Clause 6 - Statements to be provided in relation to fixed-sum credit agreements
Consumer Credit Bill
9:30 am
Gordon Banks (Ochil and South Perthshire, Labour)
I beg to move amendment No. 33, in clause 6, page 4, line 35, at end insert—
‘(c)shall, where the term of the credit agreement is more than one month but not more than twelve months, give the debtor a statement under this section within 14 days of the mid point of the term of the agreement.’.
David Taylor (North West Leicestershire, Labour)
With this it will be convenient to discuss amendment No. 34, in clause 6, page 5, line 7, after ‘(a)’, insert ‘or (c)’.
Gordon Banks (Ochil and South Perthshire, Labour)
I would like to outline a brief summary of the problem, its solution and the reasoning behind amendments Nos. 33 and 34. Clause 6 places a requirement for regular information provision from lenders through annual statements, providing their annual credit is held in excess of 52 weeks. Information must include an annual statement as to what is owed and failure to provide this information will result in significant penalties being placed on the lender.
The problem is that, if the loan is for less than 12 months, the Bill does not help. Short-term loans are often aimed at low-income earners and therefore clause 6 could discriminate against those with lower incomes. In order to avoid the new regulations, I fear that lenders may introduce shorter-term loans for a period of less than 52 weeks—for 50 weeks, for instance—to negate the requirement to supply that information.
All too often, doorstep loans are taken up by the most deprived in our communities and typically they are for less than 52 weeks. To my mind, the solution is an amendment that proposes a mid-term statement for loans for a period of less than 12 months. That would prevent lenders from ducking out of their requirements under the new provisions and provides clear and precise information to the borrowers. One statement for each loan would provide clear information for borrowers who may have more than one loan.
I do not see any reason why loans for less than 52 weeks should be excluded. Research from the Department of Trade and Industry and MORI shows that 7 per cent. of those who spend more than 25 per cent. of their income on a loan have a doorstep loan. Therefore, a distortion in the market becomes a real possibility in relation to short-term loans. I will be interested to hear the Minister’s response.
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
I welcome my hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) to the Committee and I thank him for his probing amendment, which he outlined in his speech. It is a very important issue and I thank him for the way in which he presented the amendment.
The Government have considered carefully the question of providing consumers with clear and relevant information in some detail. We need to strike a balance in this area between providing information and the practical issues involved in lenders complying with the requirements. I believe that we have found a balance between that concern and the practical issues associated with providing the required information.
Agreements for periods of less than one year are generally for smaller amounts of money and are unsecured. Consumers with such agreements often use credit products that provide information about the loan in the form of account books that the consumer retains.
In relation to larger loans over longer periods, there is a particular problem that in many cases no information is provided. We recognise that someone may not receive all the information they need, particularly at critical points when they are at risk of problems. For that reason, the Bill requires all lenders to give consumers early information about arrears and default sums. As I said earlier, the Government believe that that policy recognises a balance between providing information and the administrative burden on lenders.
The amendment would require lenders to repeat a lot of the information that consumers already have in a different form. It would also require lenders, many of whose businesses are at the smaller end of the scale, to issue statements at a specific time in relation to the specific terms of each agreement. That could pose difficulties for some small lenders with limited administrative resources, which are particularly common in this sector.
Imposing such a burden could limit the range of products available to consumers by decreasing the flexibility of the product on offer and increasing the price, which could disadvantage those consumers who seek short-term credit. Lenders whose agreements last for more than one year will be required to provide annual statements. I agree with my hon. Friend that lenders should be transparent in all of their dealings with consumers and I strongly encourage that. I do not believe that the amendment balances the interests of consumers in receiving information with the administrative burden on lenders that would be created.
John Battle (Leeds West, Labour)
I sympathise with the proposal of my hon. Friend the Member for Ochil and South Perthshire. We sometimes use the word “transparency”, which suggests that a formal letter goes to someone. I think that it is a question of communication with human beings. The only other post that people with loans from doorstep lenders get through their letterbox tends to be pizza notices or formal demands. Lenders should communicate with people who have borrowed in a human way, so that they understand the nature of the contract into which they have entered, and they get help to work through it. Rather than simply saying to lenders, “Be transparent”, and the lenders then sending people a formal notice that one needs a lawyer to interpret, the lenders should put in some effort to communicate with people as human beings, as we politicians do, dare I say it, when we try to communicate with the electorate through notices and letters. The lenders have a responsibility to help people through a contract, and not just to load more on to them.
