Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I beg to move amendment No. 12, in clause 19, page 14, line 8, at end insert—  

'(1A) A relationship between the creditor and the debtor shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations, to the detriment of the debtor.'.

Derek Conway (Old Bexley & Sidcup, Conservative)

With this it will be convenient to discuss the following amendments: No. 13, in clause 19, page 14, line 8, at end insert—

'(1A) Regulations shall make provision to indicate the circumstances in which the relationship between the creditor and debtor may be regarded as unfair.'.

No. 14, in clause 19, page 14, line 10, after 'to', insert—

'(a) whether the relevant terms of the agreement, or of a related agreement, is in plain, intelligible language; and

(b) '.

No. 15, in clause 19, page 14, line 16, at end insert—

'(3A) If the court concludes that the relevant terms of the agreement were clear and intelligible when the agreement was made, then, notwithstanding the provisions of section 140B(11), it shall be for the debtor to prove that the relationship was unfair.'.

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

The clause is without doubt one of the most important in the Bill. It determines the thrust of what we are trying to achieve—a better, fairer and more responsive system for consumers. On Second Reading, Members on both sides of the House expressed their support for the new unfair relationship test that will be instigated under the clause. We all accept that the current extortionate credit test is outdated and does not work. It offers little or no protection for consumers and it is biased in favour of the credit companies. The fact that it has hardly been used in more than 30 years is evidence of its unsatisfactory nature. We have to address that imbalance.

Notwithstanding my support for a new unfair test, the Minister will be aware that most hon. Members who spoke on Second Reading have serious reservations about the way in which the clause is worded. In particular, concern was expressed about the lack of definition of what will be deemed fair and unfair under the new legislative framework. Although the two sides of the House may be seeking to achieve quite different ends from the new test, at present none of us can be certain that it will deliver what we hope for. It is a chasm that, left unfilled, would prove damaging to lenders and consumers.

On Second Reading, the right hon. Member for Leeds, West (John Battle) talked eloquently of people's concerns about going to court. Even people who are not used to court recognise that they are up against a huge wealthy corporation with enormous resources; and without a thorough understanding of their chances of success, consumers will be deterred from pursuing cases that, if unsuccessful, would not only add to their financial difficulties but cause them tremendous stress. That view is held by the credit lenders and the consumer organisations.

Without a thorough understanding of what lending practices will be considered inappropriate, the credit industry remains unaware of the changes it may need to make to ensure that its consumers are protected. As a consequence, the industry will become more cautious in its lending practices, and that will hit the most vulnerable the hardest. That will do more than   anything else to drive those people to loan sharks. Moreover, the vagueness of the provisions gives rise to concern about their compatibility with human rights legislation. We spoke about that on Second Reading.

I hope that the Minister will agree that the approach to tackling unfairness in lending must be targeted and consistent. Lenders must be certain from the outset that their contracts are secure, and consumers with genuine cases must be clear about where they stand. The amendments that we have tabled are aimed at providing that certainty.

Amendment No. 12 gives greater clarity to the balance in the relationship between the lender and the debtor by introducing the concept of consumer detriment. For too long, consumer credit law has been biased in favour of the credit industry, and it is important that the emphasis is shifted back to the consumer.

Alan Reid (Shadow Minister, Trade & Industry; Argyll & Bute, Liberal Democrat)

I support the general thrust of the hon. Gentleman's argument, but I am concerned by the word ''significant'' in Amendment No. 12. The amendment states that the relationship will

''be regarded as unfair if . . . it causes a significant imbalance''.

I am concerned that that word would work too much in favour of the creditor. Will the hon. Gentleman explain why he included ''significant''?

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I am grateful to the hon. Gentleman for his intervention. There has to be some measure of imbalance. We could debate for hours a slight imbalance moving one way or the other. In order for our proposal to be relevant, there has to have been a change of some significance. Again, the courts would have to decide that issue, but there must be some measure of how far the imbalance has gone.

Edward Vaizey (Wantage, Conservative)

I may be able to help my hon. Friend, and I hope that I shall be able discuss this issue shortly when we debate the amendments. ''Significant imbalance'' is a legal term that is used generally to define unfairness in all precedents. That is why when the Minister considers the force of the arguments from the Opposition in Committee, he will perhaps see that considerable case law and legal texts on the definition of unfairness appear to be absent from the Bill.

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I am grateful to my hon. Friend, whose intervention shows yet again what an embarrassment of riches of legal expertise we have on the Opposition Benches.

Amendment No. 13 builds on the point further, by clarifying what is meant by an unfair relationship test to be provided by regulation. Representatives on both sides of the argument have called for more detail, and they need the amendment if this part of the Bill is to benefit the consumer.

I draw attention to annexe 1 of the unfair commercial practices directive, which contains an extensive list of commercial circumstances that may be considered unfair. Mr. Conway, you would of course rule me out of order if I were to read out the   entire list, but it highlights some commercial practices that it says are in all circumstances considered unfair. It is not an exhaustive list, but it gives guidance. For example, it highlights:

''1) Claiming to be a signatory to a code of conduct when the trader is not.

3) Claiming that a code of conduct has an endorsement from a public body when it does not have.

7) Falsely stating that a product will only be available for a very limited time''—

which could certainly apply to financial issues—

''or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice.''

The list includes:

''14) Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.''

It includes also:

''18) Passing on materially inaccurate information on market conditions or on the possibility of finding the product with the intention of inducing the consumer to acquire the product at conditions less favourable than normal market conditions.''

