Clause 13 - Interest on default sums

Consumer Credit Bill – in a Public Bill Committee at 12:00 pm on 25 January 2005.

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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)

Hon. Members will be aware of high-profile cases in the press in which compound interest on default sums has resulted in massive escalations of the original debt. That is of considerable concern, and it is addressed in clause 13. Creditors or owners are entitled to the cost of recovering the debt, but that should not unduly penalise debtors or hirers. The clause will prohibit the compounding of interest on default sums and allow the charging only of simple interest. A default sum will be defined in a new section 187A of the Consumer Credit Act 1974 as an amount payable, other than interest, by the debtor or hirer for any breach of their agreement. For example, this could include a late payment fee, a mispayment fee or legal fees. Any current agreements that permit compound interest will have to be amended to allow simple interest only.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

Will the Minister consider extending the restriction to arrears generally, or has that been ruled unnecessary or undesirable? People get into trouble on arrears generally, not only on defaults. If a lender attracts simple interest on the arrears or the default, the money will be repaid with interest. Did the Minister consider extending the restriction to that extent? Arrears are potentially more dangerous for borrowers than defaults.

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

The hon. Gentleman has raised a difficult issue. To my recollection, we considered how to re-examine other agreements, but decided that the most appropriate route was the one that we had chosen. If that recollection is incorrect, I shall come back to the hon. Gentleman with precise details from the consultation.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clauses 14 and 15 ordered to stand part of the Bill.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am happy for hon. Members to take off their jackets, but it is customary to ask the Chair for permission.

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

I am suitably chastened, Sir John, and I apologise for removing my jacket without first asking your permission. I shall have to stop going to luncheons, because they are clearly not doing me any good.