My Lords, I thank the noble Baroness, Lady Altmann, and the noble Lords, Lord Carlile and Lord Stevenson, for supporting this amendment, which limits the disapplication of the Consumer Credit Act in Clause 12 to being only in so far as it relates to affordability.
There is no disagreement over disapplying affordability criteria, given that the Government have asked banks to speed up loans and dispense with the usual due diligence on affordability. However, we can see no reason for disapplication for unfair treatment, such as in default measures, which have been at the centre of more than one SME banking scandal. This is not an unreasonable amendment, because disapplication for affordability is exactly the same measure that has been introduced throughout the Lending Standards Board’s voluntary lending code. Why do the Government have to go further in disapplying remedies for all unfair treatment under this Bill rather than limiting it to affordability?
Apart from for micro-businesses, there is no regulatory protection for business loans or recovery procedures other than the measure the Government now seek to disapply. This was excruciatingly elaborated in the Financial Conduct Authority’s report on RBS’s Global Restructuring Group, which said that the FCA had no regulatory power. It also said that it was unlikely the behaviour would have been caught by the senior managers regime, had that applied. Andrew Bailey has since spoken before committees in Parliament and at many other meetings, explaining how business lending and debt recovery are outside the regulatory perimeter.
In Committee, the Minister said that
“the Government have retained Financial Conduct Authority oversight for debt collection, meaning that lenders must comply with the Financial Conduct Authority rules on arrears, default and recovery.”—[
Those rules are only for loans up to £25,000 made to sole traders, unincorporated associations and partnerships of fewer than four people—that is, micro-businesses. The Bill deals with removing protection from loans up to £50,000, which is by far the majority of bounce-back loans, given that the average loan is £37,000. Why, when there is more restrained disapplication for micro-businesses, and in the voluntary code, are the Government so resistant to a similar compromise in the Bill? Why are the Government depriving most bounce-back borrowers of the courts’ protection, at least for debt recovery?
Why do I care so much about this, especially when the Government are being generous with loans? I am not disputing good intentions, but the high-profile government publicity surrounding the loans can be misleading. There is constant reiteration of the good things about bounce-back loans: 100% guaranteed by government; try again if the first lender declines you; you cannot be asked for personal guarantees. This is encouragement to apply and gives the impression that the government guarantee is coming into play for the benefit of the borrower.
That is not the story, though. The Government back the lender; they are not a guarantor for the borrower. That is not stated on the GOV.UK website, although I am not sure that everyone would understand the significance even if it were. The British Business Bank website says that
“the collection of these loans will be regulated, meaning that, should businesses encounter financial difficulty, lenders will have to comply with relevant regulations.”
That is the non-existent regulation for the majority of the loans that are over £25,000.
The BBB website also says that
“lenders are not permitted” to take personal guarantees, or
“take recovery action over a borrower’s personal assets (such as their … home or personal vehicle)”, whereas, in her replies, the Minister stated that it is only the main home and main vehicle that are protected. Hence, it seems that the bailiffs can go in and take everything else: tools of the trade, or maybe the kiddies’ bikes.
The Minister also said in reply to me in Committee that
“lenders must not require borrowers to pay any lender-levied fees of any description, including on default, or any default interest.”—[
That also appears to be contradicted by, for example, the terms of bounce-back loans published by the Co-op and others, which say that the bank may,
“charge a fee to the Borrower representing the cost to the Lender of the additional monitoring of the Borrower and its financial position”.
That is where the rot started with GRG.
Other standard terms also apply, such as that any default, anywhere, on any other loan, with anyone, can trigger default. A bank can also take the view that the position of the borrower has declined since the making of the loan agreement. Given that a loan condition for a bounce-back loan is that the business has suffered from the effects of coronavirus, just about every loan is at risk of being defined as in default.
Of course, not many defaulting people or companies can go to court, so what does it matter if that route is blocked? Well, the principle matters; the deterrent matters; and the comparison matters. It gives away that the Government care little about those that go under; the focus is on the economic benefit of survivors. That view was reinforced during the meeting we had with the Minister and Treasury officials. In the future, the story of bounce-back loans will be one of borrowers thinking that the Government have backed them. The usual debt-recovery operations will be a sorry tale, even without bad behaviour, but in that event the law has been changed and that has consequences.