Finally, it includes also:

''25) Conducting personal visits to the consumer's home ignoring the consumer's request to leave or not to return except in circumstances and to the extent justified, under national law, to enforce a contractual obligation.''

Those practices in the European directive are commercial practices that in all circumstances are deemed to be unfair. We are looking for the Bill to list a similar set of circumstances that would be deemed to be unfair in this country. There is tremendous concern about the lack of clarity and we need something that provides a level playing field so that both the credit companies and the courts will understand what is going on. This clause is the crux of that. I know that other colleagues will be keen to join in the debate, because without that clarity, we are simply struggling in the dark.

Derek Conway (Old Bexley & Sidcup, Conservative)

Before I call the next Member, I remind the Committee that I expect Members to focus on the amendments. We will have a general stand part debate when we consider the other group of amendments, but we will deal with this group of amendments first.

John Battle (Leeds West, Labour)

I do not intend to repeat the points that I made on the Floor of the House on Second Reading, but I shall draw attention to the two points that concern me the most. The first is the fear that without clarity, the issue of unfairness will be pushed in the direction of the courts. The second is the fear that the people involved will not go to court; it is not their place of resort to get justice. I say that because, after Second Reading, I spoke to borrowers in my constituency. I went back to check. I said, ''What usually happens if you think the deal's unfair?'' Nine out of 10 times I got the answer, ''Oh, they offer me another loan on different terms or with a different body.'' So, in practice, debt could get compounded as   people are pushed further and further into debt with other companies.

We are talking about people who do not even go anywhere near the courts; they are not seen as a place to go to appeal. For many people that I represent, going to court is a massive thing. They do not go to tribunals. They are left feeling intimidated and dumbstruck by going to a school appeal, never mind going to a court to sort money out. We cannot push this Bill, which offers them some real redress, in the direction of getting them to go to court.

That brings me back to the Office of Fair Trading. It could be said that the barrier or bulwark between the borrower and the court is the OFT. Clarity is necessary because the OFT will wait for the first court case. It will be a question of a test case. I am not a lawyer and I regularly insult colleagues on both sides of the House who are practising lawyers by saying that the last people who should make laws are lawyers because they get into the detail to such an extent that we all get lost. I apologise to lawyers in general, but I want to make this point: are we talking about a test case or about every individual case? If it is every individual case, the lawyers will have a field day. I do not want the Bill simply to be a harvest for lawyers. I mean that in the best sense: they will be trying to represent people, but cases will get stuck in the courts, without a test case and with the OFT not knowing what to do.

I will cut to the chase: the issue is the breadth of the definition. The 1974 Act failed because the definition of ''extortionate'' was too narrow, hence there have been only 26 cases in 30 years. It did not work. Lenders said, ''We're not extortionate. We're charging 1,000 per cent. interest. We're not that bad.'' Things never happened. The unfairness test has the opposite problem: it is too broad. It could mean anything. Children regularly say to their parents: ''I don't think that was very fair.'' We know what they mean, but somehow we must narrow the bracket and get the matter clarified. That is what we are all looking for.

We must get from that rigid definition of ''extortionate'' to a clear set of brackets. Where will they be defined? If there is not a definition in the Bill—in all justice, I am not actually sure that there needs to be to get this right—or in the guidelines to the OFT, or in background legislation, my question remains: who will define unfairness? The OFT will say, ''We can't do it. We're waiting for the courts.'' In practice, the decision will be left to the courts by default and I personally and passionately do not believe that that will help the constituents that I represent. They will not get justice as a result of that. We need to be clear. I am looking for clarity in the clause, and the amendment might help to draw that out.

Edward Vaizey (Wantage, Conservative)

I will speak to amendment No. 12, but I may make some general remarks. I will be guided by you, Mr. Conway, as to whether I am in order.

The amendment is lifted directly from regulation 5(1) of the Unfair Terms in Consumer Contracts Regulations 1999, which came into force through a European directive of 1993 and introduced   the concept of good faith into English law for the first time. I do not wish to embarrass my hon. Friend the Member for Wealden or undermine his strong Eurosceptic credentials by pointing out that the concept of good faith comes from French and German law. That is plain, but there is an important need for further clarity. Given that the Bill as currently drafted makes no reference to the Unfair Terms in Consumer Contracts Regulations, we are left in a quandary as to whether they apply.

I am indebted to ''Chitty on Contracts'', the bible of contract lawyers, which I have read over the last couple of weeks. Finally, I reached page 834, and I missed about 10 episodes of ''Big Brother'' to get there. Actually, I looked it up in my lunch break. Paragraph 38–207, on unfair terms says:

''The terms of a credit agreement where the debtor is a consumer may''—

I emphasise ''may''—

''also be challenged by him as 'unfair' and so not binding on him under the Unfair Terms in Consumer Contracts Regulations. This may''—

again I emphasise the word, although ''Chitty on Contracts'' does not—

''be an easier matter for him to establish than the more exacting test of an extortionate credit bargain.''

''Chitty'' is highlighting to the dedicated lawyer the possibility of using these regulations to establish a test of unfairness on an existing consumer credit contract, regardless of whether the Bill becomes law. There is no reference in the Bill to whether these regulations apply. Has the Minister received any advice from his Department or from other lawyers as to whether that is so? I may be wrong, but there is a potential division here, because the definition of unfairness as it exists in the regulations may apply only to a consumer and not to a business, but the Bill will apply to both businesses and consumers.

