Clause 6 - Statements to be provided in relation tofixed-sum credit agreements

Consumer Credit Bill – in a Public Bill Committee at 10:00 am on 25 January 2005.

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Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park 10:00, 25 January 2005

I beg to move amendment No. 29, in clause 6, page 4, line 32, after 'made', insert

'or the mid-point of the loan, whichever is sooner'.

We accept that lack of information for borrowers about their credit agreement contributes to the scale of debt. People who have fallen into arrears are especially affected. Clause 6 calls for annual statements, and that is very welcome indeed. Some people get annual statements now; some do not. We are concerned about fixed sum loans that last less than a year. They often carry very high interest rates and are often rolled over. People often get into huge difficulties with such short-term loans. The amendment asks the Minister to consider a mid-term statement as well as an annual statement for those on short-term loans so that debtors are quite clear on how they stand half way through the term. I understand that the Citizens Advice Bureau supports the amendment.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I thank the hon. Member for Richmond Park for the way in which she moved the amendment. Unfortunately, I must disappoint her and say that the Government will ask the Committee to resist it.

The amendment would require an annual statement to be issued for agreements that continue for more than one year. It is not confined to those with a contractual term of one year or more. Therefore, if an agreement runs for more than one year, despite originally being for a lesser period, a statement will be required. The Government have considered at great length the need to provide consumers with relevant and clear information for the reasons that the hon. Lady mentioned.

I believe that we have found a balance between her concerns and providing the required information. Agreements of less than one year are generally for small amounts of money and are unsecured. Consumers with such agreements often use credit products that are more transparent in the handling of information, such as home credit account books. However, we recognise, as the hon. Lady says, that some are not and that consumers are entitled to receive information about arrears and default sums.

The requirements will bind lenders in all circumstances. In addition, the debtor is entitled, at any time, to request a statement of his account from the creditor under section 77 of the 1974 Act. The   proposal from the hon. Member for Richmond Park also gives rise to practical difficulties for lenders: an agreement with a one-month term would require a statement to be provided after two weeks; a 40-week term would require a statement after 20 weeks or about four months and three weeks. The permutations are endless and can only serve to decrease the flexibility of loan products for consumers who seek short-term credit and increase their price, and the Committee does not want that.

Photo of John Battle John Battle Labour, Leeds West

I have some sympathy with the intention of the amendment. Will the Minister give me some guidance? I get the impression that people find one lender but then other lenders come along, and their debts are compounded. Lenders seem to be unaware that some people already have loans from other lenders. The problem lies with the lenders; it is down to them rather than the lack of information on a borrower's statement. The affordability test may meet some of hon. Lady's intentions, because the real pressure should be on the lenders not to lend indiscriminately. If we could get the message through to the whole sector, people would not be in double the debt if lenders made each other aware of whom they are lending the money to.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I fully agree with the direction in which my right hon. Friend the Member for Leeds, West (Mr. Battle) is heading. The whole purpose of the Bill is about responsible lending and borrowing. We are talking about a mature credit market with regard to the type of credit available to consumers. For many years, my hon. Friend has been concerned about people at the lower end of the market, who can be exploited. It is our intention to ensure that people are not exploited; the provisions are about balance. We do not want to remove products from the marketplace that people who want short-term credit at the lower end of the market should have.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

Does the Minister agree that it is not an onerous request to expect the lending company to produce more frequent statements? Banks will provide statements every week if customers request them. I cannot understand why it should be so difficult to provide a mid-term statement.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

With respect to the hon. Lady, the provision is about the type of loan. As I said, in some cases there is a book that records the details of loans. We fully consulted with all sectors of the marketplace, including lenders and consumer groups. We could end up with the situation described by my hon. Friend the Member for Leeds, West whereby a tremendous amount of inappropriate information is given to the consumer, or information that the consumer does not fully understand and appreciate. We do not want to go down that route.

