Clause 9 - Notice of sums in arrears under fixed-sum credit agreements etc.
Consumer Credit Bill
9:55 am
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
I beg to move amendment No. 31, in clause 9, page 8, line 16, leave out ‘four’ and insert ‘eight’.
The clause relates to the notice of sums in arrears under fixed-sum credit agreements, and we propose to substitute “eight” for “four”. We support in principle the concept that borrowers should be sent an arrears notice when they have fallen behind with their payments. That would greatly help them in ensuring that they understand that they are in arrears and would enable them to plan to get out of arrears as soon as possible. However, to work effectively, that information must be accurate and relevant. As the Bill stands, the danger is that it might not work as effectively in the interests of the debtor as it should, especially for home credit borrowers.
For conventional credit that is paid monthly, the arrears notice must be issued when the customer is, in aggregate, two months—eight weeks—behind. An aggregate amount of arrears is involved, so if a monthly credit consumer misses one payment and then a year later misses another, he must still be sent an arrears notice. The situation is different for home credit customers, who pay weekly and who are sent an arrears notice when they are a month—four payments—behind.
That fails to recognise the way in which home credit works. Four missed payments is not seen as a problem. Home credit is designed to be flexible. Borrowers pay back a fixed amount, but if they lose their job or their circumstances change, or they simply want to miss a payment for another reason, the length of time they use to pay back the amount can be varied. It will even be changed if it is more convenient for the borrower to miss a week because of a holiday or a birthday. If someone misses two payments over the summer, one at Christmas and one when a child has a birthday, he must receive a formal arrears notice, even though technically he is not in arrears or in any form of difficulty.
That raises two issues. The first is the impact on the borrower of being told that they are in arrears when that is not the case. He might simply have been out of the house when the agent called and therefore missed a payment. Nevertheless, he will still be given a formal arrears notice. Telling people who are worried about money and are in debt—that is the reason why they opted for a home credit loan in the first place—“You are now in arrears” in a formal notice, which looks a very legal document to them, is bound to cause great distress and concern.
The second issue relates to the bureaucracy. About 3 million people are home credit borrowers. On average, they are four weeks behind in their payment. The Bill requires all 3 million to be sent a formal letter of arrears. Assuming that the cost of writing, posting and administration is just £1 a letter, that represents an extra £3 million in administrative costs, which will inevitably be passed on to borrowers in the form of higher charges. We are talking about precisely the sort of people who are already worried about the level of charges that they pay.
There is a simple solution. Our amendment would create parity between conventional monthly lending and weekly home credit, making the relevant period two months for both. Where arrears continue for home credit borrowers, that would simply be included in a notification in the required annual statement. Alternatively, the Minister might consider saying that the arrears notice should be required only if the terms of the loan change as a result of the arrears or if extra charges are incurred. The key point is that the people we are talking about have not incurred any greater level of debt or any additional charges and therefore it is misleading to send them a letter saying that they have.
I would also be grateful if the Minister commented on privacy. The consideration applies in particular when children have taken out a loan and are living with their parents. Their parents might not be aware that they have taken out the loan—clearly, we are talking about children over the age of 18. We could discuss whether their parents should be aware, but if a letter comes through the letter box that says, “Important, read this”, parents will want to know what it is about.
The same situation might occur in a relationship, where one partner has not told the other why they have taken out a loan. We may all feel that people should be clear with their partners about why they have done such a thing, but in cases where they have not, we are in danger of intruding on the privacy of their relationship by sending a bold envelope through their letter box telling them that something is wrong. If such a notice does not go in a bold envelope, it might be put to one side or discarded, so that is not a possibility.
Can the notice be delivered electronically? We have discussed that before. How do the notifications need to be delivered? Do they be in the form of a simple letter? Can they be sent by registered post? Do they have to be signed for? How do we ensure that they are received by the right person? In a household of four, five or six students—a house in multiple occupation—that could regularly be an issue of concern. How can we be certain that notifications are received in a way that people will understand? That point relates to people who are blind, who do not have English as their first language, or who have learning issues and learning difficulties. There are many things to consider and I hope that the Minister addresses them.