The point of the amendment is to highlight the fact that, thanks to the regulations, the directive and English common law over the last 200-odd years, there has been extensive debate about what unfairness means. I simply point to the judgment of Lord Bingham in the case of Director General of Fair Trading v. First National Bank plc, in 2001, in which he gave an extensive definition of unfairness:

''The requirement of good faith in this context is one of fair and open dealing. Openness requires that that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms that might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations.''

Perhaps those factors could be taken into account by the Government when dealing with the Opposition.

The judgment clearly lays out the factors. The catch-all clause, as in the Bill, is extraordinary when there is such extensive case law and regulation surrounding the concept of unfairness. It is incumbent upon the Minister to have a discussion with his officials as to whether the Bill can clarify   whether the regulations apply and, therefore, introduce some detail on the concept of unfairness.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

One reason why the generality of the test is important is the change that has taken place in the consumer credit marketplace over the past 30 years. As I will explain later, we are not operating in a vacuum, and things can change dramatically. That is the real point. The extortionate credit test did not work, and we want to make sure that we do not fail in the same way again.

Edward Vaizey (Wantage, Conservative)

I agree, but the fact remains that the 1999 regulations exist, and there is a considerable lack of clarity as to whether they will apply to the Bill.

The more general point to which the amendment speaks is the lack of certainty. In its analysis of the Bill, the Cross Industry Group on Credit writes:

''As drafted, the provisions are flimsy on detail and do not provide legal certainty. The Bill does not contain any description or list of the matters that would be considered by a court when determining whether a relationship is unfair. The vagueness of these provisions and their lack of detail is a serious omission which gives rise to concerns about their compatibility with Human Rights legislation.''

I believe that Lloyds TSB has obtained an opinion from Michael Beloff QC to that effect.

Given that the Bill is so vague and open, it will create a new industry—ambulance-chasing lawyers, which the right hon. Member for Leeds, West would equally condemn. It would be quite easy to put an advert in the local paper—the free sheet that goes through letterbox—saying, ''Signed a contract recently? New loan shark law can help you. Your contract may be unfair. Ring 0800 123456 and we will help.'' On a no-win, no-fee basis, lawyers can take cases to court for relatively small sums, and it might be in the creditor's interest simply to reach a settlement.

I realise that that argument might be weakened by my saying that the ambulance-chasing lawyers will harm the creditors, not the debtors. None the less, the right hon. Member for Leeds, West well made the point that the clause is so vaguely drafted that it damages both sides. It provides certainty for neither, which is why certainty is so urgently required.

Anne Snelgrove (South Swindon, Labour)

I also seek reassurance about the interpretation of unfair relationships, particularly in relation to 0 per cent. credit cards. My constituents, like many people up and down the country, often switch their credit card to get the benefit of 0 per cent. interest for six or nine months. They do not realise, however, that the order of repayment on such credit cards is often unfair. If they go on spending on their credit card, new spend will be paid off last, while the balance that they have transferred will be paid off first. That means that they go on accruing interest at a high rate on the new spend, although they do not realise it. The industry is estimated to make an extra £500 million a year out of that. People may assume that they have taken action on their debt and may feel virtuous, and they may reward themselves with some more spending, which gets them into greater debt.  

That arrangement is clearly not transparent and it will not do my constituents any good; indeed, it will just plunge them into greater debt. I therefore seek reassurance that the Minister will ensure that 0 per cent. credit cards are covered by the unfair relationship provisions and that he will strengthen the Office of Fair Trading, which has said that the practice I have outlined is unfair. In that way, we will get a bit more backbone behind the provisions and give a warning to the credit card companies that they cannot get away with such behaviour in future.

Alan Reid (Shadow Minister, Trade & Industry; Argyll & Bute, Liberal Democrat)

I support what hon. Members have said about the need for clarity, and amendment No. 13 gets to the nub of the problem. We need regulations to give guidance to debtors and creditors who are thinking of going to court. If we leave the Bill as it is now, it will be up to the OFT to give guidance, as has been said, but it may well decide to wait for a test case. We would have a situation in which debtors and creditors would simply not know what their position was; they would all be waiting for a test case. Of course, most debtors would be rather apprehensive about going to court, and even if they were to find someone to take their case on a no-win, no-fee basis, they would still be apprehensive. Amendment No. 13 is important, and the Government should accept it and bring forward regulations, so that Parliament sets out the circumstances in which the relationship would be unfair, rather than leaving it up to the courts to decide.

Michael Jabez Foster (Hastings & Rye, Labour)

I appreciate that the Minister needs friends at the moment, and I am certainly his friend. Nevertheless, I encourage him to be careful about passing this clause without having some reservations as to how we define what we intend. There will be all sorts of specific suggestions, which I know that he will be encouraged to accept, whether that be capping of interest rates—I know that he is against that—or even the suggestions that were made on Second Reading, such as the idea that creditors should have an obligation to take account of the debtor's position before they enter into the deal. Whatever it may be, there must be more certainty than leaving it up to the judges.

As a rule, of course, I trust the judges—in case I have to go back before them. However, I do not believe that we should delegate so that the provision depends on their definition of fairness. We could all indulge in the class warfare stuff about whether we should trust the judges about what is fair. The fact is that ideas of fairness change as time goes on. I understand what my hon. Friend the Minister says in that respect: in 50 years' time, it might be a very different concept. However, we do know what we intend now to represent as fair or unfair in this context, and leaving it to the judges is almost an abdication of responsibility.

I do not agree entirely with the hon. Member for Wantage (Mr. Vaizey) that the provision will provide an opportunity for lawyers to find work because of many cases that will arise. I do not believe that there will be any ambulance chasing because there will be no legal aid, and I cannot envisage no-win, no-fee arrangements working in that context. The problem will be that there will be no decisions until the courts   make decisions, and I believe that they will be a long time coming. Very few cases will come before the courts, so there will be a lengthy period of uncertainty as to what is and is not fair.