Helpful though it is, borrowers should not have to rely on the ombudsman as the only arbiter. In 2018, the Channel 4 programme “Dispatches” uncovered poor understanding and practices in the ombudsman service, with employees saying there was never a recommendation for debt forgiveness. Further, a primary reference for the ombudsman is the law of the land, and deliberately cutting that away for everyone other than micro-businesses with smaller loans alters the balance. Is that the Government’s intention—to move the goalposts on fairness?
I return to the Statement the Business Secretary made in the Commons. Yes, forbearance is part of these measures, and we would expect that to apply. I ought to know what the Government are intending. When will they step in with the guarantee to the banks? Will it be before or after the bailiffs have been sent in? And why, when both the voluntary code and the under-£25,000 consumer credit debt collection regulations have been amended to meet the same ends that I suggest, will the Government not do something in this Bill? Not to do so implies a specific intent.
The underlying message behind this deliberate and unnecessarily wide disapplication of the law, especially to debt collection, is a dire one. For that reason, I intend to call a vote. I beg to move.
My Lords, I have added my name to this extremely important amendment. However, I congratulate the Government on their introduction of the bounce-back loans and their enormous efforts to try to help businesses survive this crisis, which was not of their making or anybody else’s.
I am sure that my noble friend is sympathetic to the circumstances that could arise, and hope that she can reassure the House that the intention of this measure is not to change the balance of what is fair in circumstances where debts are being recovered by the lenders of these bounce-back loans. I find it difficult to understand why the Government have only really preserved the regulations relating to default and debt recovery for those loans up to £25,000, and only for micro-businesses. I would appreciate it if my noble friend could help the House in this regard. Restaurant owners and hairdressing salons which are limited companies may find that their equipment is subject to seizure when banks try to recover these bounce-back loans.
The banks do not need to recover the loans—indeed, they have expressed reservations and discomfort about being asked to take these borrowers to court. I believe there will be consultation with Ministers over the summer about how this is going to work. If they have a guarantee, they do not need, in theory, to press too hard to recover the loans. But if there are some attractive assets, it may be tempting for them to do so. I hope the Government will be able to state clearly that they want reasonable debt recovery only, and the intention is not to change the balance of fairness in these circumstances.
Forgive me if I am asking too much at this late stage of the Bill and with the emergency nature of the legislation, but I ask my noble friend to consider whether the Government might accept that they could take the power to make regulations, reapplying the Consumer Credit Act to debt recovery should that prove a popular and necessary measure, or whether they can include the range of £25,000-£50,000 in some other way so that we can avoid the reputational damage that may go along with this. Nevertheless, I welcome the bounce-back loans and I encourage my noble friend to give us some clarification.
My Lords, the noble Baroness, Lady Bowles, whose amendment this is—and I am very pleased to be a signatory—is a considerable expert on the subjects under discussion, as is the noble Baroness, Lady Altmann. I have enormous respect for them both, and for their skills in this area. I am but a mere lawyer and feel, to an extent, inadequate to parry on the financial details under discussion.
I have spent a lot of my time in recent decades dealing with fraud cases in which people often got themselves into financial difficulty, through no fault of their own, and were then under huge pressure from the banks. We have recently heard cases in which the Post Office prosecuted people who pleaded guilty to criminal offences which they had not committed. We have heard about the remedial action that is having to be taken, very expensively, to put those wrongs right.
The bounce-back loans are of course very welcome, but they bring a whole new cohort of people into, what is for them, often very substantial borrowing. Many of the businesses we are talking about do not have substantial overdrafts in the ordinary run of things. They are able to live on a cash balance, albeit often small, and they do not have to enter into sophisticated agreements with banks. This applies particularly to family businesses, which have either been created recently or are long established. The debt picture and the debt threats for such companies are frighteningly great compared to the time before coronavirus.
Therefore, over the years, there are plenty of examples, as mentioned by the noble Baroness, Lady Bowles, of banks being sometimes very oppressive towards customers who are put out of business without understanding what redress they may have against those banks. Unfortunately, these provisions remove some of that redress, which they might discover they have against the banks.
