay of Clashfern, confirming that fact.

Lord Whitty:I am gratified by the breadth of support for my first amendment. In normal circumstances, I would expect the next move to be for the Committee to adopt it by acclaim. However, I understand where we are. I am grateful to the Minister for indicating the action that has already been taken both voluntarily within the industry and by looking at the codes, and I hope that that will succeed. I will therefore be happy to withdraw Amendment 301 on the understanding that, whoever is in power, if it does not work, we will come back to the issue.

On Amendment 330A, I accept that government Amendment 205 probably goes further than it appears to do at first sight. However, it does not quite deal with the FSA being able to name the company before it reaches the decision point, if it feels it is in the consumer interest to do so. I shall obviously not press that tonight, but it may be something that future Governments will have to look at to put the FSA on the same basis as other regulators.

I beg leave to withdraw Amendment 301.

Amendment 301 withdrawn.

Amendment 302

Moved by Lord Marlesford

302: After Clause 27, insert the following new Clause-

"Central register of credit card holders

(1) The Treasury shall by order establish a central register of credit card holders.

(2) The register shall include the names and addresses of all holders of credit cards issued by UK financial institutions.

(3) The register shall be such as to enable a UK financial institution considering issuing a credit card to an applicant (A) to determine-

(a) whether A holds a credit card already,

(b) the credit limit on any card already held by A, and

(c) whether A is aged under 21 at the time of the application.

(4) The register shall also record details of any special circumstances which make it permissible under subsection (2) of section (Credit cards: conditions of issue to applicants aged under 21) for more than one credit card to be issued to a person aged under 21.

(5) No details of individual financial transactions on any credit card shall be recorded in the register."



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Lord Marlesford: I shall speak also to Amendments 303, 304 and 305. These amendments insert new clauses that come quite neatly after the amendment tabled by the noble Lord, Lord Whitty, because they are concerned with improving the safety of the credit card system. Before I refer briefly to what they say-I think they are quite clearly set out in the Marshalled List-I should say why I think they are necessary. They are necessary because they will deal with the future only because the present is so unsound and dicey. I have raised the question of credit card debt on a number of occasions, and the Minister has been kind enough to write to me a number of times. His latest letter is dated 1 April, and in it he confirms the high level of outstanding debt on credit cards in the United Kingdom. According to Bank of England figures, there is a debt of some £61.5 billion on which interest is being paid. The interest charged on credit card debt varies greatly-this is relevant to what the noble Lord, Lord Whitty, was saying-between about 12.5 per cent and 35 per cent. The Bank of England's estimate of the average rate of interest on credit card debt is slightly under 18 per cent. That means that the existing stock of credit card debt is incurring interest at the rate of approximately £900 million a month, which is an enormous sum.

We must ask how sound is that debt because most of it is on the banks' balance sheets. A certain proportion of it-some £9 billion last year-was securitised. I use that word deliberately because the Minister said it was incorrect, but I have checked, and it is a correct use of the term because the banks have handed over that amount of debt to debt collectors and that is effectively-I have checked carefully with a very distinguished source-a form of securitisation. However, that is, in a sense, beside the point. The point is that there is a great deal of outstanding debt in banks in the United Kingdom, certainly some £50 billion. The credit card debt was securitised, or handed over to the debt collecting companies, at a rate of between 10p and 20p in the pound. Therefore, if that is the value of credit card debt, there is a very large, potentially toxic, supply of debt in our banking system, which could be very serious.

I had hoped that the Minister would be able to tell me how much that has been written down to, but although he has written me a helpful letter, it does not reveal what it has been written down to, which clearly varies from one bank to another, which is the problem. I am not sure whether the FSA, which he consulted, has a handle on this. The fact is that in any one year at present, only about £200 million a month is being added to borrowings-this is partly because there has been a turndown in the use of credit cards-but that is only about £2.4 billion a year, and therefore an increase of some £8 billion of credit card debts during 2009 indicates that some £6 billion was added mainly in the form of unpaid interest. Again, that indicates the fragility of the level of credit card debt. There is an accident waiting to happen.

7 pm

My new clauses seek to remedy the situation for the future. Some of this is perfectly easy to do, although of course I do not expect the Government to accept the amendments tonight. First, credit card companies need to take a great deal more care and trouble before they give out credit cards. There should be a central

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register of credit card holders. I am advised by the credit card industry that this in practice already exists, but I believe that it should be put on a statutory basis. That is the purpose of Amendment 302. It would not indicate the amount of debt but it would require someone who was asking for or being offered a credit card to state what credit cards they already had. The credit card company would then be able to check whether they were telling the truth. As we saw with the sub-prime mortgages in America, much of the problem arose from the fact that borrowers made false statements of their creditworthiness, which resulted in the creation of a lot of unsound, toxic credit. The requirement is that the credit card companies should have carried out due diligence on the people to whom they are giving credit cards.