There are major issues about data sharing, which we will address later. That may offset some of the problems that the hon. Lady is pointing up. We have, I think, struck the right balance. Providing a mid-term statement would not really help a great deal. Making people fully aware of the products that they are using   and where to go if they have difficulties will help matters. The Government have the balance right, and more protections will be in place, as the hon. Lady will discover as we go through the Bill.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

The Minister says that people should be fully aware of the products that they are accessing, but that is the problem. He bases his comments on the assumption that people should be, and are, fully aware of what is on offer, but they are not. People are vulnerable. If someone is poor or lonely or does not have many friends to advise them, they will not know what products are on the market, and they will not understand what they are doing. That is the problem, and that is why we seek more frequent statements.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs) 10:15, 25 January 2005

We are not disagreeing over the objectives that we are trying to achieve. I do not want to stray from the Bill, Sir John, but, with your great knowledge and background in this area, you are aware that the Select Committee on Treasury is doing a great deal of work on financial exclusion. That has to be looked at as a whole. Although we are examining particular elements of the Bill, we shall consider all aspects of consumer education on the subject of handling money, such as debt or money advice. That is the direction we are going in.

The hon. Lady may not recognise this as a major point as regards her amendment, but the balance of relationships has taken time to develop. There is a strong home credit market of small businesses that lend money, and they regard having to provide more information as an onerous task. I accept her point that consumers may not be fully informed but section 77 of the 1974 Act provides the right to request a statement, regardless of the length of the agreement. Protections are in place. Using her logic, this amendment will not improve matters if people do not understand the situation. In the spirit of what we are trying to achieve, I hope that the hon. Lady will withdraw her amendment.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

I thank the Minister for his patient explanation. As I seek to gather reinforcements, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

I beg to move amendment No. 30, in clause 6, page 4, line 36, at end insert—

'(c) shall clearly state within the agreement the amount borrowed and the total interest payable on the loan; and

(d) shall advise the debtor borrowing on credit cards that for long term balances other credit products such as loans or overdrafts may be available; and

(e) shall be obliged to give free and impartial advice to the debtor as to alternative products that may reduce the cost of borrowing.'.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

With this it will be convenient to discuss amendment No. 16, in clause 6, page 4, line 38, at end insert

'but shall include—

(a) the amount paid by the debtor to the lender to date;

(b) the amount remaining to be paid by the debtor to the lender; and 

(c) the remaining term of the agreement.'.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

The amendments follow on from the previous discussion. There is huge concern that people do not know what they are doing, or are letting themselves in for, when they take out loans. They are subject to huge pressures from many companies. They must lose count of the amount of junk mail they receive from financial companies offering loans, credit cards or other enticements that can lead to debt.

One of the bees in my bonnet is the advertising industry; a great deal of blame can be laid at its door. The intensity with which the industry advertises to get people, particularly those who are lonely or elderly, into debt is horrifying. When my mother was old she did not get much post. Like many elderly people whose friends had died, she opened everything that came through her letterbox. Most people tear up much of their junk mail; my mother used to read even the pizza offers and keep them to discuss them with me when I visited. There are many people like that in my constituency and throughout the country. They see enticing offers for what looks like cheap money—a lump sum for which they pay a small amount each month—and they are seduced. We must protect those people. From the beginning, debtors must be clear about the amount borrowed and the total interest payable.

Photo of James Plaskitt James Plaskitt Labour, Warwick and Leamington

I take the point about vulnerable people receiving this information. With regard to paragraph (c) of the amendment, can the hon. Lady explain how it would be possible for the creditor to include in the statement the total interest payable? Surely that would depend on the repayment profile chosen by the person carrying the debt?

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

If the debtor agrees on a certain interest rate and a certain number of payments, surely it is possible to work out the total to be paid at the end. When I did simple interest and compound interest at school, it was possible to work out how much a loan would cost overall—[Interruption.] I happily bow to the superior mathematical geniuses in the Room.