In my view, some simple legal remedies with flexibility are needed, so that if, for example, a company defaults on a loan but can demonstrate that, within a couple of years, it can haul itself back to not only profitability but the ability to repay the loan, we would be in a much better position. Surely that would be a far better outcome. The amendment we are considering is one solution to that problem, and that is why I support it.
I am grateful to the noble Baroness, Lady Penn, with whom I have exchanged emails, at her instigation, about this amendment. I said to her yesterday in an email that the Government really should produce some kind of arbitral procedure which would enable loans in the range we are debating to be discussed, a solution to be found that would satisfy the banks in the long term, and the businesses concerned to carry on trading. These loans have of course been introduced in an emergency, but it is actually less of an emergency for the banks than for the people who take out the loans, and about whom we are talking. Unless something better is offered, this amendment would rebalance fairness so that there is a level playing field between the lender and the borrower.
My Lords, I support this amendment, tabled by my noble friend, because, put simply, it would do two things. First, it would put beyond doubt the protection which borrowers of bounce-back loans have against their lenders pursuing punitive action if they default. Secondly, given the relatively low take-up of these important loans, it would give reassurance to companies seeking to use the facility provided by the Government as essential finance to keep them in business and retain employment.
Companies may have been, or are, hesitant to take out these loans for a variety of reasons. For example, they might be worried about repayment, the ongoing viability of their business or whether they wish to continue trading. But to respond to these fears, the Government must assist by providing the maximum level of certainty on what happens if the borrower cannot repay the loan. The guarantee to the lenders is that the Government will bear the cost of defaulting. This is very welcome, but that guarantee is given to the lender and not to the borrower. There is some protection in place to prevent the lender taking further actions against the borrower, but the legislation before us takes away most of the ultimate protections for a borrower—to have recourse to the courts.
My noble friend has outlined these issues in great detail. I am grateful to her for the forensic manner in which she laid out the borrower protection arguments for this amendment. I will not repeat the detail on the missing protections that she has given.
Taking the two reasons I have outlined for supporting this amendment separately, on the first it is clear that many lenders, mostly large high-street banks, will already have banking arrangements with those who are seeking or have taken out these bounce-back loans. In Committee, I quoted examples of this relationship possibly being used to influence the behaviours of lenders. Put simply, they have financial power over their borrowers through that continuing relationship with them. Other lenders, many of them now trying to lend money under these schemes, have difficulty in getting their hands on the 0.5% interest cash that the Government have made available to lend, largely because the big banks will not funnel these funds through to them, on the “Why should we help our competitors?” principle. This means that the big banks will have a bounce-back loans advantage, most frequently with their existing customers.
On the second reason, the Government estimate that many more of these loans will be needed—perhaps four times as many—to protect small companies from going under, given the consequent unemployment that would cause. These loans need to provide protection for the borrower in a way which will not deter them from proceeding. The fallback of court protection from the poor behaviour of the lender provides a higher level of reassurance to borrowers, in line with the current legislation.
I share the Government’s hope that these loans can provide a lifeline to many companies. They are a very good response to the pandemic. This amendment would support the Government’s ambition and strengthen the case for businesses considering taking out these loans by removing the concern that default could lead to unfair sanctions being imposed on them.
My Lords, first, I thank the noble Baroness, Lady Penn, for her willingness to talk virtually to a number of us who have been focused on this issue; however, I came away from those discussions almost more confused than I went into them. This House will be aware that the financial regulators—certainly the FCA—do not regulate institutions but activities. One of the activities it cannot regulate is commercial lending, which is on the far side of what is generally called the regulatory perimeter. A slight sleight of hand is, to some extent, made available to sole traders, micro-companies and the very small end of small businesses so that they do merit some protection, that typically coming in the form of an appeal to the ombudsman. Although the ombudsman has very limited power to actually make sure that any remedy is effected, there is at least one to go to.
For companies that do not fall into this category—my noble friend Lady Bowles provided the detail, so I will not repeat it—there is no form of protection; the FCA has no standing. Therefore, when those companies are put into default and the banks come to collect on their debts, their only resort has been to the courts. Under this arrangement, that is now removed from those companies if they have taken out a bounce-back loan. I really do not understand why the ability to go to the courts to protest unfair treatment has been removed.
