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

A key element of the Government's proposed reforms is transparency of information. An important part of that for consumers is that they should be aware of significant fees and charges placed on their accounts. The clause will require creditors and   owners to provide notices to debtors or hirers where default sums exceed a specified amount.

A default sum is defined in new section 187A as an amount payable, other than interest, by the debtor or hirer for any breach of his agreement. That could include a late payment fee, a missed payment fee or legal fees. New section 86E(2) states that creditors or owners have to give consumers a notice after the default sum becomes payable, but that notice can be incorporated in any other statement or notice sent to the debtor or hirer. Debtors or hirers should have a reasonable period before creditors or owners can impose interest on default sums. That would enable them to pay the sum before additional interest is charged.

Under new section 86E(4), interest on the default sum can begin to accrue on the customer's account only 28 days after the notice is given. If a creditor or owner does not provide a notice, he cannot enforce the agreement. The debtor or hirer will not be liable to pay any cost for producing or sending the arrears notice. The Secretary of State will make regulations to cover the form and content of such notices, and the regulations will also prescribe the amount of the default fee to trigger the notice requirements and the period by which it must be sent. We will consult on those aspects before the regulations are made.

It is imperative for consumers to be kept aware of their financial situation with transparent information. The clause ensures that they will be kept up to date of any charges being applied to their accounts.

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

Again, the clause goes right to the heart of the lack of clarity in the Bill. So many questions arise from it that we need to spend a little while addressing them. Would information on default sums—for example, when they would be imposed and how they would be calculated—have to be given when a lending agreement was made? That should be the case because it is too late to tell people the consequences when they are already incurring the charges.

Who will judge if a default sum is reasonable? Will it be the courts or the Office of Fair Trading? Why has more guidance not been given on what would be considered to be reasonable? Would the courts or the OFT have the power to reduce a default sum or to strike it out completely if it was unreasonable or if the terms whereby it could be imposed were not clear to a borrower when setting up the agreement? My impression is that clause 15 covers that, but I would be grateful for the Minister's absolute assurance that it does. There is a danger that unscrupulous firms might seek to use default sums to make up for restrictions imposed elsewhere in the Bill. It is not clear whether they would be adequately prevented from doing so, so we need further assurances from the Minister that consumers would be protected.

We also need to know whether the default fee could be interpreted to mean that the whole outstanding part of the debt would immediately be liable to be paid, which could have extremely serious consequences for a borrower. What right of appeal would there be and how could that be considered in the time scale of   28 days before the fee becomes payable? How would the measure affect bank accounts given that if someone goes into an overdraft, a bank would have to send written notice and then wait 28 days before it could impose an overdraft fee. I am not saying that that is unacceptable—many of us have concerns about overdraft charges—but we need to understand the implications of the provisions fully.

Returning to a concern that I raised earlier, how would the notices be delivered? Would they be posted or e-mailed? Would they have to be sent by registered post and signed for? How could we be certain that the notice is received by the right person? As the Minister knows, fundamental to the Bill is the fact that it shifts the responsibility and liability from the borrower to the lender. The lender must prove that they have acted fairly. Therefore, they would have to be certain that they got the information through to the right person and that that person understood it. That again raises issues of providing the information in different languages, for people whose first language is not English, in Braille for blind people, and in an understandable way for those with learning difficulties. Those issues are not covered by the Bill. Without those assurances and explanations, the clause is inadequate.

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

The information must be given in writing for the reasons that the hon. Gentleman raised about the burden of proof if a case ever got to court. It could not be sent electronically. For people with sight problems, there is no problem with Braille being used.

Michael Fabricant (Whip, Whips; Lichfield, Conservative)

The concept of a silent Whip is an impossibility in my case. When the Minister says that the information can be given in Braille, is he saying that there is an obligation on the lender that it must be provided in Braille? There needs to be some certainty for those people who are recipients of these communications.

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

I will not know the answer to the hon. Gentleman's question unless it comes within a short space of time. I will write to him.

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

May I assist the Minister by giving him some further time for additional scribbling to be done? It is an important element of the matter; may I ask him to go further and say whether it would be required to be given in Braille? How does the lender know that somebody needs the information in Braille? We are talking about institutions that have millions of clients. How do they know the ability of each one to understand English, how partially sighted they are and what learning difficulties they may have? If it is to be compulsory to provide material in Braille there must be an obligation on the lenders to know how partially sighted, or fully sighted, their customers are, which seems to me to be impossible.

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

The idea of thousands of people is a bit of red herring because we are saying that the lender has to give as much information as possible to the borrower on the form of the agreement. For the lender to lend responsibly he will have to know the borrower's position. For example, within the qualification of the content of the form or the   agreement, I would expect the lender to know about the person's individual circumstances.

