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

I beg to move amendment No. 27, in clause 59, page 48, line 25, after 'licence', insert

'or was authorised to carry on an activity by virtue of section 34A of the Consumer Credit Act 1974'.

The amendment will ensure that customers or a business acting in authorisation under clause 32 have access to the financial ombudsman scheme. It ensures that provision for authorisations work properly without diminishing consumer protection and I hope that the Committee will support it.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

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

The clause deals with the financial services ombudsman scheme to apply to consumer credit licensees. Consultation showed that consumer and industry groups strongly support the introduction of an ADR system for consumer credit. In most cases, consumers currently have no other option than to go to the courts to seek redress against unfairness, which often proves daunting and expensive for consumers and industry. Most credit provided by banks and building societies is already covered by ADR, and some trade associations run their own ADR schemes. However, access for consumers to ADR is not universal and businesses can in many cases opt out. ADR will provide wider and easier access for both consumers and industry to an efficient and cheap process of dispute resolution. It means that most consumers no longer have to be worried about going to court to challenge unfairness. It allows disagreements to be settled quickly and simply, and consumers have a better chance of obtaining fair redress against unfair practices. It will encourage fair standards throughout the industry. Ultimately, these changes will increase consumer confidence in the market, which in turn benefits the industry.

The ADR will be provided by the Financial Ombudsman Service. The FOS was chosen as the ADR provider for consumer credit matters because it already deals with the financial services sector generally. Under the Financial Services and Markets Act 2000, the FOS provides ADR for two existing jurisdictions, the voluntary jurisdiction and the compulsory jurisdiction. The clause adds a third—the consumer credit jurisdiction. About 80 per cent. of people who responded to the consultation said they would like the FOS to provide ADR under the Consumer Credit Act 1974.

The FOS's existing experience and expertise will ensure a smooth transition to the new ADR scheme, more so than if another provider were used. Clause 59   describes the conditions that must be satisfied for a complaint to be dealt with by the FOS and also shows how different activities will be made subject to the consumer credit jurisdiction.

The Secretary of State for Trade and Industry will introduce types of credit business into the consumer credit jurisdiction by order. The order will be agreed with Her Majesty's Treasury Ministers. It will set out one or more of the types of business for the new licence categories: consumer credit business, consumer hire business, credit brokerage, debt adjusting, debt counselling, debt collecting, debt administration, credit information services and credit reference agencies. Different types of business will be introduced on a staggered basis.

The rate at which businesses are introduced into the consumer credit jurisdiction will be agreed with the Treasury after consultation with the FOS and the Financial Services Authority. That will ensure that the FOS can cope with the additional work load and will not risk being overloaded.

Once a type of business is introduced, the FOS will make rules setting out the activities that it will consider within that type of business. That will provide maximum symmetry between the existing compulsory jurisdiction, covering banks and building societies, and the new consumer credit jurisdiction, covering other consumer credit firms. Those rules will ensure that a consumer's ability to obtain redress is balanced with the capacity of the FOS to deal with extra work. The FOS will also make procedural rules for the operation of the consumer credit jurisdiction. The FOS must hold a public consultation before making any rules, and rules must be approved by the FSA.

For the FOS to become involved, a consumer must want it to deal with the complaint and must be eligible. A person is eligible if they are the individual or are directly related to the individual through the agreement and they are covered by FOS rules. The credit business must have been holding a standard licence when the complaint occurred, and the complaint must fall under a type of business included in the consumer credit jurisdiction. The complaint must not be able to be dealt with under the existing compulsory jurisdiction of the FOS. That ensures that businesses do not become subject to multiple jurisdictions.

A consumer who wants to complain about a firm can take their complaint to the FOS. On receiving a complaint from a consumer, the FOS will first check that the firm's internal complaints handling procedures have been exhausted. Firms currently have eight weeks to settle complaints before the FOS will become involved. At the end of that period, if the complaint has not been resolved, the firm will be obliged to let the consumer know about the FOS. Then, if all the criteria that I mentioned have been met, the FOS will consider the complaint.