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
I do not disagree with my right hon. Friend. That idea is at the heart of what we are trying to achieve with the Bill. Most lenders act honourably when giving information to consumers and make sure that people know what they are letting themselves in for with such agreements.
Alongside the Bill, there are issues of consumer education and support, including debt advice or money advice . Through the financial inclusion fund, £45 million will be made available to increase the awareness of such issues. I agree with my right hon. Friend that the people who get themselves into the most difficulty need support at the earliest stage. They need to be made aware of the difficulties that they will face should they not be able to make the repayments on what may be considered to be a small debt, so that they do not get into a cycle of problems that makes matters worse. We are committed to ensuring that we protect the vulnerable consumer, but we must strike a balance, because if small lenders cannot stand the administrative burden, the product will be removed and the very people whom my right hon. Friend wants to see supported and able to get credit will not get it.
My hon. Friend the Member for Ochil and South Perthshire has made his point in his amendment. We think that we will achieve that through the Bill, through the powers of the Office of Fair Trading and through responsible lending, about which the Committee feels strongly and to which we will return later in our deliberations. I hope that he will withdraw his probing amendment and accept the assurance that the very people whom he is trying to protect will be protected in the later clauses that we shall discuss during the passage of the Bill.
Norman Lamb (Shadow Secretary of State for Trade & Industry, Trade & Industry; North Norfolk, Liberal Democrat)
I am certainly very sympathetic to the intention of the amendment. I think that it was a Liberal Democrat member of the Committee last time around, the former Member for Richmond Park, who tabled a similar amendment.
The Minister mentioned that people with short-term loans are often aware of the amount of their borrowings at any particular stage because of their possessing an account book. However, the evidence that I have seen suggests that often the account book is very confusing to the debtor, that it contains several loans, and that understanding how much is due on any particular loan can be complex. I am not entirely sure that the Minister’s response is sufficient to ensure clarity for people on low incomes who are borrowing over a short period. The hon. Member for Ochil and South Perthshire is right: it will often be those on the lowest incomes taking out short-term loans who will not be caught by the provision requiring an annual statement.
Considering the wording of the amendment, I am concerned that a loan for one month would presumably require a statement after two weeks. That seems to be a bit over the top, and it seems likely to be unworkable.
Gordon Banks (Ochil and South Perthshire, Labour)
The amendment concerns loan agreements in excess of one month.
Norman Lamb (Shadow Secretary of State for Trade & Industry, Trade & Industry; North Norfolk, Liberal Democrat)
I take the point, but for a loan for six weeks or two months, it is perhaps too onerous to require a statement halfway through such a short period. I am not convinced that in a vote I would want to support the amendment. None the less, the Minister must do more to encourage the industry to ensure greater transparency for people taking out short-term loans of this sort.
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
This is clearly an area of concern, but I am not sure that getting a statement helps the individual in the totality of their situation. What does getting a statement mean, particularly for people in vulnerable situations?
What is important is the principle of responsible lending. Later, we will discuss the unfair credit test and reform of that test. The lender will have to show that they are lending responsibly to the consumer; it will be the lender’s responsibility to prove that they acted fairly. That is where the safeguards will be, rather than in someone getting a statement.
People who are in a difficult situation because they have outstanding loans and who want to borrow less than £100, for instance, tend just to go for the money. They do not think about the consequences of the cumulative loans that they have. For them, merely getting a statement of what their position is with each of those loans is not an issue.
Norman Lamb (Shadow Secretary of State for Trade & Industry, Trade & Industry; North Norfolk, Liberal Democrat)
Is the Minister saying that, in terms of the test of reasonableness and the unreasonable relationship and so forth, lenders ought to take note of his comments about providing greater clarity in the account books that they supply to borrowers in such circumstances?