My new clauses would also require credit card holders to pay off their balance periodically. What the period should be is a matter for discussion and negotiation, but there should be a periodic requirement for the debt to be paid off. At that stage, if the debt is not paid off as it should be, no further credit would be given. One of the great dangers is that people get into a muddle and are unable to repay not only the principal but probably even the interest. The thing mounts up and has a macroeconomic effect as well as a disastrous effect on the personal lives of these unfortunate people, who often have had credit cards irresponsibly offered to them.

There should also be careful scrutiny of young people-I suggest people under 21-who, unless there is a special reason, should not generally be given more than one credit card. The credit card company would be able to check that from a central register. I do not believe in regulations that require a lot of bureaucracy, so my solution is, I think, quite simple. I suggest that a credit card company that incurs debt and has not fulfilled the obligations set out in these new clauses, such as the due diligence that is needed and all the rest of it, would not be able at law to reclaim the credit from the debtor.

I hope that the Government and my party, if it forms the next Government, will consider bringing in such a scheme to ensure that the present risky and dangerous situation can be contained for the future. I beg to move.

Baroness Noakes: My Lords, my noble friend is aware that his amendments will not be accepted this evening and I am grateful to him for recognising that. I should also say that, as drafted, his amendments appear to contain a spending commitment and, on that basis, I could not support them. However, I pay tribute to my noble friend, who has consistently raised his concerns about the availability of credit cards, high interest rates and the possibility of bad debt lurking behind the credit card statistics. He did not disappoint us today with his overview of those matters. I shall encourage him to return to these issues with renewed vigour after the election, when I hope that he will find a party in power that will take them seriously.

Lord Oakeshott of Seagrove Bay: The noble Lord makes good points about the dangers of credit card debt. In many cases, credit cards are toxic. They suck

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people into debt that they cannot afford. That debt is by its very nature unsecured. The rates of interest are high and have been edged steadily higher over the past year to 18 months by all the banks, not least the banks that we have rescued and in which we have majority or substantial shareholdings. I was horrified a few years ago when my children were at university and at one stage it seemed that, with almost every post, offers of credit cards were made to them. That was a gross form of mis-selling. We think that the noble Lord makes good points, even though the exact detail of what he suggests should be done needs further work. However, I pay tribute to the way in which he has highlighted these dangers.

Lord James of Blackheath: My Lords, I support my noble friend Lord Marlesford, whose concerns I share, but I have a few comments of expansion and anxiety. This is a huge problem. There is a big correlation, which I think that we have missed, between these amendments and the amendments tabled by the noble Lord, Lord Whitty. The credit card companies have been deliberate in where they have applied the highest interest and where they have found the most profitable areas to manage. People were using one credit card to draw down cash to pay off their liability on another card. Therefore, the companies introduced a penal rate of interest on the cash drawdown value of their cards. A simple means of controlling this to prevent it from getting worse would be to introduce legislation to stop credit cards being used as a cash drawdown facility, which is where the toxic element begins to take off seriously.

My second concern relates to the due diligence that my noble friend Lord Marlesford mentioned. One point that is missed is that the companies often do not bother to do due diligence because they have done a tie-in deal with a body such as the Royal Society for the Protection of Birds. If you happen to be what I believe is called a twitcher, you get a credit card. I cannot see what being a twitcher possibly does to your credit rating to make you desirable to a credit card company. These things should be stopped. The tie-in is where the toxic element grows. The noble Lord, Lord Oakeshott, is entirely right about the toxic element.

I end with a big warning. There is a huge risk that, in seeking a cure and trying to clear up the credit card system, we bring about a catastrophe that would go right to the core of the banking system and create a new mega-disaster for the banks, because they are the owners and backers of these cards.

Incidentally, I have it on pretty good authority that the portion that was securitised was limited to those who had failed to pay even the minimum payment for three months in a row, so perhaps 10p in the pound was a very generous offer.

Lord Myners: My Lords, one of the great strengths of the House is the expertise that Members bring to issues either by virtue of their past or parallel careers, or because they become doggedly interested in a subject and persistent in their search for understanding. That certainly applies to the noble Lord, Lord Marlesford, in respect of credit cards. I think that we can rest assured that, as the noble Baroness said, this matter will not be left to drop by the noble Lord, whom I

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expect with a high degree of confidence to see seated in his usual place on the Benches opposite after the general election and continuing to press these matters. Indeed, I expect to see the noble Lord, Lord James of Blackheath, similarly in his customary place.

