Clause 9 - Notice of sums in arrears under fixed-sum credit agreements etc.

Consumer Credit Bill – in a Public Bill Committee at 11:00 am on 25 January 2005.

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Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury) 11:00, 25 January 2005

I beg to move amendment No. 20, in clause 9, page 8, line 6, leave out 'four' and insert 'six'.

The amendment relates to the notice of sums in arrears on fixed sum credit agreements. By and large, I support the requirements of clause 9. My only slight problem, which I have discussed with the industry, relates to subsection (8), which refers to weekly payments. Normally payments are made monthly, but there are occasions, particularly among lower income groups, where repayments are made weekly. My simple amendment seeks to address that.

The current requirement is that if two payments are missed, notices must be sent. That is to be increased to four payments, but four payments may not cover a tremendously long time. Several very small loan agreements may be repaid at the rate of £5 a week or so, and I am persuaded that the industry that operates in that market is often flexible. Money is collected on the doorstep; it is not sent by direct debit. A relationship can build up between the collector and the debtor, and it may be seen as heavy-handed if notices of missed payments and suggestions to seek advice on debt are sent too quickly, when arrears are only approximately £20. I want to do my bit to improve the Bill in that respect, by preventing it from being too heavy-handed in those circumstances.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I wonder whether the hon. Gentleman will address this point. His comments seem to run counter to his previous points that all the received wisdom is that early intervention and early reminders are best. I do not understand why, having argued very much in favour of the borrower, he now argues in favour of the lender and against received wisdom.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

The hon. Lady makes a fair point, but I am concerned. The industry itself is pressing for eight weeks, but I have suggested six, which I think is a reasonable compromise. As I have said, I am arguing for two points of view. I am arguing for the protection of the borrower, but also that we should not have too much administration, bureaucracy and regulation heaped on top of what is a successful credit industry. The mischief that the Bill seeks to deal with does not exist too much in the small loans sector. That is why I have compromised by suggesting six weeks rather than eight. It would be a little heavy-handed for somebody who is perhaps only £20 behind in payment under the terms of their agreement to start to receive letters that suggest taking debt advice and counselling on debt. It is too heavy-handed; I cannot put it any clearer than that.

I wish to pick up on another point. I am straying slightly from my amendment, so you can rule me out of order, Sir John, if I stray too far. In subsection (9)(b), reference is made to a ''small agreement''. It is my understanding that a small agreement is now £50,   which is a very low sum indeed. Has the Minister any intention to increase that? I am straying way beyond the thrust of the amendment, so I will stop there.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

It would be perfectly in order to raise that matter in the clause stand part debate.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs) 11:15, 25 January 2005

I have a slight problem understanding the way in which the hon. Gentleman has moved the amendment, for the reasons that my hon. Friend the Member for Northampton, North (Ms Keeble) has put forward. The Opposition parties have so far consistently supported the position of the borrowers, but I accept that the hon. Gentleman wants to look at matters in the round.

We have looked at this matter in great detail. People taking smaller loans are especially in peril, because they tend to be the most vulnerable. Hon. Friends in other arenas have stated that those who borrow the least can end up paying the most and can be in the most vulnerable of situations. I cannot therefore agree with the hon. Gentleman's amendment; there is just a complete disagreement between us.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I am seeking to protect consumers, but also to avoid unnecessary bureaucracy being piled on top of lenders. The companies that deal with small loans often have a far more flexible approach to business, and while debtors with small loans may end up paying a higher interest rate, the fact that there is flexibility within the agreement can change its nature. However, there may not be the same charges, such as those incurred when writing to people as part of the terms of agreements. That is one reason why I shall resist interest rate ceilings, because the interest rate, as the hon. Member for Leeds, West said, is not the entire story.

I accept that the interest rate may be a little bit higher on those loans, but all I am saying is that the period before the big machine goes into action, writing letters to people, should be six weeks rather than four. That is not a revolutionary proposal.

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

It may not seem so to the hon. Gentleman, but from the Government's perspective, in our attempt to apply consistency, it is revolutionary. The hon. Gentleman this morning mentioned consistency in regulation and making sure that we did not overburden people. In developing our proposals, we have looked at the issue in great detail, and it has been decided to use a similar approach to that which the Financial Services Authority uses for mortgages, which is a monthly repayments regime.

Although that rationale applies to longer-term mortgages that have monthly repayments, we recognise that small short-term loans are different for the reasons that both the hon. Gentleman and I have given. Simply using the same formula is not appropriate, and for that reason we have made specific   provision for those sorts of agreements. In agreements that will probably be short term with weekly instalments, such as home credit loans, missing four repayments is likely to be a significant issue for consumers who rely on those sorts of products. The proposals in the Bill require notice of sums in arrears to be provided 14 days after the fourth missed repayment. That means that for an agreement with weekly repayments, the creditor will need to send a statement six weeks after the first missed repayment. Such agreements are shorter in duration, only a few months at most, and are for small amounts. We do not intend to change the £50 definition of small amounts.

The customers that use those products are generally the most vulnerable for the reasons that I have given, and they have limited means. For that reason, we do not believe that the customer should be treated in the same way as in other credit agreements, as the hon. Member for Tewkesbury proposes. Reluctantly, we must disagree on the nature of the issue between us. We believe that, following our deliberations and consultation with the various stakeholders, we have got it right. I ask the hon. Gentleman to withdraw his amendment.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I do not accept that I am proposing that people be treated any differently. Our only point of disagreement is the interval between failing to make a payment and when the letters start to arrive. I do not seek a different rule or a different law. The Government are increasing the period from two weeks to four, so they have recognised that they do not want the whole machinery of bureaucracy to begin too early. All I am saying is that they should have relaxed that bureaucracy slightly more.

The other point about small agreements is relevant. I suppose that if that were a little higher, my amendment would be taken care of, but I shall not stretch the Committee's patience. We have had a bit of a debate on the point, and I do not want to press the amendment to a vote. I am happy to have got on the record my concern about there being a little bit too much bureaucracy, and, that said, I understand the Minister's position. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.