Photo of John Battle John Battle Labour, Leeds West

I am grateful, but I would not like to stand up as a superior mathematical genius. I simply want to speak about the experience of people in my neighbourhood. The problem is not so much the adverts on TV, but the people who knock on doors. If a person has £4.99, he or she can borrow £150 to buy a bed, but will end up paying back nearly £400. The problem is not only the interest, though. If a person cannot afford the weekly payment on a Friday because they have paid another bill, they miss a week's payment and there are extra charges for that. Often, rather than the interest rate, it is the compound interest on those charges that is the problem, and that fact is not recognised. As I said, the problem is caused not so much by the television adverts, but by the people who knock on doors, and by the collection process. The Bill might do something to tackle that. The hon. Lady mentioned interest rates, but that is only half the cost.   The darker side is buried in the charges that add to the compound interest and cause the situation that the hon. Lady outlined.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

The right hon. Gentleman is right, and it is that issue that I am so concerned about. It is not pointed out to people that if they default next Friday because they cannot pay their contribution, those charges will make their debt much bigger than they ever imagined. That should be pointed out, and it is very sharp practice if it is not. People must also be made aware of the alternatives. Many young people and students think that credit cards are the ideal way to borrow money. They do not shop around to find out the differences in credit card interest rates. There has been a huge debate in the press and in Parliament over recent weeks about the fact that those can vary hugely.

People are simply not aware of the facts. When people take out such loans or become overdrawn on their credit cards in that way, it should be made clear to them just what they are letting themselves in for. People should not be seduced into taking a loan that they are never going to be able to pay back. Is it not reasonable for a company to say that there may be other options? If someone wishes to take out a loan on a credit card, is it not the duty of that company to say that it might be better if they took out a bank loan or sought advice from a financial adviser or their bank? We give far too much leeway to companies to push what the debtor will see as cheap money, which turns out to be very expensive money and sometimes totally ruinous.

I have constituents who find themselves with huge, unexpected repayments to make, simply because it was never explained to them in the first place. I may be accused of being too kind and too lenient, but although we may—I hope—learn a certain amount at school, sometimes we do not pay enough attention to practical teaching on the practical problems that people may encounter in their lives, such as interest and compound interest. A few lessons on credit cards, banks and how credit companies and money lenders operate might be far better than learning about isosceles triangles. Perhaps we also need to address the education system.

I move the amendment in the interest of giving consumers much more information before they take out loans.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I sympathise with the spirit in which the hon. Member for Richmond Park moved the amendment, but I see possible problems with the drafting. I entirely agree with the point that very busy and vulnerable people may fall foul of the agreements, but it can happen to those who do not fall into either category but who simply do not understand the legal technicalities of a contract. That is what we are talking about. People study contract law at university for many years, then may take articles and study for several more. They then become solicitors, but even   they sometimes do not understand the intricacies of contract law, so it is a little much to expect anyone else to understand it fully.

There is, of course, the legal philosophy of caveat emptor—let the buyer beware. Ordinarily, in a free society, that is quite reasonable, but when we come to very complicated contracts, the relative strength of the parties is very different. I have many concerns not only about the way in which agreements are set up, but the way in which they are run. If I interpret it correctly, one of the reasons for the Government's introducing the Bill, apart from addressing how contracts are set up—I wish to turn to that important matter during the debate on amendment No. 16—is to deal with the way in which they are run. I certainly do not want extra burdens to be placed on businesses, which are, by and large, honourable and successful. I am part of the shadow Industry team, and we are attempting to devise deregulation in order to make businesses more competitive. There is far too much red tape in Europe and in Britain, and we wish to get rid of much of it, but we do not wish to do so to such an extent that it will create unnecessary problems. It is important that we do not lose sight of the fact that people are getting themselves into terrible amounts of debt in this country. We have record debt of more than £1 trillion. It is so large a figure, I am not sure that I understand how much it is.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

