Clause 38 - Power of OFT to impose requirements on licensees
Consumer Credit Bill
11:30 am

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

I beg to move amendment No. 16, in clause 38, page 31, line 32, leave out subsection (1) and insert—

‘(1)This section applies where the OFT has reasonable grounds for believing that a licensee or an associate or a former associate of a licensee—

(a)has engaged in conduct which breaches any provision of or under the 1974 Act;

(b)is engaging in such conduct; or

(c)is likely to engage in such conduct.’.

Improving regulation is, of course, a central aim of the Bill. Indeed, improved regulation is essential if we are to eliminate rogue lenders and unfair lending practices, which are the cause of financial difficulties for too many people. We need to recognise that the overwhelming majority of companies act responsibly and with consumers’ interests in mind. However, a minority do not, and those are the ones that we want to get rid of.

Expanding the powers of the OFT to deal with licensees is a major element of the way in which the Bill is intended to improve regulation. As I said on Second Reading, many hon. Members on both sides of the House have reservations about how much those increased powers will achieve the intended aim. Clause 38 is central to our concern.

The clause sets out the powers of the OFT to impose requirements on licensees where it is dissatisfied—the key word—with any conduct of business that is being carried out, or which it is proposed should be carried out, by

“a licensee, or associate or former associate of the licensee”.

It allows the OFT, by notice, to impose special conditions on licensees to deal with such unfit conduct. Those special conditions, such as training, will be specific to a particular licence holder to ensure that the business is meeting its fitness requirements. The breach   of a condition could lead to the OFT imposing a financial penalty on a licence holder or, ultimately, revoking, suspending or varying his licence.

In the right circumstances, the powers will be necessary and effective, but as with earlier problems, the clause is vague as drafted. The only guiding principle against which the OFT must consider imposing requirements is whether it is “dissatisfied” with a business or its conduct. That extremely vague description could cover absolutely anything. Indeed, there is no concept of objective justification whatever.

Dissatisfaction is not a term found elsewhere in law. By definition, anything less than full satisfaction involves some element of dissatisfaction. Dissatisfaction is certainly not the same as finding something unsatisfactory, but that is much closer to what we are considering and concerned about. It is not a term that distinguishes adequately between major and minor infringements, but surely it is essential that these actions are to be pursued properly and effectively.

Without greater objectivity, the clause could be dangerous and it leaves us open to the risk of excessive and unnecessary regulation, which will stifle the development of the credit industry and what it can offer the consumer. Indeed, the provisions give rise to serious concerns about their compatibility with human rights legislation. When considering identical provisions before the election, the Joint Committee on Human Rights wrote in its 15th report that it was concerned at the

“entirely unfettered scope of this power”

and believed that the provision gave rise to

“a significant risk of incompatibility”.

Amendment No. 16 is designed to remedy that situation. It introduces the element of objective justification that is so necessary by introducing a test of “reasonable grounds for believing” that something has been done wrongly, and by linking matters that may give rise to the OFT exercising its powers to licensing issues, such as a breach of the 1974 Act, as amended by the Bill.

By increasing objectivity, we will have a better chance of achieving our aim of improving regulation and thus of achieving better protection for the consumer.

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

I always endeavour to satisfy the hon. Gentleman, but clearly I am not going to on this occasion. I should add that I am not a lawyer, but I know that I am in the company of many distinguished lawyers on both sides of the Committee, and I hope that we do not get dragged too far into a debate about definition, although I understand the weight that the hon. Gentleman gives to the issue.

The Government believe that the amendment would severely limit the effectiveness and flexibility of the OFT’s power to impose requirements on licensees by limiting the circumstances in which it could impose those requirements. That would reduce consumer protection, as the OFT’s ability to improve the conduct of licensed businesses would be curtailed.

We believe that the provisions are compatible with the European convention on human rights, and we have said so. Sufficient safeguards are already built into the Bill to stop the OFT abusing the powers in the clause. The OFT will publish guidance on how it will use these powers and, as I said, Committee members have notes on that guidance.