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
That is clearly what I am saying. In Committee, we have an opportunity to make it clear what we expect of the industry. Account books could be clearer. I am asking for that; I am not regulating for it. I am saying that that is what the industry should do, particularly the smaller sector of it. However, we must not add too much to its burdens. We must get the balance right. If we consider the Bill as a whole, it is clear that we are trying to deal sympathetically with certain sorts of people such as vulnerable consumers, but we do not want to create a burden that takes lenders out of the marketplace, which will, presumably, affect those people.
On the basis of what I have said and the assurances I have given, I hope that my hon. Friend the Member for Ochil and South Perthshire will withdraw the amendment.
James Brokenshire (Hornchurch, Conservative)
Proposed new section 77A states that it does not apply to “a small agreement”. That term refers back to the Consumer Credit Act 1974. The original sum was £30, although I suspect that it has increased. I ask the Minister to provide clarification on what is meant by “a small agreement”, especially in light of the rightful concerns raised in this discussion about protection for vulnerable people—people who are struggling to meet payments. If the intention is for this measure not to cover “small agreements”, we should all be clear about precisely what that means.
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
By magic, the figure approaches; the sum has gone up from £30 to £50.
Gordon Banks (Ochil and South Perthshire, Labour)
As my hon. Friend the Minister said, this is a probing amendment. One of the issues that has come up in our discussion is the clarity of loan books, and I am glad that the Minister responded to that. We have all seen examples of such books; USA residents, somewhere in Philadelphia, are probably required to understand some of them.
There is another point to be made: a simply worded statement provides clarity. The amendment has the support of a number of bodies, such as Citizens Advice Scotland, the Society of Chief Officers of Trading Standards, the Scottish Consumer Council, the Church of Scotland and Debt on our Doorstep. However, as I am happy with the Minister’s response, I beg to ask leave to withdraw the amendment.
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
I beg to move amendment No. 9, in clause 6, page 4, line 37, at end insert—
‘(2A)For the purposes of this section and any regulations made under subsection (2), the requirement to give a statement is satisfied if the creditor, with the debtor’s agreement, makes available electronically, in a manner which is freely accessible to the debtor, the content prescribed by the regulations.’.
The Bill rightly sets out to provide consumers with more information, and more regular information, regarding their credit agreements. The credit market is complex and increasingly diverse. It is crucial that we take every step to empower consumers to ensure that they have equal standing and are not dominated by what may often seem to be an imposing industry. I agree with the right hon. Member for Leeds, West about the importance of clarity, of writing information in a way that people will understand and of the delivery method, which I want to return to later.
By placing a requirement on creditors in regulated fixed-sum agreements to provide debtors with annual statements, the principle behind clause 6 is a positive step towards helping to achieve that status for consumers. However, we consider that the position can be improved still further. Amendment No. 9 recognises that many people’s preferred form of correspondence is electronic, and that will be the case even more so in years to come. The amendment allows annual statements to be provided electronically if the consumer agrees, which saves both time and cost and reflects how people increasingly live their lives. Otherwise, the Bill will look extremely anachronistic in 30 years.
Many of us already choose to arrange our personal finances electronically, including our pensions and banking, so it would be peculiar for us not to allow consumers the same access to service for their credit agreements. Indeed, it would help debtors to keep track of their agreements, helping them to maintain payments and to avoid going into arrears. That must surely be a positive step.
Norman Lamb (Shadow Secretary of State for Trade & Industry, Trade & Industry; North Norfolk, Liberal Democrat)
The amendment seems an eminently sensible proposition, although I would like clarification from the Minister on whether the wording of the clause as it stands allows for electronic statements. I note the reference to the capacity to make regulations to provide for the form of statement, and it may be that provision exists without the need for the amendment.
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
I heartily agree with the hon. Member for Wealden. The amendment is excellent and, had it been necessary, I would have accepted it. I understand the sentiment behind it, but it is unnecessary because, as the hon. Member for North Norfolk confirmed, new section 77A(1) says that the creditor shall give the debtor a statement. In section 189 of the Consumer Credit Act, “give” is defined as
“deliver or send by an appropriate method”
and therefore covers electronic communication.