I am very minded, unless my hon. Friend the Minister can convince me that he has something in mind, to support the proposal that there should, at the very least, be regulation. We could come back to that, and he could decide what is in such a regulation, but something needs to be in the Bill to allow us, rather than the courts, to make the decision.

Michael Penning (Hemel Hempstead, Conservative)

I am very concerned, like other hon. Members, that we are asking the courts to do a job that we should be doing here this afternoon. The vagaries of the Bill will make it quite difficult for the courts, even if cases get to the courts. As we know, cases do not tend to get there because they are settled easily. Debtors are worried about going to courts, because the courts are not deemed to be on their side. As I understand it, the courts can consider the legislation and have the powers to assess a much greater variety of factors and use their discretion about any factors that they deem relevant. Surely the courts will face tremendous problems, and there will have to be a major test case. The OFT will pass the buck, so it should be in the Bill that we guide the courts rather than the courts guide us.

James Brokenshire (Hornchurch, Conservative)

On Second Reading, everyone expressed great concern about this aspect of the Bill, and some impassioned comments were made. The right hon. Member for Leeds, West made impassioned comments then, as he has done today. In response, the Minister said that he would take matters away with him and reconsider them. Amendment No. 13 drives to the heart of the matter: there needs to be clarity as to what is intended by unfair. If it is left to the Office of Fair Trading, we will not get that clarity.

I was grateful to the Minister for sending some of the background papers to us in advance of the sitting, particularly the OFT's note in relation to enforcement action under part 8 of the Enterprise Act 2002. Reading that, it seemed to me—as hon. Members have said—that the OFT would look to the court. It says:

''A finding of an unfair relationship may only be made by a court.''

It goes on to refer to the fact that it would seek to publicise court decisions. Simply publishing decisions does not get to the nub of the matter. The legislation should be trying to prevent it from going to court in the first place.

Hon. Members have talked about access to justice issues, and have asked whether people are able to get to court. We should be able to provide clarity through this Bill, and any additional regulations that sit alongside it, to the lenders and the borrowers so that if there is a dispute, it should not go anywhere near a court. The Bill should make it clear in basic terms what is fair or unfair.

I appreciate that there may be a reluctance to go down the track of specifying in the primary legislation   what is unfair or fair, and circumstances and practices in the industry change. That is partly why we have this legislation in the first place. It is important to consider regulations to sit alongside the Bill that are more specific in prescribing the things that are bad and good so that we do not end up with expensive court cases that take time and require a whole range of circumstances to set a precedent.

Edward Vaizey (Wantage, Conservative)

I agree that one of the advantages of amendment No. 13 is that it allows the regulations to be changed from time to time to take into account changing practices, but would my hon. Friend agree that that would not happen often because certain principles of fairness and unfairness are enduring and will remain in the regulations?

James Brokenshire (Hornchurch, Conservative)

I agree with my hon. Friend. The point is that we want to be as clear as we can from the outset to give certainty to the industry, borrowers and people in tough situations who borrow money and then find out that they have signed up to things that they did not agree with. They want to have clarity when they sign up in the first place as to whether something is fair or not. They want to know whether they are being taken advantage of. It is a question of setting out practices and principles that the industry can adopt so that we raise the standard and ensure that the public are protected.

I was interested to read in the OFT guidance note:

''The OFT will not seek to enforce part 8 powers''—

this is a reference to the Enterprise Act 2002—

''until final guidance has been published''.

It aims to do this

''well in advance of the new provisions coming into force.''

I would have hoped that that had been done by now.

In considering the Bill, it would be helpful if detailed proposals were in place. It lends strength to the fact that the OFT will sit back and consider the court's interpretation. The OFT has said, ''Courts look at things on a case-by-case basis. We can't say necessarily whether something is unfair. We would need to see whether a pattern develops in the industry as a whole to judge whether there is a collective problem in doing all this.'' Again, that pushes matters back to the courts. That is not the right way to approach the process. We are able to create regulations that will clear the matter up and specify in detail what is intended. I passionately believe that that is in the best interests of the industry and, most important, of the customers and our constituents who borrow money.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

I welcome the way in which hon. Members have addressed their concerns on Second Reading and in Committee today. I thank them for the depth of their research, trying to help me through an issue when it appears that there are not many friends around in relation to the unfair credit test.

I should like, if I may, Mr. Conway, although I may stray from your advice, to set out what the unfair credit test is about and then discuss the amendments. I hope that hon. Members will contain their excitement and not try to intervene as I try to get across the detail   of what we are trying to achieve. Then the decisions will be made.

My right hon. Friend the Member for Leeds, West was with us in the previous Committee stage of the Bill and he saw me manfully defending the position, as he described it, and not getting drawn into specific details of what the test would be. So, here goes.

The new test is designed to tackle unfairness affecting the relationship between a creditor and debtor in its entirety. On Second Reading, the new test was seen to be general, reflecting our desire to tackle all types of unfair relationships. The new test will not exist in a vacuum. In keeping with existing UK law, it is not intended to allow disaffected consumers to reopen bad bargains. In applying the new test the courts will use existing legal principles. For example, they can look at the law of contract when considering the terms of the agreement, the law of penalties when looking at the cost of fees and charges, and the principles relating to how remedies are applied in other contexts when looking at remedies under the new test.