The Minister is about to intervene. I hope that he will tell us how many zeroes there are in a trillion.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I shall not do that although I am grateful to the hon. Gentleman for giving way. I remind him that 80 per cent. of that £1 trillion of debt is composed of mortgage repayments, which, in the long term, will make people asset rich. I am sure that the hon. Gentleman will acknowledge that.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I am grateful to the Minister for that very helpful intervention—I did not know that figure. Obviously, we support entirely people who buy their own houses. I remind the Minister that we introduced the ability to do so in many cases, so I entirely support that. I am glad to see that this week, the Prime Minister is adopting our policy.

Photo of Gregory Barker Gregory Barker Opposition Whip (Commons)

May I point out to my hon. Friend that the Minister may be right to say that 80 per cent. of that figure is mortgage debt, but that is not all vanilla, sensible, saving and the buying of houses? A significant number of new mortgages these days are taken out by people who must consolidate high debts that they have accumulated on credit cards, store cards, or personal loans. Their only way out is to get a larger consolidation loan that is secured against their home. As we are always told, their homes are at risk if they do not keep up with repayments. Debt accumulated for a purpose other than for the purchase of a home is a very different matter.  

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I am grateful to my hon. Friend for that telling intervention. It is absolutely true, and it is a modern phenomenon, that when people take out a mortgage—let us say for £100,000—they may get a capped rate for five years, but at the end of those five years, they rarely take out a mortgage for £100,000 again; it will be for £110,000, £120,000 or £130,000. Nevertheless, the Minister has a point. However, I do not think that the Minister was suggesting that there is no problem with the level of debt in this country.

I accept that incomes increase on an ongoing basis, and I accept that assets may also have increased. However, we cannot deny that many people get themselves into debt unnecessarily, and the problem is not just the amount that they borrow. The right hon. Member for Leeds, West made the point that the problem is the way in which agreements are run. They work on the basis of compound interest, which I could never understand at school. I could never work out compound interest, even though I passed my maths O-level, let alone remember what an isosceles triangle was. It is important that we teach people more about compound interest than isosceles triangles.

Photo of John Battle John Battle Labour, Leeds West 10:30, 25 January 2005

On a small point—and, in a sense, a trivial one—without isosceles triangles, our shelves would fall off the walls, so we must understand both compound interest and the practical problems of putting up shelving. Compound interest is important, but so is the matter of charges. Interest is incredibly difficult to work out, and calculating simple or compound interest is tricky when one is simply told that repayments will be £4.99 a week. However, break clauses are not always spelled out to the borrower, and those can build up as charges that bury people in debt much more than interest. I am campaigning for a cap in interest rates. However, if they were capped at 30 per cent.—that is an argument that I shall have with the Minister—the problem would not be solved because charges are even worse than interest rates, but we are not legislating for those.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I am grateful to the hon. Gentleman, and we can probably return to those points when we debate amendment No. 17. He is right, and I am glad of his explanation of the isosceles triangle; I shall look for them the next time that I go into my local store.

I am unable to support amendment No. 30 because of the way in which it is worded. There are problems with subsection (e),which states that a lender

''shall be obliged to give free and impartial advice to the debtor as to alternative products''.

I am not sure that that would be legal under the Financial Services and Markets Act 2000, although the Minister will know more about that than I do. I think that it is correct to say that people are entitled to give advice only on the products that they are licensed to sell. However, I agree with the spirit of amendment No. 30, and I have tried to clarify the matter a little with amendment No. 16.

The Minister reacted slightly strongly to an earlier point that I made. Although I was not criticising the Bill. many people are concerned that it is vague in   many ways and that it gives a lot of regulatory power to the Minister. I do not doubt that consumer credit will be regulated very well while the Minister is in office, but he may well not be in office after 5 May. Even if the unthinkable happened and the Labour Government were re-elected, he might not continue to be responsible for this matter. I am a little concerned about how much extra power the Bill will give to Ministers. In amendment No. 16, I have not tried to strike out what is already in the Bill, but I added that the statement

''shall include . . . the amount paid by the debtor to the lender to date; . . . the amount remaining to be paid by the debtor to the lender; and . . . the remaining term of the agreement.''