The OFT will have to let licensees know that it is minded to impose requirements, to explain why, and to give them the opportunity to make representations on the proposal. Appeals relating to other requirements can be made to the appeals tribunal, which provides a safeguard against the OFT exercising these powers unreasonably.

Given those guarantees, I hope that the hon. Gentleman will not seek to weaken the excellent consumer protection afforded by the Bill, and that he will withdraw the amendment.

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

As predicted, the Minister’s answer has not satisfied me, but we prefer to return to the matter on Report rather than pressing the amendment to a vote. I beg to ask leave to withdraw the amendment.

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

Clause 38 refers to the powers of the OFT to impose requirements on licensees. It enables the OFT to impose intermediate sanctions on licensees. Those sanctions are called requirements. Requirements are an important tool for the OFT to use to ensure an effective targeted licensing regime. The OFT’s powers are currently limited to refusing an application or granting a licence on different terms. It can also vary, revoke or suspend an existing licence.

The effect of those sanctions can be severe. They can, for example, prevent people from trading. The OFT adheres to the Cabinet Office enforcement concordat, and any regulatory action that it takes must be proportionate to the detriment caused. Therefore, it is able to act only in the most serious cases in which a person is simply not fit to hold a licence. In many cases, the OFT is powerless to address consumer detriment without withdrawing a licence, which would be a disproportionate response. For example, if there were problems within one branch of a national company, it would not be justifiable to revoke the whole of the company’s licence. A similar situation would occur if one employee were to intimidate customers when collecting debts. Such cases are not serious enough to call into question the fitness of a person to hold a licence, but the OFT should be able to protect consumers. That is why we have proposed this power to impose a requirement on licensees.

The clause requires the OFT to impose requirements on licensees if it is dissatisfied with a matter relating to the business. The requirement takes the form of a   notice requiring the licensee to do, not to do or to cease doing something. It must relate to the licensable business, it must address the matter about which the OFT is dissatisfied and it must ensure that the problem or a similar one does not arise again.

The OFT can use the power to address a wide range of problems. If the problem is with certain employees explaining credit agreements to customers, training for employees might be imposed. It might provide that sales representatives in a named branch be trained to inform consumers how they can cancel their agreements. If a debt collector’s employees are unfairly pressurising consumers by calling very late at night, the requirement could stipulate that they call only between 8 am and 8 pm. The requirement may also refer to a person other than the licensee. However, it will be addressed to and binding on the licensee. It can require a particular person to undertake a specific activity such as not collecting debts in person.

I should like to explain a few details to the Committee. The first is why subsection (1) refers to associates and former associates of a licensee as well as to licensees. That is because a person who is an associate of an unfit person might apply for a licence. For example, a second-hand car dealer might have been refused a licence. If his son then applied for a licence, the OFT might wish to impose a requirement restricting the father’s involvement in the provision of credit.

The second point is that the OFT may take steps to impose a requirement alongside the application process. That would allow a requirement to bite as soon as a licence was issued. It also explains why the clause refers to proposals to carry on a business as well as businesses already in existence. Requirements are a vital new tool for the OFT to ensure a targeted and proportionate licensing regime. I hope that, with that explanation, hon. Members will be able to support the clause.

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

I am grateful to the Minister for that detailed explanation. Earlier in our discussion, when we spoke about the Criminal Records Bureau, he said that he would return to the issue when we were talking about the powers of the OFT. I wonder whether this would be a suitable moment to do that. It seems to me that there is an issue in relation to who would need to be checked by the CRB. We are talking about people who will be dealing with vulnerable people. Therefore it would be appropriate at this stage to have a greater understanding of what the Minister has in mind.

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

For the reasons that the hon. Gentleman has mentioned, discussions need to involve all the relevant authorities. The OFT is currently in discussion with all relevant authorities about the issues—whether police checks or other associated matters.