Before opening a case, the FOS will try to settle the complaint informally. If that is unsuccessful, the FOS will open a case to investigate the complaint. Much of the work of the FOS is carried out by correspondence,   so that neither consumers nor businesses need appear at a hearing. After considering the case, the FOS will issue an adjudication. That stage of the case may be handled by a member of FOS staff other than the ombudsman. If either party is unhappy with the adjudication, they can request that the ombudsman review that assessment and make a determination.

The FOS makes decisions based on what is fair and reasonable in each case. It takes into account the law, regulations, the regulator's rules, relevant codes and good industry practice. That ensures that, within the legal framework, the FOS can come to a practical common-sense solution that has a better chance of being acceptable to all parties involved. It can order a range of imaginative redress mechanisms from either party to bring things to a just and amicable solution. If the consumer accepts the ombudsman's final decision, it is binding on the business. The FOS decision can be enforced through the courts, and the FOS can inform the OFT of its determinations so that it can take any necessary regulatory action.

The clause is necessary to provide consumers with better and more accessible opportunities for redress against unfair practices. I hope that, with that explanation, the Committee will accept the clause.

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

I am grateful to the Minister for such a detailed exposition of the clause, which is a very important aspect of the Bill. I would be grateful, though, if we could return to the types of business. Mr. Taylor, you were sadly absent from the Room this morning when we had a lively and interesting—I would not go as far as saying ''riveting''—discussion about the types of business, and it just seems unfair that because you were out of the Room you should not be given a chance to be part of it.

Paragraphs (a) to (i) of proposed new section 226A(3) list a range of types of business. The concern that we discussed this morning, on which we did not quite reach a conclusion, is that although that is an exhaustive list of types of business as we currently know them, we cannot be certain that they will still be the types of business that exist 30 years ahead. New types of business may or may not have been started.

The Minister asked me what types of business I had in mind that could be started up in the years to come. If I had that degree of vision and knew what multi-billion pound businesses there would be in 30 years' time that no one had yet thought of, I would not be sitting here in Committee but would be out there starting one, or, at the very least, I would be down at William Hill's putting a few pounds on the 2.40 pm at Lingfield park tomorrow afternoon.

Expecting us to know what types of business will exist is perhaps unreasonable, but it is not unreasonable to say that we cannot all have the foresight to say what new types of business might arise, and that we should perhaps be covered by the ombudsman's services.

I therefore ask the Minister to go away and reconsider the matter. I do not want to be rude by telling him to go away today, but I do ask him to think further about it after this sitting and before Report to ascertain whether it would not be unreasonable to   amend the Bill so that the list could be reviewed every five years.

After each five-year period, we will know the types of business that might be emerging and whether they are services that should be considered. My simple concern is that the Bill should give us the scope to protect consumers, which we are all trying to do, against the types of business that are not currently major players but that will come along in years to come offering credit services.

If we tie up the legislation as it stands, we deny ourselves the chance to keep it up to date and to give consumers the length and breadth of protection that we seek to offer them. I simply ask the Minister to say that he will reconsider the possibility of the Secretary of State reviewing the list every five years, and that if new types of business have opened up, the Secretary of State should have the power to include them in the list.

Adrian Bailey (West Bromwich West, Labour)

I welcome the measure, but will the Minister clarify further how the scheme would apply, bearing in mind the remarks made on Second Reading by my right hon. Friend the Member for Leeds, West (John Battle), which I endorsed, about the need for a complaints procedure that would enjoy the confidence of potential victims of unfair credit practices, and be mindful of the fact that many of the people who fall foul of credit companies have low levels of education, a great fear of any court or judicial processes and a great fear of the organisation that is lending them money?

According to the provisions, people have to exhaust the internal procedures of the credit company before they can use the financial ombudsman's service. I understand the reason for that, which is the need to avoid the ombudsman's service being swamped by sometimes trivial or inconsequential cases. On the other hand, we must ensure that the person who perceives that they have been unfairly treated does not feel intimidated in undergoing a process that would enable them to redress their grievance.