Clause 20 gives the court a range of remedies to apply if it finds that the relationship when considered as a whole is unfair. Those remedies will let the court deal with the harm to the debtor arising from the unfair relationship. It should go without saying that courts will apply remedies only when it is necessary, appropriate and proportionate to do so. Above all, the courts must be mindful of the requirements of the Human Rights Act 1998.

The new test allows the courts to take account of the circumstances of the debtor and asks whether the relationship, when considered as a whole, is unfair to them. However, that does not mean that every aspect of the relationship has to be unfair for there to be an unfair relationship. The new test also works in the context of the requirements made of lenders under applicable consumer credit and consumer protection laws. Rules apply to lenders, such as the Financial Services Authority rules and the industry's codes of practice which contain the concept of fairness in dealing with consumers. Hon. Members may ask whether the new test would, for example, let the lender show how he complies with relevant laws, codes of practice and procedures or how he assesses his risk. It would do so where those are relevant matters.

The new test will also allow the courts to tackle unfair relationships, whatever form they take, and it is not constrained by artificial definitions, factors or illustrative lists of practices. Hon. Members have, in previous debates, suggested that we should adopt an approach similar to the existing extortionate credit test by giving some shape to the concept of unfair relationship. The extortionate credit test has, as we have heard, been difficult for consumers to use in all but the most extreme circumstances. Indeed, in trying to define an extortionate credit bargain, the provision has been applied in a way that has strained its ordinary meaning and limited the courts' ability to consider all relevant issues at the cost of preventing consumers from obtaining justice. The extortionate credit test has allowed unscrupulous lenders to use it to justify   practices that could never be considered fair, and we do not want to do the same thing with unfair relationships.

Under the new test, the court may consider the terms of the agreement, the conduct of the creditor in enforcing his rights and anything else that is relevant to making the determination.

To assist hon. Members, I shall explain some of our thinking. I have no doubt that they will ask me whether the new test can tackle a particular practice, or will allow the courts to consider a characteristic of one of the parties, an aspect of the relationship between the parties, an industry code of practice, a legal requirement or any number of matters. The new test is a general test and the courts can consider anything that is relevant, which is why it does not refer to particular terms, practices or factors that the courts must or may consider.

The unfairness of a credit relationship depends on its circumstances. There is no definition of ''unfair'' or an ''unfair relationship''. We risk losing the new test's effectiveness by including such definitions, and by defining it as something it is not, by straining its meaning, or by confining it in a way that means that deserving debtors cannot obtain redress.

I believe that the concept is easily comprehended, and that ''unfair'' is not a concept that courts and lenders cannot understand. There is no list of factors that the courts should take into account, because the courts should have regard to any relevant matter. The old test has shown us the flaws of singling out some things for particular consideration, even if the provision says that the courts can consider other issues.

For example, the extortionate credit test draws particular attention to questions of cost. Cost is often important, but it is not necessarily the cause of an unfair relationship, so we do not want the new test to make it more significant than other things that might lead to an unfair relationship.

There is no illustrative list of practices that we might believe are wrong. That a practice happens does not automatically mean that a relationship will be unfair. In some cases, for example, a practice may lead to an ''unfair relationship'' because the debtor is not capable of acting in his best interests. In other cases, however, where the debtor can act in his best interests, it might not lead to an ''unfair relationship''. The circumstances giving rise to the ''unfair relationship'' will always depend on the case.

I draw the attention of Committee members to other consumer protection laws that identify things as being ''unfair''. The two most notable examples are the regulations on unfair contract terms and the recently published unfair commercial practices directive. These laws form part of the context in which the new test will operate. The regulations dealing with unfair contract terms in consumer contracts allow for the prohibition of specific terms in consumer agreements on the basis that they are ''unfair''. Some of those terms are identified in a ''grey list''.  

The unfair commercial practices directive prohibits individual practices on the basis that they are ''unfair''. Again, these practices are identified in a list. These laws ban particular things. The new test does not. It asks whether the relationship between a creditor and debtor is unfair when considered as a whole. The new test concerns itself with the substance of the relationship.

It could be that the lender has done nothing that has been defined as an ''unfair'' term or practice, but the consequence of their conduct is that there is an ''unfair relationship''. It may be that he has done some of these things, but that they are not so important, when taken in the context of the entire relationship, as to make it an ''unfair relationship''. There is therefore no need for us to have an indicative list of unfair terms or practices in the Bill. Because of these laws, lenders should know what particular terms and practices should not be used in dealing with consumers, but this test looks beyond individual terms and practices to the substance of the relationship between a creditor and debtor.

It is important to remember that lenders can lend fairly to people less able to protect their own interests than the ordinary consumer, but in doing so, the lender should take account of the things that give rise to the consumer's vulnerability. Lenders should lend with their eyes open. They cannot simply close their eyes to something that might suggest the relationship is susceptible to unfairness because they think that they have complied with the rules. We do not want to deny consumers the opportunity of obtaining credit by imposing inflexible rules on lenders. Nor do we want lenders to apply inflexible rules in a way that harms consumers. I believe that the new test is the best way of achieving that.

I hope that I have set out clearly what we are trying to achieve. There has been a great deal of discussion on this issue. I took note of what was said on Second Reading, and have had discussions with the industry and consumer groups. I have reconsidered all aspects of the issue, but I still passionately believe that the correct test is the one that we have set out, and that it is the right way to proceed.

The hon. Member for Hornchurch (James Brokenshire) asked about the position of the OFT. The OFT must consult before it publishes. It is not to consult the other way round until Parliament passes the Bill.