Those are very simple requirements. Like the hon. Member for Richmond Park, I do not see a problem in clarifying that part of the Bill.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I wondered when we would get to the politics of the Bill, and it took us until clause 6. If you will forgive me, Sir John, I shall reply, I hope in proper order, to some of the points that were made, and you may make a ruling if I go wide of the mark.

We must set the context of the Bill, of which I am protective because it goes a long way in developing relationships in consumer credit. It is a long time since the Consumer Credit Act 1974 was enacted. Credit can be good; this morning we discussed the pitfalls of debt that result from improper lending and improper use of credit. However, on the whole, credit can be a useful tool for consumers. The diversity and complexity of the UK consumer credit market is important because people can gain access to products from which they benefit.

The Bill is concerned with responsible lending and borrowing. The hon. Member for Bexhill and Battle mentioned mortgages, and I said that 80 per cent. of the £1 trillion pound debt applied to those. It is true that the majority of other loans are taken out to improve people's asset base, by buying something that will improve the value of their house, or by buying a car, for example. Confidence in borrowing is to do with current strong economic conditions.

Photo of Gregory Barker Gregory Barker Opposition Whip (Commons)

The Minister said that buying a car would improve people's asset base, but a car depreciates from the moment that it is bought, so how would buying a car improve a person's asset base, particularly when a loan increases from the moment that it is taken out?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

A car can help people in general terms. For instance, it can help them get to work. I accept the point about depreciation, but if people are economically able to buy a car, their personal situations can be developed as a result. We can have a greater debate about cars and issues that relate to motor vehicles if hon. Members want.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

Perhaps that does go outside the context of the Bill, Sir John.

The UK's strong economic position, with low interest rates, low inflation and more people in work than ever before, increases confidence. Economic   education goes to the heart of the problem, and the hon. Member for Richmond Park said that people should be taught from a very early age how to deal with money. I agree. I am having discussions with my hon. and right hon. Friends in the Department for Education and Skills about supporting the many programmes that are underpinned by industry and consumer groups in the field of financial capability. The Financial Services Authority is undertaking a national strategy consultation, and a great deal of work is being done on this area up and down the country, particularly with young people because the pressures of consumer issues affect them.

I agree that we must ensure that people understand how money is used, and I was pleased to see that in the pre-Budget report the Chancellor introduced £120 million for a financial inclusion fund. I am sure that that will benefit many people, and my Department is currently considering proposals for giving money and debt advice and for how best to educate consumers.

I am sure that it will come as no surprise to hon. Members that the Government want to resist both amendments. Amendment No. 30 does not, in our view, appear to be directly related to the requirement to provide annual statements to debtors who have fixed sum credit accounts. The requirement for an agreement to state the amount that has been borrowed and the total interest payable is already dealt with by the Consumer Credit Regulations 1983, which was made under section 60 of the 1974 Act. The second and third subsections in the amendment appears to have raised issues that are more significant than the provision of information about accounts. Indeed, both subsections seem to suggest the imposition on lenders of an obligation to advise consumers about how best to borrow.

The Government's position is that there must be a balance between responsible lending and responsible borrowing. A consumer should have all the information that he needs to make an informed decision, and that is one reason why the Government recently implemented new consumer credit regulations on agreements and advertising. It would be a very different matter, however, to require lenders to tell consumers how they should borrow, and the Government shall resist any such proposal. Consumers should be informed and empowered, but that does not mean that lenders ought to act as their financial advisers as well, which would place them in the same position as lawyers, accountants and financial advisers, with all the duties that such roles entail.

