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 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.