The amendment was well thought out, but the Bill already contains a relevant provision. That being the case, I hope that the hon. Gentleman will withdraw his excellent amendment.
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
There cannot be many examples of excellent amendments having to be withdrawn, and to be called “eminently sensible” by the Liberal Democrats is also unusual. However, we are reassured by the Minister’s comments and, in the light of those positive comments, we will claim this as a massive triumph for the Conservative party. Consensus has broken out. I beg to ask leave to withdraw the amendment.
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
I beg to move amendment No. 10, in clause 6, page 5, line 16, leave out from ‘extent’ to end of line 19 and insert ‘specified by Regulations; and’.
David Taylor (North West Leicestershire, Labour)
With this it will be convenient to discuss amendment No. 11, in clause 6, page 5, line 36, at end insert—
‘(8A)Regulations may make provision about the extent of the debtor’s liability to pay any sum of interest under subsection (6).’.
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
The amendments are essentially probing, seeking further clarification from the Minister on how the measures will work in practice.
It is of course right that, should the creditor fail to meet the requirement to issue an annual statement to a debtor, they should not be entitled to enforce the agreement during the period of non-compliance and that the debtor should not therefore be liable to pay interest on the agreement during that period. That is only fair, and I believe that it sets the right balance of relationship between creditor and debtor. It encourages responsibility on the part of the lender and emphasises the rights of the consumer, which is fundamentally what the Bill aims to achieve.
However, the current wording of proposed new subsection (6)(b) seems unclear in determining how the interest that the debtor will not be liable to pay will be calculated. As the Minister is fully aware, there are many different means by which interest can be calculated and, in many forms of agreement, credit may be structured so that the interest is not spread evenly over the period of the loan. He will be aware that in some loans the repayments are front-loaded and in others, especially for car purchases, there is a balloon payment at the end. Without a clear procedure for calculating the non-liability of the debtor, there is a risk of producing different effects on varying credit products and therefore triggering market distortions.
Will the Minister explain exactly how the measure will work in practice? I have no problem with the Government’s intention behind the proposal, but we must ensure that it will not cause unintended distortions.
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
I am grateful to the hon. Gentleman for the way in which he introduced the probing amendments. It gives me the opportunity to explain how new section 77A will work and I hope that that will deal with his worries about the clause.
New section 77A(6) is clear. The creditor, if he has failed to provide an annual statement, is not entitled to require the debtor to pay any sum of interest, calculated by reference to the period of the creditor’s non-compliance, or any default sum either due or incurred during the period of the creditor’s non-compliance. As for the interest, the calculation is the amount that could have been charged by the lender under the agreement for the period of non-compliance. That period of non-compliance is the period from the date on which the creditor was required to provide the statement until the time at which the failure to provide the statement is remedied and the statement is given to him.
The key to the provision is to require creditors to provide annual statements and, if they do not, to penalise them by denying them the right to claim any interest or charge any default sums during the period in which they fail to provide the required annual statement. Given that the penalty, which applies to a failure to comply with the provisions, is appropriate and desirable, it should appear clearly in the Bill. I ask the hon. Gentleman to withdraw the amendment.
Michael Penning (Hemel Hempstead, Conservative)
Will the Minister clarify “default sums”? I accept that the debtor would not have to pay interest or default sums to the creditor, but proceedings could have started and costs would have been incurred by the debtor. Does anything in the Bill prevent those costs from being incurred by the debtor?
David Taylor (North West Leicestershire, Labour)
Order. The sitting will have to be suspended for a few moments. We have problems with the microphone.
Michael Penning (Hemel Hempstead, Conservative)
Will the Minister clarify whether costs that arose outside of the agreement—the costs of legal proceedings or court costs—will be incurred by the debtor?
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
I am grateful to the hon. Gentleman for raising the issue of what the default sum means in terms of other costs. Under clause 18, the default sum will include any sum that the lender requires the debtor to pay when the debt has been breached by the debtor. That can include costs and charges, so the hon. Gentleman is right: any additional costs or charges will be included in that.
I hope that, with those explanations, the probing amendment can now be withdrawn.
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
I am grateful to the Minister for those clarifications. In the light of them, I beg to ask leave to withdraw the amendment.