New Clause 5 - Regulatory impact
Consumer Credit Bill
4:45 pm
Mr Malcolm Bruce (Shadow Secretary of State for Trade & Industry, Trade & Industry; Gordon, Liberal Democrat)
I am content to be associated with the idea of sunset clauses, which my colleagues and I strongly support. However, I want the Minister to focus specifically on the new clause. He and the House have acknowledged that these provisions set up new arrangements, the workings of which will only become apparent over time. I ask for a clear recognition of the need for a review to ensure that the provisions do not create unnecessary bureaucracy, duplication or overlapping that make the delivery of desirable benefits, either to the consumer or to service providers excessively costly. It is a simple clause, and I hope the Minister will accept it.
New clause 6 deals specifically with hon. Members' concerns about potentially high or extortionate rates of interest. The Minister, the Conservatives and I did not agree with the inclusion of a specific maximum interest rate in the Bill. Several hon. Members, particularly Labour Members, wished to see that.
The new clause states that there should be a standard mechanism for setting out interest rates for different products, because credit card interest rates operate in several different ways. Overdraft interest and hire purchase interest are expressed in different ways. The first thing we must do is ensure standard ways of expressing interest rates appropriate to different products, which can be compared so that consumers can see the full range of credit costs. The OFT should produce—at least annually; certainly periodically—a list of interest rate ranges, which will change as interest rates vary.
Subsection (3) of the proposed new clause addresses the concerns of hon. Members who wish to identify and eliminate extortionate interest rates. On the basis of experience and practice, it is for the ombudsman and the OFT to say, ''This is the range of products. This is the upper and lower rate of interest for those different products, and on the basis of ombudsman's rulings or court cases, we will indicate from time to time the level of interest rate that is likely to be deemed unfair.'' That would warn credit providers that if they charge above that rate, they are likely to lose a reference to the ombudsman or to the courts.
The new clause does not insert a specific interest rate into the Bill; it allows that to vary and it leaves it to the discretion of the ombudsman and the OFT. This is a genuine attempt to address people's concerns, consistent with the agreement of all Front Benchers that putting a specific interest rate in the Bill would be, for a variety of reasons, possibly counter-productive and difficult to enforce.
I commend both of the new clauses to the Committee. They genuinely meet the concerns of the industry in the spirit and the letter of the law. They also meet concerns on consumer regulation, particularly for those people at the lower end of the market who often face very high interest rates. A mechanism can be built into the Bill that would effectively allow the authorities to identify, at any given time, interest rates that could give rise to a ruling that they are unfair.