The Government have full knowledge that the FCA cannot act under these circumstances. I suppose that, occasionally, somebody in government will argue that the FCA can turn to the Senior Managers Regime, but, as we all know, having listened frequently to the testimony from Andrew Bailey, only in very rare instances would the regime apply. Indeed, the FCA has been very reluctant to use it, even in some very egregious cases; in fact, I would be interested to hear from the Minister the number of times the FCA has actually used it. It is not a workable mechanism for trying to force the banks to provide fair treatment to the larger end of SMEs if they go into default under their bounce- back loans.
The Bounce Back Loan Scheme is brilliant, but I am very concerned that it will end up with a stain on its character when, in 18 months’ or two years’ time, we have a chain of companies that are clearly being treated unfairly by the banks and both the Government and the regulators stand back and say, “There is nothing we can do. This was an unregulated activity, only contract law applied, and we have disallowed these companies’ ability to go to the courts to seek any form of redress”. Frankly, it is a tragedy and a scandal in the making.
I am not sure it has been made clear to companies that when they apply for bounce-back loans, it is caveat emptor and they will be without even the normal range of protections should they go into default. If I understand correctly, the Government have decided to disapply the right to turn to the courts as part of an enticement to the banks to participate in the Bounce Back Loan Scheme. I cannot believe that that concession should be given; and if it was asked for by the banks, I am even more worried because, as we know, the banks seek opportunities to make profit—that is the business they are in.
Perhaps the Minister is not that familiar with the RBS and GRG scandals. The GRG was a profit centre. The RBS staff who were part of the GRG were looking not only to get loans and interest repaid but to make an additional profit, particularly by seizing assets. Under the various contract terms, they could identify firms that would value those assets. The owners or borrowers could argue that the assets were being valued at well below market value, but had no means of enforcing that, and of course we know from the various reports that followed that it was not infrequently the reality that assets were valued very low, triggering the default, and months later, having been seized by the bank, were resold for multiples of the valuation.
The mechanisms that the banks use when they have the opportunity to put a company into default are frequently outside the boundaries of what any of us would consider fair and appropriate. I do not understand stripping away from companies any possible route to a remedy under those circumstances.
My Lords, my name is on this amendment, and I am in general support of the points powerfully made by the noble Baroness, Lady Bowles, in Committee and today, and by others who have spoken. They have made the main arguments, which I will not repeat.
The Government argue that the key driver for this initiative is to get the bounce-bank loans out to as many small businesses as want them and can use them, and to reduce barriers to that effect. I sympathise—it is very hard to be against that aim—but there are clearly risks here, as we have heard. While my concerns are not identical to those of the noble Baroness, Lady Bowles, they are very similar, and I would like to make three points on the issue.
First, there is general agreement that the Consumer Credit Act 1974 urgently needs bringing up to date, to be fit for purpose regarding the changed regulatory landscape of different lending practices and the tighter financial circumstances of the 2020s, now and post Covid-19. The current lender/borrower relationship envisaged under the Act does not work but, as others have said, it is very risky to remove all the court protections, and I sympathise with that.
Secondly, the Government have put on record the very tight constraints that they are putting on lenders who wish to engage with bounce-back loans, including banning fees, banning punitive interest and forbidding reach-through sanctions to personal assets such as houses and vehicles, but is that enough? There is a powerful tool in the Government’s armoury.
Thirdly, the 100% guarantee that we have been talking about is on the lender, not the borrower, but that gives the Government considerable powers which they say they will use to drive good behaviour. For me, the key question is whether, in removing access to the courts under the unfair trading clauses of the 1974 Act, the Government have put the bounce-back loan borrowers in a worse position than if they had left it all in place, or—as suggested in the amendment—just the affordability issue. It is a close call.
I would be very grateful if the Minister, when responding, could deal fully with the following points. First, will she confirm that the Government will undertake to overhaul the Consumer Credit Act 1974 in the near future, taking full account of the issues raised in this debate? Secondly, can she list concisely the limits on lenders’ ability under the bounce-back loan to penalise borrowers who are in default or otherwise transgress, irrespective of the amount of money borrowed, and the statutory and non-statutory opportunities for borrowers to protect themselves and their possessions if lenders attempt to penalise them absent the core protection of the 1974 Act?
