New Clause 5 - Regulatory impact

Consumer Credit Bill – in a Public Bill Committee at 4:45 pm on 27 January 2005.

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'(1) The Office of Fair Trading (OFT) will report to the Secretary of State and to Parliament annually on the impact of its monitoring of businesses being carried on under licences and its determinations to issue, renew or vary a licence under the provisions of this Act.

(2) The Secretary of State will after a period of no more than five years, consult on and publish an assessment of the impact the Act has had in terms of regulatory burden and harmonisation with European Directives.'.

—[Malcolm Bruce.]

Brought up, and read the First time.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to consider new clause 6—

Office of Fair Trading: further duties—

'(1) The Office of Fair Trading (OFT) shall consult other financial agencies and produce a standard requirement for the presentation of interest rates to enable direct comparison between products.

(2) The OFT shall periodically, and at least annually, publish the range of interest rates on the market for specified products.

(3) The OFT shall further publish court rulings and advice of the ombudsman on levels of interest rates for particular products which are likely to be deemed unfair under section 19.'.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

Something like new clause 5 should perhaps appear in a Bill, but it is particularly important in the Consumer Credit Bill.

The Minister acknowledged on Second Reading that the Bill is setting up a mechanism, the full impact of which will not be accessible until it has been in operation for some time. New clause 5 would require the OFT to give an annual report of how it is proceeding and what impact the interpretation of the regulation is having. After five years, the Secretary of State should review not only the impact of the Act and all the regulations and activities applied by the Bill, but any European legislation that is likely to have been enacted in that period. That is in no way to undermine the Bill—quite the opposite—but to ensure that it does not lead to a layering of additional regulations and bureaucratic detail on the industry that gets in the way of the Bill's principal function. That is a matter of genuine concern.

When one talks to businesses—in this case, financial services businesses and banking businesses—they tend to be able to argue that any individual Act or regulation is probably justified and acceptable, but the cumulative effect can be substantial. That puts the onus on the Office of Fair Trading and on the Secretary of State. It does not give the industry an opportunity to set its own parameters, but it does give an undertaking that it will be reviewed, reported on annually and, over five years, it would require the   Secretary of State to say that he has examined the whole impact and tried to ensure that it has been done as lightly as possible.

Photo of Alistair Burt Alistair Burt Parliamentary Private Secretaries To Leader of the Opposition

The hon. Gentleman knows the Government very well if he is concerned that one piece of legislation would lead to a raft of regulations in its wake. While the hon. Gentleman is making his remarks, will he ask the Minister, in his response, to offer an opinion on the general issue of whether sunset clauses that are added to Bills and regulations, which is our policy, would also make a significant difference to the way in which regulation would be accepted by industry and business, which is now literally groaning under the effect of regulations he has described?

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

I am content to be associated with the idea of sunset clauses, which my colleagues and I strongly support. However, I want the Minister to focus specifically on the new clause. He and the House have acknowledged that these provisions set up new arrangements, the workings of which will only become apparent over time. I ask for a clear recognition of the need for a review to ensure that the provisions do not create unnecessary bureaucracy, duplication or overlapping that make the delivery of desirable benefits, either to the consumer or to service providers excessively costly. It is a simple clause, and I hope the Minister will accept it.

New clause 6 deals specifically with hon. Members' concerns about potentially high or extortionate rates of interest. The Minister, the Conservatives and I did not agree with the inclusion of a specific maximum interest rate in the Bill. Several hon. Members, particularly Labour Members, wished to see that.

The new clause states that there should be a standard mechanism for setting out interest rates for different products, because credit card interest rates operate in several different ways. Overdraft interest and hire purchase interest are expressed in different ways. The first thing we must do is ensure standard ways of expressing interest rates appropriate to different products, which can be compared so that consumers can see the full range of credit costs. The OFT should produce—at least annually; certainly periodically—a list of interest rate ranges, which will change as interest rates vary.

Subsection (3) of the proposed new clause addresses the concerns of hon. Members who wish to identify and eliminate extortionate interest rates. On the basis of experience and practice, it is for the ombudsman and the OFT to say, ''This is the range of products. This is the upper and lower rate of interest for those different products, and on the basis of ombudsman's rulings or court cases, we will indicate from time to time the level of interest rate that is likely to be deemed unfair.'' That would warn credit providers that if they charge above that rate, they are likely to lose a reference to the ombudsman or to the courts.