The Government will resist the amendment, but we will consider with all interested parties the form and content of annual statements and ensure that they reflect the balance between the need to inform and practical reality. Statements must also be able to change to account for development of the consumer credit market in the future.

The Government are committed to consulting with the industry and consumer groups to ensure that there is a balance between the provision of information and the practicalities involved, so we will resist amendment No. 16. We will consult with all interested parties on the content of the statements and ensure that they reflect a balance between the need to inform and the practical reality.

The hon. Member for Tewkesbury raised the issue of the imposition of obligation on lenders not being too onerous. In introducing the provision the Government recognise two things: many responsible lenders already provide regular detailed information to consumers, and this requirement is designed to ensure that lenders meet a minimum standard of information provision to consumers. All consumers who have agreements of more than a year's duration should, and are entitled to, receive the same minimum information on a regular basis.

The Government's intention is not to impose onerous compliance requirements on lenders; we want to ensure that all lenders provide consumers with a minimum level of information, and we want annual statements to contain relevant and useful information. The Department will consult widely with industry and consumer groups before preparing regulations specifying the form and content of annual statements. For those reasons, I ask the hon. Member for Richmond Park to withdraw the amendment, and, if she fails to do so, I ask the Committee to vote against it.

Photo of Dr Jenny Tonge Dr Jenny Tonge Liberal Democrat, Richmond Park

I thank the Minister for his explanation, and as with the previous amendment, I do not feel confident enough to put it to the vote, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I beg to move amendment No. 17, in clause 6, page 5, line 37, at end insert—

'(7A) In addition to the statement referred to in subsection (1) above the lender shall also provide the debtor with a statement at the outset of the agreement.

(7B) Regulations may make provisions about the form and content of the statements under (7A), but the contents shall include a clear guide as to—

(a) the redress procedures available to the debtor if any dispute regarding the agreement shall arise, with particular respect to the Financial Services Ombudsman and the Financial Services Authority

(b) sources of information and advice with regard to the debtor's rights under the terms of this Act and the 1974 Act; and

(c) any charges, other than interest payments, which the lender may legitimately make.'.

The amendment places a requirement on the lender to provide the debtor with a statement at the outset of the agreement. That is frequently done, but this would be a little more prescriptive. It allows the Minister to set regulations about the form and content of the statement but it also specifies what should be in that statement, including among other things the redress procedures available to the debtor should any dispute regarding the agreement arise. I refer particularly to the financial services ombudsman, who will be discussed later in the Bill, and the Financial Services Authority.

The amendment also requires them to be told of sources of information and advice with regard to the debtor's rights under the terms of this Bill and the 1974 Act. It also requires—this is probably the most important part—that

''any charges, other than interest payments, which the lender may legitimately make'' must be put on this statement, which must be given to debtors at the beginning of the contract.

I was persuaded to table this amendment because financial institutions all too often seem to make the rules up as they go along. Charges are levied that I am sure are not necessarily part of the contract. What particularly annoys people is that organisations write to individuals and then, as I said, charge them £30 or £40 for the privilege of having been written to. Some years ago I had a loan, towards the end of which I had a dispute with the company. I had to instruct a solicitor to sort it out. I was successful in doing so—I was right, and they were wrong—but they insisted on writing to me and charging me £30 for every letter they sent. I wrote back saying: ''That is very good, I charge £50 for every letter I send you, so you owe me £x.''

Not everyone would have my nerve or confidence, and vulnerable people certainly would not. They would lose out, perhaps in a legal sense, but also simply because of the relative strength of the parties involved, as I described earlier. Therefore, for the agreement to be legal, and this would be consistent with every other area of law in the country, the lender should have to state very clearly not only the terms of the agreement but what will happen if x, y or z happens. The debtor would then have a much clearer idea about the agreement into which he is entering, and much bad faith and bad feeling would be avoided.