Will the Minister reassure us that everyone who enters into a credit agreement must be informed in the simplest and clearest way of the avenues that are open to them if they feel unfairly treated, and that there should be severe penalties for any company that uses any form of intimidation that stops anyone using the provisions that are available to them?

James Brokenshire (Hornchurch, Conservative)

I shall build on the point about ease of access to the ombudsman's scheme and on the several comments made about the need to ensure that the scheme efficiently and effectively gives access to justice, which is a phrase that we have used many times in this debate, so that people can resolve issues.

I understand that the subtle little amendment in new section 226A(2)(f), which states that

''the complaint cannot be dealt with under the compulsory jurisdiction'',

is intended to cover situations in which a firm is regulated under the Financial Services and Markets Act 2000. I want an assurance that there is an interconnection between the two regimes and some link between the Financial Services Authority and the Office of Fair Trading. If someone has a complaint, they want it to be dealt with efficiently and effectively. They do not want to be passed round the houses, with the ombudsman saying that the problem has nothing to do with that service and that they will have to launch a separate complaint to the FSA under the regime set out in the Financial Services and Markets Act 2000. That is the last thing that we would want to happen.

If someone has a legitimate concern, they are likely to be under a great deal of pressure and wanting to get things resolved quickly. They will feel at the end of their tether, so I want some assurance that there will be a joined-up approach. I know that the Minister kindly has circulated papers on the joint working memorandums that have been agreed between the OFT and the FSA. However, there must be something in the system to ensure that if people have legitimate complaints, they are dealt with efficiently and effectively.

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

Again, I welcome the contributions from all hon. Members in trying to ensure that we get the provisions right, as they are a significant step forward from what is in the 1974 Act. It is right and fair for individuals to go through a company's internal complaint procedures, and I agree with my hon. Friend the Member for West Bromwich, West (Mr. Bailey) that that should not be about intimidation. There is also an eight-week time limit for that procedure.

Consultation showed that, for most people involved, the FOS was the preferred option because of its experience in equities. To answer the question of the hon. Member for Hornchurch (James Brokenshire), the consumer credit jurisdiction under the FOS will not fall within the regulatory scope of the FSA, so there will be no duplication or confusion. The consumer credit jurisdiction will cover only cases that are not currently dealt with under the compulsory jurisdiction. There are three jurisdictions, and it will be clear what falls within each.

James Brokenshire (Hornchurch, Conservative)

I am sorry to press the Minister on this point. If that is the case, information should be made available to borrowers so that they know that, if the ombudsman scheme is not available to them, what their rights of redress are. A problem is likely to occur when some form of remedy should have been followed, and I would like an assurance that some information will be provided so that people can make a proper complaint.

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

Information needs to be provided to the borrower or the borrower's representative through citizens advices bureaux or whoever else takes up the individual cases, which relates to the point made by my hon. Friend the Member for West Bromwich, West about people's inability in times of hardship and concern to understand fully the redress mechanisms that are available. That is where the advice services can come into play. We would also want the information   to be included on the OFT information sheets that we mentioned earlier in relation to dispute resolution.

It is important that the system works. Most of the FOS work is done through correspondence, so the process should be speedy and less threatening to the individuals participating. I would hope that the ADR will be what we intend: a quick, common-sense system that meets all requirements.

That brings me on to the hon. Member for Wealden. He seems to like five-year cycles, as they keep recurring in his amendments. Much as I have sympathy with his line of thought, his proposal is not needed. The scope of the ADR is to cover all consumer credit licence businesses, except holders of group licences, for all disputes arising under the Consumer Credit Act. We do not envisage any unforeseen circumstances in terms of the ADR's coverage, and it is not dissimilar to what we were discussing this morning.

With those explanations, I commend the clause to the Committee.

Question put and agreed to.

Clause 59, as amended, ordered to stand part of the Bill.