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

This clause inserts into the 1974 Act a new type of ancillary credit business—debt administration. Businesses that administer debts on behalf of others will need a licence. Debt administration means performing duties under a consumer credit or hire agreement on behalf of the creditor or owner; or exercising or enforcing rights on behalf of the creditor or owner, not including debt collection. The clause ensures that a licence is needed to administer agreements if the person administering is not the creditor or owner.

The way in which duties are performed or rights are exercised can have a significant effect upon the debtor. They include varying the interest rate or the terms of the agreement. Clearly, there is potential for detriment arising from that behaviour. The clause complements clause 23, which amends the definitions of consumer credit businesses and consumer hire businesses, to ensure that a licence is required for a creditor or an owner to administer agreements.

The Department of Trade and Industry, the OFT and citizens advice bureaux have received some complaints about debt purchasing companies. Debt purchasing of the kind we are concerned with in this clause is when businesses purchase portfolios of existing loans and administer them.

Consumers are sometimes confused about who their contract is with, and surprised to find debt purchasers are not treated in the same way as the licensed original lender. Consumers deal with whoever is administering their loan, and it is difficult to tell whether they are the creditor or someone acting on behalf of the creditor. It follows that, if creditors require a licence to administer their own agreements, someone administering agreements on their behalf should be subject to the same regulation and fitness requirements.

Under clause 23, a debt purchaser who became a creditor or owner when he purchased the loan would require a licence. However, if the creditor or owner subcontracted the administration of his loan agreements to a third party, clause 24 means that the third party would require a debt administration licence. The combination of clauses 23 and 24 is important, as it will ensure that the OFT can protect consumers throughout the life of their agreement.

It has been suggested that the clause would impose a requirement to be licensed on retailers who do no more than hold on to a card at the point of sale when   requested to do so by the card issuer. It is certainly not the Government’s intention to include that in the definition of debt administration. If on reflection the clause is wrong in that respect, the Government will table an amendment to clarify the position.

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

I am grateful to the Minister for that clarification. I am grateful to him also for showing flexibility over the issues relating to retailers. Will he tell the Committee what powers there are to strike people off if they have been acting improperly when granted a licence? Do they have a right of appeal? What guidelines will be issued about what makes a person suitable or unsuitable for debt administration? For example, if they have a criminal record, will that be enough to make them unsuitable, or will it be written off in time, as with all criminal records? Will he clarify the situation with regard to Criminal Records Bureau checks on individuals involved in debt administration, particularly given the contact that they may have with often vulnerable people?

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

Again, the hon. Gentleman raises perfectly fair questions. They will be dealt with as we discuss the clauses and consider the powers and responsibilities of the OFT. The fitness test will certainly apply. The general principle that applies to most financial services applies in these circumstances. The detailed issues about the powers and the specific roles of the OFT and the Consumer Credit Appeals Tribunal will become clearer. The OFT has the power to revoke licences, and the procedures are the same for licence holders, including the right of appeal. We shall go through that in more detail as we discuss later clauses.