The redress procedures available are important, and it would benefit consumers to be aware of them. I do not see why it should be against the interests of decent and honourable lenders to have to give information and sources of information that relate to the debtor's right under the terms of the Bill and the 1974 Act. I raised a point about such agreements on Second Reading, which requires clarification. I shall attempt to put it more articulately than I did then. If an advertisement or contract carries a term or attractive inducement in large writing, but the complete opposite   appears in tiny writing, it is my understanding of the law that that tiny writing does not supersede what appears in large writing. In other words, if something in an advertisement or an agreement could be said to be misleading, that agreement is struck out. Most people, however, are not aware of that, and would assume that if something was buried in minute writing on page 25 of a contact, a company has a right to rely on that when, in fact, it cannot.

I shall give one example of why people must be made more aware of their rights and their rights of redress. It returns to what the hon. Member for Richmond Park said about education. I accept that it is impossible to teach 14, 15 or 16-year-olds the intricacies of contract law. However, in general terms, we could do more. Amendment No. 17 seeks to do that by putting the agreement on a legal basis whereby companies can charge if those charges were agreed to at the outset of the contract, but they cannot impose charges simply because they are the much stronger party and because they can persuade people that they are entitled to do so when, in fact, they may not be able to do so.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs) 10:45, 25 January 2005

I again acknowledge the intention and the spirit with which the hon. Gentleman has introduced the amendment. However, I want to convince him that it is unnecessary because wide provisions exist outside the Bill. We have the balance about right on what information must be provided to consumers and on the practicalities of providing that information.

I am not sure how a statement at the outset of the agreement would help consumers, particularly as they would just have received their contractual documentation and might not have made any repayments. The information contained in a statement at that time would not add any value.

I understand the hon. Gentleman's desire to inform consumers about their options for redress; it is important that consumers receive information when it can be of use to them. The Bill will require creditors to provide information about advice options and alternative dispute resolution, along with arrears and default statements. The annual statements will also include more general information. We want not to overburden consumers with information but to provide them with information that is relevant and helpful.

In respect of the third item on the hon. Gentleman's list, the Government have recently amended regulations relating to pre-contractual information. The Consumer Credit (Agreements) (Amendment) Regulations 2004 also require lenders to specify in agreements any charge that may be imposed on default.

Photo of John Battle John Battle Labour, Leeds West

On that point, I have a great deal of sympathy with the hon. Gentleman's amendment. The reason is that the interest is often in the small print. It may be written in Carolingian miniscule, so that one can hardly see it if one has bad eyesight. Apart from that, when charges are put on, not all of them have been agreed and are clear at the beginning. The   problem is that companies change the terms of the contract half way through. We must get to grips with that; we must put pressure on companies. I suspect that companies make enormous amounts of money out of the poor, who pay the most. Companies know how much profit they will make before the end of the year; they anticipate what they will pick up in interest and in charges. Will the Minister reassure me that we can either give more support to borrowers or put more pressure on companies to be more open about what money they expect to get from people?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I fully agree with my right hon. Friend's intentions. We changed the rules on newspaper advertising to make the cost of a product clear in bold print. We worked with the industry on the form and content of an agreement to decide on measures that were to everyone's benefit. The driving factor is transparency. If I use the term ''rogue'' I do so not to attack those who lend, the majority of whom do so responsibly.

There will be an unfairness test, which we shall discuss later. There will be an alternative dispute resolution and there will be other redress and safety mechanisms to point out those who act improperly. I do not think that the amendment will take us much further. I think we have the balance right on the information required for consumers' benefit and so that lenders will not be unduly burdened.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I, too, have some sympathy with the gist of the amendment and with the Minister's argument against overburdening people with information. However, as the Minister and my right hon. Friend the Member for Leeds, West pointed out, it is not merely a question of information, but of enforcement. Many big, reputable credit card companies routinely make high and changing charges, which have been held in certain forums to be unenforceable penalty notices. However, they still implement them.