My hon. Friend the Member for South Swindon (Anne Snelgrove) talked about credit cards with 0 per cent. interest. She will be happy to know that the consumer credit agreement regulations were amended on 31 May 2005. They now provide that where different interest rate charges are both payable, a statement of the order or proportions in which amounts paid by the debtor will be applied must be included up front in the agreement.

That is the greater transparency that we are trying to achieve. We want to place the unfair credit test in the wider context of alternative dispute resolutions, which we are trying to introduce right at the outset by making things very transparent. The concept is about   ensuring that there is redress for the individual consumer, and that the industry cannot and should not hide behind a list of what it wants, which then lets it off the hook in other areas. The concepts are included, and the unfair credit test is clear.

Even if I accepted what the hon. Member for Wealden said, the amendments would not do what he wants. I ask him to accept what we are saying about the unfair credit test. We have thoroughly researched and discussed it, and we believe that it is the best way forward. I commend the test to the Committee and hope that the hon. Gentleman will withdraw the amendment.

John Battle (Leeds West, Labour)

On a point of order, Mr. Conway. I apologise to the Committee, but this is a point of procedure. The Minister said that we have had a great deal of discussion around the issue. The usual rules are that if we discuss something in detail in Committee and divide on it, we are not able to return to that on the Floor of the House. Would that be the case for this clause?

Derek Conway (Old Bexley & Sidcup, Conservative)

The right hon. Gentleman makes a fair point, but that rule relates only to a specifically framed amendment. The Clerks would give guidance on specific amendments, but afterwards it is at the discretion of the occupant of the Chair—normally Mr. Speaker—on whether comments would be in order in the generality of the debate. It will be possible to return to the clause.

I agreed that the Minister could make more wide-ranging observations in his remarks, but the Committee can obviously still have a stand part debate.

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I am grateful for the clarification on that point of order.

The Minister said on Second Reading that he would consider the issue again. I hope that he will forgive me for thinking that he has not considered it that much. There was a tremendous amount of agreement across the Committee and the House of Commons in favour of making a change and moving forward, and I am sorry that he has not been able to move further.

In his opening comments, the Minister talked about several areas that the court could consider. My hon. Friend the Member for Hornchurch made the essential point that our objective should be to stop the matter reaching court at all. We can require regulations to prevent the stress and agony of going to court. It is possible that if the matter goes to court, it could decide something completely contrary to the wishes of the House of Commons because it would have no guidance on what we want. Similarly, it could decide to endorse what the House wants but take five years to do that. We could shortcut that process and sort the point out without ever needing to go to court.

On Second Reading, the hon. Member for South Swindon spoke about how she would have liked to see the outlawing of certain types of credit card. The hon. Member for Hartlepool (Mr. Wright) spoke about unprompted credit limit increases, while others mentioned the need to toughen up the situation on   credit card cheques, which could be incorporated here. The hon. Member for West Bromwich, West (Mr. Bailey) also spoke about that. There are matters that could be clarified in regulations so that both lenders and borrowers know from the outset where they stand. The danger is that people will not get the benefit of the Act for years.

The Minister spoke about a list that the industry could hide behind, but that is not what we are discussing. It wants clarity in the same way that the consumer associations want clarity. It is not one side of the argument against the other: both aspects of the industry are united in wanting greater clarity. We could avoid hundreds of thousands of pounds being spent on expensive legal cases—I realise that they may be helpful to lawyers, but they do not help many of the rest of us. We can have the clarity that we need, and we have seen in other pieces of legislation how that can be provided, in European directives for example. We all know how it could be done. There could be a general agreement, which would make matters so much better for the consumer and mean that the full benefit of the Act would be felt much more quickly.

Edward Vaizey (Wantage, Conservative)

I am grateful to you, Mr. Conway, for allowing me to speak again on the clause and give my own interpretation of the Minister's remarks.

The Minister's response did not take the argument forward.. One simple question for him to answer when he returns to the clause is whether the Unfair Terms in Consumer Contracts Regulations 1994 and 1999 apply to the Bill. His remarks—I say this with the greatest respect—were somewhat contradictory. On one hand, he said that the industry should not have a list behind which it could hide. Why, then, do we have those regulations and the Unfair Contract Terms Act 1997? We clearly have legislation and regulation to deal with unfairness.

On the other hand, the Minister says that there is extensive law that should make obvious what is unfair. On that point, I agree with him. The key point is that unfairness is now a well-known concept in English law and regulations. It is not like the extortionate credit test in the Consumer Credit Act 1974, which was a unique test and therefore sat as a lonely measure that was barely used.

This measure will potentially be used, but when we think about what will happen in practice, we see a gap. The first person to walk through a lawyer's door and say, ''I think my contract is unfair, what do you think?'', will be told, ''I don't know.'' The lawyer will have to say, ''I don't know. The unfair terms in consumer contracts regulations may apply. There is a lot of case law on unfairness, but none of it has been tested against this legislation.''

Even beforehand, as church groups and credit groups sit down to write guidance for the people whom the Bill is meant to help in order to tell them whether they may be signing an unfair contract, they will not be able to do it. They will know the case law and the regulations and they will have a pretty fair common-sense view of what the courts are likely to see   as unfair, but if they are being honest they will have to say that they do not know what is unfair under the Bill. That could so easily be remedied that I simply cannot understand why the Minister sits on the fence and on the one hand says that there is extensive law out there and then says that he wants to leave the test as wide open as possible.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

Again, I understand where hon. Members are coming from, but there is no contradiction, in that the unfair credit terms regulations do apply. I think that I have moved a lot further than I did the last time I had these discussions, to talk about what was important and what should be important to the courts and why the extortionate credit test failed. Now, the court will be able to consider all relevant matters. I accept that hon. Members are coming from different points on this, but I fear that the industry is trying to hide behind a list. The extortionate credit test was far too high. This test, whereby all relevant matters can be considered, is far more acceptable within the confines—and it is the confines—of contract law and other laws that already exist.

