Clause 3 - Exemption relating to high net worth debtors and hirers
Consumer Credit Bill
8:55 am
Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)
The clause relates to the exemption for high net worth debtors and hirers on agreements undertaken by people of a high net worth, who are currently exempt from the regulation under the 1974 Act providing certain tests are met and that the individual makes a declaration agreeing to forgo the protection offered by a regulated agreement.
We agree in principle with the exemption. It is a key factor for British business and UK lending institutions. Many people of high net worth come to the United Kingdom because of the nature of our financial systems and structures, and we need to protect that industry without neglecting the interest of customers. The measure is crucial to maintain what we in the UK call large sum borrowing; otherwise people may shift their custom to offshore centres, which could prove damaging to our economy.
We need to understand the nature of such people. They are mobile, often have more than one home and borrow huge sums at very short notice, and there is no shortage of people keen to lend to them. If we make it hard for them to borrow in the United Kingdom, there are plenty of other places. That world may not be familiar to Members of Parliament, although the new Northern Ireland Minister may know it; but those who discover themselves on a Caribbean island with a spare butler but are not quite sure what to do with him may decide instead, and at short notice, to buy a new yacht. The circumstances in which such issues arise are not common, but they are important for those affected. If delays are built into the system, people can turn elsewhere and borrow from other sources.
We are keen to have more detail on what the Government have in mind, particularly about the specified amount of income and assets mentioned in subsection (2)(a) of proposed new section 16A, which states:
“received during the previous financial year income of a specified description totalling an amount of not less then the specified amount”.
It would help if the Minister were to say what he has in mind about specified amounts.
Under the Bill, the declaration must be made in the agreement itself, which will place an unnecessary bureaucratic burden on credit and hire businesses. Lenders would be forced to maintain a separate suite of agreements containing the specified declaration, a process that would prove costly and time-consuming, yet time is often of the essence as people want the money quickly. Such costs are likely to be passed on to the consumer, and the time involved would drive people elsewhere.
The changes proposed in amendments Nos. 1 and 2 would allow the declaration to be made in a separate document, which would be sensible and in the interests of consumers. The document would be lodged permanently, and borrowers would merely have to confirm that it still applies, as set out in amendment No. 3, by adding in the words
“at the time that agreement is signed”.
Subsection (3)(a) provides that a statement:
“may not be made by the person in relation to whom it is made”.
Amendment No. 4 would add the words:
“unless supported by independently verified documentation”.
That seeks to address the issue of too much bureaucracy; it would allow greater flexibility yet still protect the interests of the consumer.
Amendment No. 5 would allow for greater flexibility by extending the life of such statements to two years rather than one, especially as protections are already included.
Finally, amendment No. 6 is about life partners. We think it appropriate that if life partners such as a husband and wife borrow jointly, but the income is concentrated in one individual’s name, that only one partner need certify. In other words, certification would not be necessary for both partners. The declaration would still be a mandatory requirement, so there would be no detrimental effect upon consumer protection. In fact, providing the declaration in a separate document is more likely to draw attention to its meaning and substance.