I hope that, on the enforcer of this legislation, the Office of Fair Trading, we shall see a step change in the enforcer's regime. The practices I have referred to are well known and they could be covered by blanket enforcement, but that is simply not done at the moment.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I have great sympathy with my hon. Friend's remarks. From those who watch and listen to our deliberations there is a clear message to politicians on all sides on the need for openness, transparency and responsible lending. The onus is on those who have the maximum resources to ensure that their products are transparent and do not hinder consumers. The other side of the balance is that consumers borrow responsibly by having as much access as possible to information about products.

The small print is always a difficult issue. The new agreement regulations that will take effect in May will require changes to be specified clearly and concisely,   and not in small print. If that does not happen, they will come under the redress mechanisms that we shall discuss later.

I understand the spirit and the intention behind the amendment, but I do not think it is necessary. We have the balance about right, and we shall have further opportunities to offer redress where necessary. I therefore ask the hon. Member for Tewkesbury to withdraw his amendment.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

May I pick up on the Minister's point that the provision would be too late once the agreement had been set up? I do not see it that way. The amendment calls for a statement at the outset of the agreement; by implication, that is when the agreement is made. I understand that there is a two-week cooling-off period for agreements. Those two weeks could be used to read the statement to see whether, in the cold light of day, the debtor actually agreed to what was written down and that it was, in fact, what he intended to agree to.

The problem is that the system is not working. People are getting into terrible debt and some companies—I stress that it is only some—are changing the terms of agreements as they go along. It may or may not be legal to do that, and I suspect that it probably is not, but it is still happening and we must address it. I intend to do that with the amendment. Amendments Nos. 18, 19 and 21, which are the next group, also deal with the way agreements should be run in respect of default payments, and we will come to that.

The Bill should address the relative strength of the parties, and, in spite of the Minister's eloquence and detailed information, I must insist on this amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 4, Noes 9.

Division number 1 Nimrod Review — Statement — Clause 6 - Statements to be provided in relation tofixed-sum credit agreements

Aye: 4 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

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

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

Although we have given some time to the amendments and have had a full debate, it is important to put on record the Government's position on clause 6.

Consumers are entitled to be informed about their credit situation. The clause ensures that debtors receive clear and concise information about their fixed sum credit agreements on a regular basis. Clause 6 inserts a new section 77A into the Act. It will require   creditors to provide debtors with annual statements in respect of fixed sum credit agreements that have a duration of more than one year. A fixed sum credit agreement provides a facility to a debtor who is entitled to receive a credit, whether in one amount or by instalments. Subsection (1) states that a creditor must provide a debtor with annual statements. The first statement must be provided within one year after the day on which the agreement was made. Subsequent statements must be provided at intervals of no more than one year after the previous statement was issued.

The form and content of annual statements will be specified by the Secretary of State in regulations which will be made under the new subsection (2). New subsection (3) states that a creditor cannot impose a charge on the debtor of costs of producing an annual statement. New subsection (4) states that the creditor is not obliged to provide any statements after the debtor has made his final payment. Subsections (5) and (6) state that while a creditor does not give the debtor an annual statement when required, the creditor is not entitled to enforce the agreement until a statement has been provided. The creditor cannot charge interest during the time when no statement has been provided, and the debtor is not liable to pay any default sum that would have been payable during the period when the statement should have been provided. The default sum is defined by clause 18 and includes sums, except interest, that will become payable by the debtor in connection with a breach of the agreement.

New subsection (7) defines ''the period of non-compliance''. That is the period from the day after the last day on which a statement is required until the day when a creditor provides a statement. New subsection (8) makes it clear that the requirement for annual statements does not apply to non-commercial agreements. Non-commercial agreements are agreements that are not made by the creditor in the course of his business or for small agreements of less than £50. Debtors should be regularly informed of their financial situation. This clause ensures that they are.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.