I will write to the hon. Member for Lichfield (Michael Fabricant) in response to his question about Braille. In respect of consumer friendly language, there is no reason why the lender could not put the notice in the first language of the individual concerned.

I do not accept the charge made by the hon. Member for Wealden (Charles Hendry) about the vagueness of the clause. As I said at the outset, we have had the fullest consultation with industry and the regulators to try to find a solution that was not bureaucratic and which met the requirement for transparency, making sure that the Bill met the requirements of the consumers and the industry.

Clause 12, and our willingness to discuss the detail in the statutory instrument debate, is a sign that we are prepared to listen to what people have to say. We set out clearly what we mean by the notice of default in the clause.

James Brokenshire (Hornchurch, Conservative)

I have a question about clause 12. Subsection (8) states:

''This section does not apply in relation to a non-commercial agreements or to a small agreement.''

The Minister clarified the reference to a small agreement this morning, but a non-commercial agreement is defined in sections 1, 8 and 9 of the Consumer Credit Act 1974 as meaning a consumer credit agreement or consumer hire agreement not made by the creditor or owner in the course of a business carried on by him. Obviously that is a slightly different approach from that taken in clause 4 in terms of a business wholly or predominantly carried on for the purposes of business. My only concern on the point is whether a difference is being made and whether it could be argued by a lender, because there is a commercial aspect to it, that they can wriggle out of giving a default notice as a consequence.

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

That is certainly not what we intend. I shall look at it and make sure that we clarify the position. We were clear this morning about the definition.

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

I am simply not persuaded by the Minister's responses. He said that as far as he is concerned the proposal is a beacon of clarity. I fully appreciate that he understands it better than I do; he is therefore in a position to answer the questions that I put to him. I shall therefore ask him again: who judges if a default sum is reasonable? Is it the court or the OFT? Why has not more guidance been given on what would be reasonable? Would the courts or the OFT have the power to reduce default sums or strike them out completely if they were unreasonable? Could the default fee be interpreted to be mean the whole outstanding part of a debt, which would immediately be liable to be paid, or does it mean something rather more narrow? What impact would that have on bank accounts going into overdraft? Would banks have to send written notices, and wait 28 days before they could impose an overdraft fee? I have still not had responses to those questions, but I understand that it is extremely clear and that I am simply being unusually, or perhaps usually, dim.  

This issue needs to be clarified further so that we can be certain that people have understood it. We understand that the Minister will write to us about Braille, but this is an extraordinarily important document. If a case went to court, the document would determine whether the deal had been fundamentally unfair. We must therefore be certain at this stage what steps the lenders need to take to ensure that they have fulfilled their legal obligations.

The Minister said that the document cannot be sent by e-mail but must be posted, which I understand. Does it therefore need to be sent by registered post? Does it need to be signed for? How can we be certain that it has been received by the person to whom it relates and has not simply been signed off by another member of the household who has not passed it on?

The Minister says that we are hyping things up a bit, but the vulnerable groups are the people whom we need to protect most, because they are the ones who are most likely to be victims of loan sharks and their sharp practices. The document must therefore be in a language that they understand, and we must ensure that if they are blind they can read it, and that if they have learning difficulties, they understand what they are signing up to.

We are not making a mountain out of a molehill. This matter is at the crux of trying to protect the consumer, who is not being adequately protected at the moment.

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

I am sorry that the hon. Gentleman feels that way. He should understand the clause in the context of the Bill and how it relates to other situations involving examination of financial services. The detail that he requires will emerge in other discussions that we will have as statutory instruments flow from the provision. It is right that we set out the responsibilities clearly in clause 12. As ever, however, if there are differences of opinion between us, we must test them in the usual manner. I urge my hon. Friends to resist any opposition to the clause.

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

It is not a question of a difference of position. I have asked the Minister straightforward questions, and if he says that the clause is very clear and that we understand what is being said, it would be very helpful to have answers to those questions.

The Minister might also want to reflect on some of those questions and write to me, but distinct questions are raised by this issue, and it would be helpful to have further guidance from the Minister before we decide whether to press the motion to a vote.

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

I shall do my best to respond, but if I do not, the hon. Gentleman will take whatever action he believes to be appropriate.

If default sums are excessive, they may be subject to the common law on penalties. That relates to existing legislation. The unfair terms regulations provide that default sums cannot be excessive, and that the OFT can take action under the regulations. That provides some clarity, but I still believe that there will be   differences of opinion between the hon. Gentleman and me about where we are heading.

Question put and agreed to.

Clause 12 ordered to stand part of the Bill.