Debt: Consumer Credit

– in the House of Lords on 24th October 2007.

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Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative

asked Her Majesty's Government:

Whether they will put proposals to banks, building societies and financial services providers with a view to reducing the number of personal bankruptcies, mortgage repossessions and individual voluntary arrangements; and whether they will introduce legislation on these matters in the absence of co-operation from these lenders.

Noble Lords:

Wrong Answer!

Photo of Lord Jones of Birmingham Lord Jones of Birmingham Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Foreign & Commonwealth Office, Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Department for Business, Enterprise & Regulatory Reform, Minister of State (Foreign and Commonwealth Office) (also in the Department of Business, Enterprise and Regulatory Reform), Minister of State (Department for Business, Enterprise and Regulatory Reform) (Trade Promotion and Investment)

My Lords, I apologise. The Government take problem debt very seriously and are in regular dialogue with the financial services sector. Access to and supply of credit is a vital part of the functioning of a market economy. The Government do not propose to upset that. But we have legislated to increase transparency so that consumers are now better informed about their commitments throughout the lifetime of the loan and we continue to raise financial competence in the young.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative

My Lords, I thank the Minister for that Answer. Having said that, I was worried at first that I had the wrong supplementary. I was going to ask whether he remembered the Consumer Credit Act 2006, but of course he was not in the House at the time we debated it. Is the Minister aware—I am sure that he is—that I proposed a very modest amendment that would have required the lender to ask the borrower if he had the means to meet the commitment? The then Minister replied that it was certainly not necessary to have that on the face of the Bill. Given the indebtedness of individuals throughout the country and the fact that I never like to say I was right—nevertheless I am going to say that I was right—could the Minister please now tell the House what they are prepared to do to remedy the situation?

Photo of Lord Jones of Birmingham Lord Jones of Birmingham Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Foreign & Commonwealth Office, Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Department for Business, Enterprise & Regulatory Reform, Minister of State (Foreign and Commonwealth Office) (also in the Department of Business, Enterprise and Regulatory Reform), Minister of State (Department for Business, Enterprise and Regulatory Reform) (Trade Promotion and Investment)

My Lords, I am grateful to the noble Baroness for indulging me and apologise for my incompetence at the beginning of my Answer. The Consumer Credit Act 2006 does contain important new safeguards for consumers. In particular, it will make it easier for the Office of Fair Trading to take action against lenders who do not take a responsible attitude to lending when considering who is fit to hold a consumer credit licence. But it is not just about addressing behaviour through legislation. Financial education, particularly of the young, has an equally important role in ensuring that a responsible attitude is taken to borrowing as well as lending.

Photo of Baroness Kingsmill Baroness Kingsmill Labour

My Lords, is the Minister aware that 80 per cent of the debt in the UK is in the form of a mortgage, which is asset-backed, and that we have one of the most efficient financial services industries in the world? I declare an interest as a senior adviser to the Royal Bank of Scotland. Is he also aware that it is not in the interests of any financial institution to lend money to those who are unable to repay?

Photo of Lord Razzall Lord Razzall Spokesperson in the Lords, Department for Business, Enterprise and Regulatory Reform

My Lords, does the Minister accept that, notwithstanding recent consumer legislation, unsolicited credit card applications still remain a problem?

Photo of Lord Jones of Birmingham Lord Jones of Birmingham Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Foreign & Commonwealth Office, Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Department for Business, Enterprise & Regulatory Reform, Minister of State (Foreign and Commonwealth Office) (also in the Department of Business, Enterprise and Regulatory Reform), Minister of State (Department for Business, Enterprise and Regulatory Reform) (Trade Promotion and Investment)

My Lords, much is being done: we have reformed the regulations governing consumer credit advertising to make these clearer and fairer. We have also introduced pre-contract information to help consumers to make an informed choice before entering into a credit agreement. The implementation of the Consumer Credit Act 2006 will give increased powers to the Office of Fair Trading to safeguard the interests of consumers. Beyond that, £11.5 million is being spent on a package of support for schools to teach children financial skills.

Photo of Baroness Howarth of Breckland Baroness Howarth of Breckland Crossbench

My Lords, has the Minister had consultations with the citizens advice bureaux and other NGOs that expressed concern about the levels of debt incurred by vulnerable consumers during their evidence to sub-committee G of European Union scrutiny committee? Lord Jones of Birmingham: My Lords, I do not have the information to hand, but I will write to the noble Baroness with details of the communications we have had with such organisations.

Photo of Lord Davies of Coity Lord Davies of Coity Labour

My Lords, the issue of irresponsible lending has been widely canvassed. My concern is that the victims are the ones whose homes are repossessed. Does the Minister believe that the penalties for irresponsible lending are sufficient?

Photo of Lord Jones of Birmingham Lord Jones of Birmingham Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Foreign & Commonwealth Office, Minister of State (also in the Department of Business, Enterprise and Regulatory Reform), Department for Business, Enterprise & Regulatory Reform, Minister of State (Foreign and Commonwealth Office) (also in the Department of Business, Enterprise and Regulatory Reform), Minister of State (Department for Business, Enterprise and Regulatory Reform) (Trade Promotion and Investment)

My Lords, my noble friend is referring to two kinds of lending, one where there is security involved and one where there is no security. On the latter, I referred to action the OFT might take against irresponsible lenders in an earlier answer. As far as mortgages are concerned, the FSA has been doing a lot of work in this area recently. It recently published details of a review into the behaviour of intermediaries and lenders within the sub-prime mortgage market. It discovered weaknesses in responsible lending practices and in firms' assessments of consumers' ability to afford a mortgage. As a result it referred five firms to its enforcement division. Potential remedies include withdrawal of their permission to operate and financial penalties.