The amendments tabled by the noble Lord, Lord Marlesford, would set up a central register of credit card holders and introduce restrictions on access to and use of credit cards, with particular provisions relating to those under the age of 21. The Government sympathise with the noble Lord's concerns about the minority of people who become seriously indebted through credit cards. But this is not the experience of most customers of this product. Data provided to the BIS review show that the vast majority of consumers pay back their credit card borrowing within a reasonable period. Only 3 per cent make the minimum payment for 12 consecutive months.

However, we very much recognise the concern that credit cards should not be used for long-term borrowing and that there has been considerable consumer appetite for a change in the terms on which credit cards are offered. That is why we announced on 15 March the agreement that we have reached with the credit and store card issuers to introduce a number of new rights for card holders designed to prevent and reduce overindebtedness.

These new rights were secured in an agreement between the Government and the credit and store card companies negotiated in the light of feedback from thousands of customers to a government consultation on credit cards. This will mean that the most expensive debt is paid off more quickly. New cards will encourage better repayment practice by having a higher minimum payment, a ban on credit limit and rate increases for people at risk of financial difficulty and a right to 60 days to reject interest rate increases. The key changes will be introduced by the industry this year and given statutory force as soon as possible.

Amendments 302 and 303 would place the Government under a duty to create a central register of credit card holders and require credit card issuers to check the register before issuing a card. But it is difficult to see what a statutory register would add to the information that is readily accessible by lenders. The three main credit reference agencies already hold data about consumers' credit commitments, including mortgages, overdrafts and loans, as well as credit cards. All credit card companies already consult CRA data before advancing any new credit.

This would already give them a picture of the number of cards that the consumer has, and the limits and balances on each of those cards. Moreover, credit card lenders are improving the data that they share in order to identify customers at risk of financial difficulties who should not have credit extended to them. They are committed to sharing behavioural data, including whether someone is making only the minimum payment or whether they withdraw cash, both of which are regarded by the industry as indicators of risk. The consumer credit directive, which comes into effect shortly, will make checking a borrower's creditworthiness a statutory requirement and a new OFT irresponsible

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lending guidance note issued on 31 March will create new requirements to check that credit is affordable for the consumer.

Amendment 304 would introduce severe restrictions on the use of new credit cards which would totally undermine the flexibility and value of credit card products, converting them in effect to a series of short-term personal loans. It would undermine the existing business model for card lending and would completely kill the product. We believe that new OFT requirements, coupled with the approach we have taken in the agreement with the credit card issuers, represent a more proportionate response.

While much hazard is associated with credit cards, I think most of us are aware that a credit card is a very simple and effective way of making payment and most of us would struggle if we did not have use of that piece of plastic in our wallets to make regular settlements. We should be careful not to damn something which for the vast majority of the population has had considerable utility and which they greatly value.

The OFT's new irresponsible lending guidance requires a credit card company, for example, to have regard to the borrower's ability to pay off the maximum amount of credit available over a reasonable period of time. The guidance specifies that, in the case of credit cards, the borrower should be able to repay the credit on a timeline at least akin to that used for other forms of unsecured lending, such as fixed-sum personal loans, made for an amount equivalent to the credit limit. The fact that a borrower may be able to "service a debt" over many years simply by making minimum repayments does not, in the OFT's view, equate to being able to pay off a debt in a reasonable period of time. On 15 March we announced an agreement with the credit card industry to introduce a number of new rights designed to prevent or reduce overindebtedness. One specific element of the new agreement with the credit card companies is that they will increase minimum payments for new accounts to help prevent a build up of excessive debts and will send letters to consumers at risk warning about the consequences of making very low repayments.

The new clause introduced by Amendment 305 would impose a duty to verify whether a person under 21 at date of application already holds a credit card and prevent issue unless the issuer considers that there are special circumstances making the issue appropriate and to record the special circumstances in the proposed register. Effectively, it identifies under-21s as being at much higher risk than other credit card users, but this is not necessarily the case.

7.15 pm

The Government consider a better approach is to focus on the risk of the individual. The new requirements that I have already mentioned under the consumer credit directive and the irresponsible lending guidance issued by the OFT are relevant here. Together, these measures mean that lenders have to take a responsible approach to lending to this group of consumers. On average, it is likely that under-21s will already have less access to credit than older consumers given their shorter credit history and lower earnings.



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I hope that the recent announcement of the new rights for credit card holders, together with the explanation that I have given about the significant statutory protections that we are putting in place for borrowers, will give some assurance to noble Lords that the Government have established a tough but proportionate approach to tackling irresponsible lending. Our primary focus continues to be that we should be regulating the lender rather than the borrower, which has been manifest in a number of announcements we have made, including in respect of mortgages.


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