Thirdly, can the Minister set out what she called “the steely determination” of the Government to use their power to reduce or cancel the 100% underwriting of loans made under the BBL scheme, if lenders transgress? This could be a very powerful weapon. It would be useful to know who will have the power to trigger certain sanctions, and how borrowers will be informed about the process. The noble Lord, Lord Carlile, suggested that an arbitration structure was needed, and he may well be right. If the Minister can confirm that these points are in play and give assurances on them, then I suggest that the noble Baroness, Lady Bowles, does not press her amendment to a vote this evening, as we will not support her.
I thank the noble Baroness, Lady Bowles, my noble friend Lady Altmann and the noble Lords, Lord Stevenson and Lord Carlile, for tabling the amendment. I also thank them for the discussions that we have had on this matter since a similar amendment was tabled in Committee. I have listened very carefully to the concerns of the noble Baroness, Lady Bowles. I stress at the outset just how seriously the Government take the protection of those who have taken out a bounce-back loan. I will set out what form those protections take, as the noble Lord, Lord Stevenson, asked me to do.
We have integrated significant protections into the Bounce Back Loan Scheme. I point towards the obligations that the scheme imposes on lenders to act honourably. I set out many of those terms in Committee. Loans are capped at 25% of turnover and the interest rate for the scheme is capped at 2.5%. The Government will cover interest and repayments for the first year of the loan. That helps to address the point made by the noble Lord, Lord Carlile, that businesses might not be able to afford to repay the loan now due to current circumstances but, with a bit of time to get back up and trading, will be able to meet those payments in future.
The lender may not levy any fees or interest beyond the fixed interest rate of 2.5% a year, including any fees on default. I reassure the noble Baroness, Lady Bowles, on this point. Lenders are required to adhere to the scheme rules as set out in this agreement. They may use their standard terms and conditions for documenting the loans. This might be where the confusion has come from, but there is no ability to charge any fees or interest beyond that 2.5% a year.
We will get more into the detail of some other protections, but a number of noble Lords raised the question of the balance of fairness in these loans. These loans set out to be a very standardised product. Protections such as no lender levy fees whatever and a fixed interest rate of 2.5% a year are also factors that need to be taken into account when we look at the balance of fairness and include in that the government guarantee at 100%.
Further protections include the provision of clear information before and during the life of the loan, which was an issue a number of noble Lords raised. In response to the noble Lord, Lord Carlile, I say that lenders are obliged to make it clear in the terms of the loans that the protections under the Consumer Credit Act do not apply to these loans. That is also stated up front.
The noble Baroness, Lady Bowles, asked about the question raised at Second Reading on forbearance of these loans. That is provided for in the terms of the guarantee agreement. There must be forbearance on missed payments, allowing the customer a reasonable time to remedy defaults without consequence. There must also be signposting of appropriate assistance where businesses experience payment difficulties.
We come on to the retention of Financial Conduct Authority oversight for debt collection by lenders of loans that would be regulated credit agreements but are exempt by virtue of them being bounce-back loans, and the right for eligible borrowers under the scheme to access the Financial Ombudsman Service to resolve disputes. I will go into more detail on FCA and Financial Ombudsman Service oversight a bit later, because I know noble Lords will want it. A point was raised in our discussions outside the Chamber on the reservation that, despite the specific protections, the unfair loans provisions in the CCA provide a very broad and general protection so that, if some of these protections that we have specified turn out not to be enough or banks might find a further loophole, the broad provisions provide further protections.
I reassure the noble Baroness that there is also a general, overarching commitment in the guarantee agreement. The lenders have an overarching obligation that they must always act in good faith and not behave in a manner that could reasonably be expected to bring the scheme or the guarantor into disrepute, or in a way that contravenes any applicable law or regulation. This includes all actions in respect of servicing and enforcement of the loan. The lender’s performance of such obligations is subject to audit by the British Business Bank, and the obligations of the guarantee agreement are legal, valid, binding and enforceable obligations. Failure to comply with these terms in the guarantee would mean lenders risk not being able to make a claim under it, which would provide an exceptionally strong incentive to firms to conduct themselves properly. I assure the noble Lord, Lord Stevenson, that if such behaviour that contravened the terms of the guarantee agreement were brought to light, the Government would have no qualms about using their power to withdraw the guarantee.