The new clause does not insert a specific interest rate into the Bill; it allows that to vary and it leaves it to the discretion of the ombudsman and the OFT. This is a   genuine attempt to address people's concerns, consistent with the agreement of all Front Benchers that putting a specific interest rate in the Bill would be, for a variety of reasons, possibly counter-productive and difficult to enforce.

I commend both of the new clauses to the Committee. They genuinely meet the concerns of the industry in the spirit and the letter of the law. They also meet concerns on consumer regulation, particularly for those people at the lower end of the market who often face very high interest rates. A mechanism can be built into the Bill that would effectively allow the authorities to identify, at any given time, interest rates that could give rise to a ruling that they are unfair.

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

I am grateful to the hon. Gentleman for addressing the two clauses in a sincere manner. We do not need new clause 5 because what it aims to achieve is already in place. The OFT publishes an annual report; it is under an obligation to do so under the Enterprise Act 2002. Section 4 of that Act says that the annual report shall include

''an assessment of the extent to which the OFT's main objectives and priorities for the year . . . have been met''.

That annual report states progress against the objectives of the annual plan. The first chapter of the 2003-04 report is entitled ''Enforcing consumer protection legislation''. It lists the number of checks on licence application renewals, the number of investigations into fitness, and the number of licences revoked, refused or granted under different terms. It also reports the work done on guidance communication of information, input to policy, and other cross-cutting work.

It was suggested that the Secretary of State should review the impact of the Act. A regulatory impact assessment has already committed us to review the success of the changes two years after the commencement of the Act. That review will examine whether the number of complaints from consumers has fallen and whether complaints are handled better. It will also examine the costs and benefits of the changes and the effectiveness of regulators. It will also consider the costs and benefits of the changes and the effectiveness of regulators. We said that those would be reviewed alongside other recent changes to the secondary legislation on consumer credit. If a new consumer credit directive is issued by the time of the review, we will also take that into account. Hon. Members will be aware that progress on the directive has been extremely slow, and we do not believe that UK consumers should be made to wait for a directive that may never materialise. I hope that reassures the hon. Gentleman on new clause 5.

New clause 6 concerns the provision of information on interest rates, but it does not support a provision of clear information for consumers. Better informed consumers can make better choices and encourage competition. We had a great debate on Tuesday about the unfairness test, which captured many of the issues that the hon. Gentleman raised. However, we cannot support new clause 6.

The two new clauses proposed by the hon. Member require a presentation of interest rates to allow comparison. All hon. Members will be aware of discussions held by the Treasury Committee. Extensive consultation, both here and externally with industry consumer groups and regulators, has informed the Government's position on interest rates. Therefore, I hope that the hon. Gentleman, in the spirit with which he talked about the unfairness test, will realise that the Committee will deal with the issues that he has raised. The redress mechanisms through the OFT and the FOS mean that he will not have to examine the extra cost that the burden of his new clause will bring. I hope that hon. Gentleman will accept the spirit of what we are trying to achieve, and ask him to withdraw the motion.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

I appreciate the Minister's reply, and I hope he understands that there are issues that could usefully be further debated. In the hope that we will be able to return to those issues on Report, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Question proposed, That the Chairman do now report the Bill, as amended, to the House.

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

This is an important Bill, and I am pleased with the way in which the Committee has handled it. We have teased out the issues that needed to be addressed.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

I, too, thank Mr. Benton and Sir John Butterfill who chaired the deliberations on Tuesday. I also thank my Colleagues and all hon. Members who have contributed to the spirit and detail of the discussion of the Bill. I thank the Minister for being very accommodating not just today, but during the entire consideration of the Bill. I look forward to further discussions with him about issues that have, to some extent, been left unresolved. It is unfortunate that we did not manage to get a goal past him.

I am reminded of an interview that Enoch Powell once did on Europe. The interviewer asked him: ''Mr. Powell, haven't you failed?'' He replied, ''Maybe failed, but I wasn't wrong.''

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

I want to echo those sentiments. The Committee has proceeded with remarkable speed and efficiency. I acknowledge the contribution of my hon. Friend the Member for Richmond Park, who stood in for me on Tuesday. As she will admit, I think, this is not her star subject, but she did extremely well on our behalf. I am glad that I have been able to take part today.

This is an important Bill, which will have an impact. All Committee members can feel that they have each made a useful contribution to a piece of legislation that will help our constituents.

Photo of Joe Benton Joe Benton Labour, Bootle

On behalf of Sir John and myself, I thank the Committee members for the courtesy that they have extended. I will ensure that those kind remarks are passed on to Sir John. I also thank the learned Clerk and the support services.

Question put and agreed to.

Bill, as amended, to be reported.

Committee rose at Five o'clock.