Michael Jabez Foster (Hastings & Rye, Labour)

Is not the problem that even that is difficult to define? What is relevant? The courts are being left with a completely open book to decide what is relevant, but what might be relevant to judges might not be to us. The things that we as politicians think are very relevant, such as whether the circumstances of the individual borrower were taken into account, might be thought by judges to be irrelevant. We are leaving them with an open book and with no guidance or support whatever.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

I understand where my hon. Friend is coming from, but I have every confidence that the courts will be able to determine what the definitions are. There is transparency in what we are trying to achieve. The burden of proof has changed: the lender now has to prove that he or she has acted fairly. That is in the spirit of all that we have tried to achieve. The industry, consumer groups and others that have been involved know exactly where we are coming from. I hope that my explanation gives them some comfort.. We would not achieve what we have set out to achieve if we clearly defined the unfair credit test, because we would be in the same position as before.

Edward Vaizey (Wantage, Conservative)

The hon. Member for Hastings and Rye made a telling point, which was that it should be for us to decide what is unfair rather than judges. The irony is that leaving the test as open as possible will help lenders. They do not necessarily want a list to hide behind, because when it comes to a test of unfairness they will have the army of lawyers to call on extensive case law. The lenders will have an open book to go where they want to look for their test of unfairness. They are not restricted in any way, and in that sense money will pay.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

It will regrettable if that happens. That is not what we are attempting to achieve. There are various other tests in the process of trying to resolve the differences between the lender and borrower. I take what my right hon. Friend the Member for Leeds, West said about the number of people who will get to court at the end of the day. It is   in that wider context that the Bill has been carefully drafted. I am sorry that there is a disagreement, but I feel passionately that the unfair credit test that we have outlined is the best route.

Several hon. Members rose—

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

I will take interventions, but I will defend the position for as long as it takes, so I hope that hon. Members will consider that.

James Brokenshire (Hornchurch, Conservative)

My fear is that we will lose a golden opportunity to clarify the law and provide real protections for consumers. I believe that the legislation that predated the 1974 Act included a concept of a credit agreement being unconscionable—it is difficult to pronounce, let alone understand. However, that clearly did not work, because it was replaced by the extortionate credit bargain approach in the 1974 Act. We have an opportunity now, but I fear that if we do not take it, we will go another 30-odd years with inadequate protections for consumers. That is the fundamental point that drives us, along with the lack of clarity from the OFT, which cannot make the regulations or guidance until the law comes into force, and the fact that, as the Minister mentioned, alternative dispute resolution are to be considered. Again, how can that be done without a proper framework? That is what drives the points that we are making.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

I give way to my right hon. Friend the Member for Leeds, West.

John Battle (Leeds West, Labour)

Unlike some who write to the newspapers doubting my hon. Friend's good faith, I believe that the Bill would not even exist if he did not intend to do something about the issue. I take what he says in good faith and think that he has moved. I have listened to the debate this afternoon and in particular the contribution of the hon. Member for Wantage, who has done the research. We are not free to do or say what we want, or to make any laws we like in this place. We have to shape them in words, table amendments and ensure that they are acceptable. We receive guidance from parliamentary counsel and, if necessary, on other matters we can go to the Solicitor-General or the Lord Chancellor, as we all know.

I just wonder whether there is some space to consider whether the knitting together of the impact of other laws, to which the hon. Gentleman referred, could not be reconsidered before we consider the Bill on Report, so that we can perhaps come up with a form of words that clarifies the brackets a little better. The intention is there in what my hon. Friend has said, but I am fearful of the lawyers and the judges, who would disregard it.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

I am continually reflecting on the issues that are raised. I am grateful to my right hon. Friend for not doubting my sincerity in wanting to get the Bill through. Clearly I do, because of the time—more than 30 years, which is far too long—and the maturity of the marketplace, as has been said.

Some new Members will not be aware of some of the regulations that we have implemented following the publication of the consumer credit White Paper.   We did not need primary legislation for those measures, which helped to support transparency and to set clear requirements on lenders.

I shall make one final attempt today at explaining why we felt that the amendments did not help, although I am sure that we will return to the issue. This is the second time—the third time, perhaps—that I have tried to explain the principle. This afternoon, Committee members have pushed me to the limit of my ability to explain the situation.

It is proposed that I specify the list of unfair practices, so that the courts know what they are. I want to explain a decision on the extortionate credit test in the case of Broadwick Securities v. Spencer that highlights the danger of that approach. The Court of Appeal was asked to consider an extortionate practice by the lender, but the practice did not fall within the list of factors under section 138 of the 1974 Act. The debtor asked the court whether the practice could come under ''any other relevant considerations'', a phrase mentioned in that section.

The lender, offering a variable rate, had a policy of not reducing its rate of interest if market rates fell, but it did not tell the debtor that in making the agreement. The court was not prepared to look broadly at ''any other relevant considerations'' and considered that it should read that catch-all category in the light of other factors listed in the Act. It gave ''other relevant considerations'' a narrow meaning.

That is a good example of the dangers of thinking that lists of factors can address all cases. I hope that, with that explanation, the hon. Member for Wealden will realise that the amendments will not achieve what he wants them to achieve. I have no doubt that we shall return to this issue again, but I ask my hon. Friends to oppose the amendments and to support the clause as it stands.