The Financial Ombudsman Service, raised by a number of noble Lords, also has a more general obligation and duty in cases brought to it to make decisions on what it thinks is fair and reasonable in all circumstances of the case. The noble Baronesses will know that in 2019 the Government expanded eligibility to access the Financial Ombudsman Service so that small businesses with an annual turnover of less than £6.5 million and either an annual balance sheet total of less than £5 million or fewer than 50 employees can access the Financial Ombudsman Service. This means that an estimated 99.5% of SMEs can access the Financial Ombudsman Service. I make the point to the noble Lord, Lord Carlile, that for very small businesses that are inexperienced in taking out credit, a free-to-access ombudsman service—rather than a law suit—is often by far the preferred way to resolve a dispute.
As has been previously noted, the collection of debts under the bounce-back loan scheme remains a regulated activity for loans of less than £25,000 to sole traders, partnerships of fewer than four people and unincorporated associations. That means lenders under the scheme must comply with the FCA’s consumer credit conduct of business standards, rules and guidance on arrears, default and recovery in chapter 7 of the FCA’s Consumer Credit Sourcebook, as well as the FCA’s high-level principles, when collecting debts related to those agreements. As the noble Baronesses will know, this protection reflects the position for business lending more broadly and the fact that all business lending over £25,000 is not FCA-regulated.
I say to the noble Baroness, Lady Bowles: it is not that we were restricting FCA regulation of debt collection in bounce-back loans to loans under £25,000. That is the cut-off point—the threshold—where we regulate that lending activity, and that has not been changed in this. What has happened is that when we removed other provisions in the Consumer Credit Act, which we did via secondary legislation, we reinserted or kept the FCA regulation of debt collection for debts under £25,000 but did not extend it, and nor would we. We think that is the right threshold for FCA regulation of activity, as the noble Baroness, Lady Kramer, said.
To address the point from the noble Baroness, Lady Altmann, about limited companies, it is worth noting that the provisions in this clause would never have applied to limited companies. The protections in the Consumer Credit Act do not apply to limited companies and so, by disapplying these parts of the Consumer Credit Act, we are not changing their position in regulation at all.
A few further points were raised. On the point made by the noble Lord, Lord Stevenson, in Committee and again today more broadly about the Consumer Credit Act 1974, he is right to highlight that that legislation dates back nearly 50 years. Through subsequent amendments, it has become increasingly complex and challenging to navigate. That is reflected in the fact that, in addition to Clause 12 in this Bill, the Government used secondary legislation so that bounce-back loans would not be regulated credit agreements and are now exempt unregulated agreements.
We have made some progress in modernising the consumer credit regulation. In 2014, the FCA took over responsibility for regulating consumer credit. Part of the transfer of the provisions in the Consumer Credit Act 1974 was repealed and those provisions were replaced by FCA rules. However, there was more to do and, since then, the FCA has reviewed the remaining provisions and it published its final report into the matter in March 2019. The Treasury has been undertaking a programme of work to consider the FCA’s findings in detail. It is currently focused on our response to the Covid-19 crisis but, once the urgency of the crisis has subsided, the Government hope to set out in more detail the next steps that they will take on the Consumer Credit Act 1974.
The second point that I would like to make is about the impact of this amendment, should it be agreed. Lenders have made over £30 billion-worth of loans under the scheme in anticipation of Sections 140 to 140C of the Consumer Credit Act 1974 being disapplied. Borrowers have entered into those agreements in the knowledge that the usual protections will not apply. I point out to the noble Lord, Lord German, that over 1 million businesses have benefited from this measure, and that take-up is not insignificant.
Lenders have informed us that, should the amendment be agreed, it is likely that they would cease to offer any new lending under the scheme, thus depriving small businesses of the vital finance they need to weather this crisis. I understand the concerns expressed by noble Lords, but it is not possible to be in favour of the Bounce Back Loan Scheme but not in favour of this part of it—a part that has been crucial in getting the lending going.