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I immediately associate myself and my hon. Friends with the comments by the right hon. Member for Leeds, West. We all pay tribute to the Minister for his dedication in bringing this Bill back so quickly. The fact that it is the first Bill to come to Committee in this new Parliament shows how effectively he has advocated the issues involved and that the Bill has the support of the Government through his endeavours. Nothing that we say should be seen as showing any lack of respect or admiration for the work that he has done.

Our overriding objective is to keep these issues out of the courts. Once they go to court, things take time and money and the only people who benefit are the lawyers. If there is a list, bad practices will be stopped on day one, when the Bill comes into force. There will be no further delay; we will know that they are illegal. People will either stop carrying them out or know that they face prosecution.

As it stands, it will be years—if ever—before some of those changes are outlawed. It has to be in the interests of consumers that there be clarity and that such measures come into force as quickly as possible. Otherwise, Government and Opposition Members, as they see things that are wrong, will introduce private Members' Bills, with all the vagaries that that system   implies, to try to change things. Only with the favourable backing of the Government and the Government Whips will they have any chance of making progress. As the right hon. Member for Leeds, West said, those changes would happen years later. However, we can make them happen quickly.

I hope that the Minister believes that we tabled the amendments to try to bring forward the benefits of the legislation, rather than to disrupt or to destroy the measures in it. My sense is that there is general agreement among some Committee members about amendment No. 13, but rather less about some of the other amendments. With your permission, Mr. Conway, I shall press amendment No. 13 to a Division, but I beg to ask leave to withdraw amendment No. 12.

Amendment, by leave, withdrawn.

Amendment proposed, No. 13, in clause 19, page 14, line 8, at end insert—

'(1A) Regulations shall make provision to indicate the circumstances in which the relationship between the creditor and debtor may be regarded as unfair.'.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 10.

Derek Conway (Old Bexley & Sidcup, Conservative)

With this it will be convenient to discuss the following amendments: No. 17, in clause 71, page 54, line 10, at end insert—

'(2A) No such order shall be made by the Secretary of State, bringing into force sections 19 to 21, until advice and information has been published by the OFT under section 140D of the 1974 Act.'.

No. 18, in schedule 3, page 65, line 22, after 'Act', insert

'except credit agreements where the creditor is subject to the Financial Services Ombudsman Scheme for dealing with any complaints by the debtor'.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

I have nothing to add to what I said when I tried to outline the purpose of the unfair credit test, which stretches across the clauses under discussion.

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I will speak briefly on the two amendments. Amendment No. 17 provides that the regulations must be in place before the Act comes into force. That is simply a way of trying to get more detail on the provision. It is clear that people need a better understanding of what the Bill implies. Before it comes   into force, the full details must be described. Amendment No. 18 would amend schedule 3.

Without doubt the intended target of retrospective applications are loan sharks and irresponsible lenders who take advantage of the financial vulnerability of some consumers. Those lenders are invariably outside any formal ombudsman scheme for dealing with customer complaints. With that in mind, we are tabling an amendment to remove the issue of retrospective application. It would disapply the retrospective application provision in the case of any credit agreement that was then subject to the financial service ombudsman scheme for dealing with borrowers' complaints, but it would retain retrospective applications for all other credit agreements.

Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)

Amendment No. 17 would fetter the Secretary of State's power to commence the provisions concerning the unfair relationship test by requiring that that occur after the publication of the OFT's advice and information on how it should use its Enterprise Act powers to take action against lenders that engage in unfair relationships. The amendment appears to be based on the requirement that applies in respect of the OFT's powers to impose civil penalties. In that case, the OFT is prevented from imposing a civil penalty until such time as it publishes a statement of policy that has been approved by the Secretary of State. The two situations are very different.

The hon. Gentleman's proposal seems to assume that the new test is somehow dependent on the OFT's guidance. It is not. The OFT's guidance is simply that: guidance. It sets out the circumstances in which the OFT will take action and it does not seek to interpret or to define the concept of an unfair relationship, nor can it. The courts are not bound by the OFT's guidance and they do not have to have regard to it if it is not relevant to the particular case. The court's consideration and application of the new test is not dependent on the OFT's guidance, so it is not necessary or appropriate that the commencement of the new test should be linked with the publication of OFT guidance in that way. I ask the hon. Gentleman not to press amendment No. 17.

Amendment No. 18 proposes that any agreement where the creditor is subject to the financial ombudsman scheme should be excluded from the operation of the new test after the end of the transitional period. As hon. Members will appreciate, the ombudsman scheme is concerned with resolving disputes; although it can, and no doubt will, resolve the vast majority of cases concerning consumer credit, some cases will still go to court. The hon. Gentleman's amendment could mean that, should the debtors wish to go to court, they will continue to be forced to rely upon the old test. This seems incongruous, given that, if such lenders are prepared to submit to the jurisdiction of the financial ombudsman, with his standard of ''fair and reasonable in the circumstances'', the unfair relationship test should cause little problem for them.

Furthermore, as I have previously said, we want the same legal rules to apply to all debtors. We have provided transitional periods to allow time for lenders   to adjust, but that period is not permanent, as this proposal envisages, and nor should it be. All lenders should, after a period of adjustment, be required to adhere to the same standard. This proposal means that some will not. With those explanations, I ask the hon. Gentleman not to press amendment No. 18.

Charles Hendry (Shadow Minister, Trade & Industry; Wealden, Conservative)

I am grateful to the Minister for that explanation. In light of what he has said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.