My colleagues in the other place have been grateful for the constructive discussions that they have had with the Opposition during the development of the scheme and for the agreement that these measures, although extraordinary, were necessary to rapidly provide small businesses—the lifeblood of our economy—with the funding that they have needed in these extraordinary times. In developing the scheme, we have also worked closely with the FCA.
In response to those noble Lords who asked this question, there is an ongoing programme of work to look at the recoveries process for these loans. The Treasury has convened recoveries workshops with all accredited lenders, along with the FCA, the PRA and the British Business Bank, aimed at ensuring a consistent industry-wide approach to the collection and recovery of bounce-back loans. These discussions will follow the customer journey throughout the lifetime of the loan and ensure that lenders understand the type of support that they can provide to borrowers.
The legislative changes already made in secondary legislation and which we are now seeking to make in primary legislation are integral parts of the design and functioning of the scheme. They have been worked through carefully but also at pace, given the urgency with which small businesses have needed this support. The changes have been made alongside targeted protections built into the guarantee and, where possible, regulations. Without this scheme, lenders would not be able to provide the finance at the necessary pace and scale in response to the huge economic disruption caused by Covid-19.
I hope that I have given the noble Baroness reassurance that borrowers have robust protections under this scheme and that she will feel able to withdraw her amendment.
My Lords, I thank all those who have spoken in this debate. The noble Baroness, Lady Altmann, reminded us how attractive assets might tempt a bank or that companies’ equipment could be seized when they ended up in default after a period of forbearance. The noble Lord, Lord Carlile, with reference to the Post Office cases, reminded us how bad things can happen and that sometimes things that perhaps start off looking reasonable get very much out of hand. My noble friend Lord German reminded us that companies need the confidence to borrow. Perhaps we need four times as many bounce-back loans as have already been applied for, but they need protection.
My noble friend Lady Kramer reminded us that the senior managers’ regime seems not, perhaps, to be as strong a disciplinary tool as was originally hoped—certainly not in the generic way that was hoped. The noble Lord, Lord Stevenson, drew attention again to the fact that the CCA has been split up and is out of date.
I regret that the Opposition feel that they will not be able to join us in a vote. There seems to have been a certain amount of timetable pressure on this, but I am afraid I cannot put a recess ahead of what I think is the right thing to do. I thank the Minister for her detailed replies, many of which were just, perhaps, an extension of what was said in Committee. I fully understand what the protections were before there was any disapplication. I fully understand the £25,000 limit, and I do not accuse that it has been reduced. The fault I find is that, at this moment, a chunk of law on debt recovery, relating to fair treatment, is being taken away. In statute, nothing extra has been done. The law is diminished from what it was pre-coronavirus and pre-bounce-back loans. I accept that an attempt has been made to make the loans fair. In the recitation about interest and everything else, the guarantee of 100% was again mentioned, but this guarantee does not help companies that cannot repay; they go into default procedures, out of which there will ultimately have to be some kind of recovery, and possibly even profit, even if it is just a covering of costs, because these processes are expensive for the banks.
I hear what the Minister says about there being conditions within the agreements with the banks, but this is rather lacking in transparency. I think it would be a lot more helpful if those were embedded in statute. Ultimately, they rely on the Government saying, “Well, you haven’t got a guarantee anymore”. The net result of that will be many things; it will certainly not help those who have loans, who will possibly find the banks being altogether more oppressive than they were before. It will be extremely doubtful in law, I would think, what terms are supposed to apply to something that was a bounce-back loan but has now had the guarantee jerked away from it.
A piece of law about fairness is being removed. I welcome the notion that, according to the Minister, they are not trying to change the balance of fairness but, ultimately, if the ombudsman asks, “Among other things, what is the law on fairness?”, that piece has gone. I do not believe that that is necessarily without effect. I suspect that in due time there may be remorse. I cannot in good faith say that I am reassured. I wish it were so, but it is not. Therefore, I wish to record that I am not reassured by pressing my amendment to a vote.
Ayes 128, Noes 244.