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

Consumer Credit Bill – in a Public Bill Committee on 23rd June 2005.

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Amendment proposed [this day]: No. 31, in clause 9, page 8, line 16, leave out 'four' and insert 'eight'.—[Charles Hendry.]

Question again proposed, That the amendment be made.

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party 2:00 pm, 23rd June 2005

May I start by welcoming you to the Chair this afternoon, Mr. Conway?

We had an extremely productive morning, and I am sure that the Minister, having had a productive lunch and thought about the subject further, has come back persuaded by the wisdom and force of our arguments for the amendment.

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

Not quite.

Charles Hendry: In that case, we have a little way to go, but we will continue to work on him.

A key point that we strongly endorse was raised by the hon. Member for North Norfolk (Norman Lamb). Under the amendment, we are talking about aggregate payments. We are talking not about four payments missed in a row, but about payments missed over the entire period of the contract. As a result, a different set of circumstances emerges for someone who is starting to miss repayments regularly, or for someone who makes payments sporadically. In the latter case, it is extremely likely that the person missed the repayments with the understanding and knowledge of the company from which they have borrowed. The company probably said, ''Fine, go ahead; we understand that you need to miss this week. We'll simply extend the period by one week. There is no further debt to you, and there is no penalty for extending the period by a week—or by two, three or four'' That is totally understood.''

The circumstances may be different if someone has missed four payments in a row, and we accept that. However, in relation to home credit, there is a case for saying that reasons for missed payments will be even better understood than they would be for monthly payments. That is because if someone goes to the debtor's door week in, week out, they understand the circumstances and that sometimes people simply cannot pay. It is not that they have chosen to miss the payment; they simply do not have the funds that week, although they are endeavouring to pay their creditor and are extremely conscientious about trying to do so. In those cases, the people collecting the payments probably have a better understanding of the   circumstances and the reasons why payments are missed than they do of the reasons why someone has not paid a standing order or direct debit for a couple of months.

In his response to my earlier comments, the Minister said that he hoped that the companies concerned would approach the matter in a consumer-friendly way. That is directly at loggerheads with one of the key tenets of the Bill, which is that the relationship is presumed to be unfair unless the lender can prove it to be fair. Given that presumption, the lender cannot start doing things in a consumer-friendly way; they have got to go by the letter of the law. They must be certain that if they have to stand up in court they can say that they did everything possible to make the debtor fully aware of the delay. They should be able to say that they made it clear on the envelope that the letter was serious correspondence, and that they made it clear through the force of the letter that the debtor was in arrears. I do not see how that can be done in a consumer-friendly way when we are talking about something that could easily be brought to court, and on which the whole future of this debate will depend.

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

Welcome to the Chair, Mr. Conway.

A consumer-friendly way to give the notice is to do so in letter form, however, the notice does not have to be given in a formal notification. That is what I meant by it being consumer-friendly. I understand what the hon. Gentleman says, but later I hope to make some points that will convince him.

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party

I am sure, like me, that the Minister is aware from his constituency experience that people who are in debt—particularly the category that we are talking about—are frightened. They are deeply anxious about how they are to repay the money. All too often they tuck the letter away. They do not even open it; they just put it away in a drawer and think, ''Well, perhaps if I do not open it, it will go away.'' The whole nature of the situation is bound to be worrying; indeed, it is intended to be, because it is about being told, ''You are in arrears'', even though, as we said earlier, many of these people are not in arrears.

Photo of Mike Penning Mike Penning Conservative, Hemel Hempstead

I cannot remember which Chairman you are; I do apologise—[Hon. Members: ''Mr. Conway.'']—Mr. Conway.

Photo of Derek Conway Derek Conway Conservative, Old Bexley and Sidcup

I am the good-looking one. [Laughter.]

Photo of Mike Penning Mike Penning Conservative, Hemel Hempstead

I grew up on estates where the door-to-door lender was a way of life, and I know that there is a fear factor that we have not really addressed; I hope that the Minister will do so. Often in such households, other members of it do not know that a person has borrowed money, and they are often very fearful when they find out about it. What worries me about going down the formal route of sending letters to these people is that it will appear—the letter will suggest—that they have done something wrong, even though, as we all agree, it is an aggregate problem and they have not done anything wrong. They have not broken any agreement, and they will not incur any   extra costs or interest payments. However, the fear felt within the household concerned could be considerable.

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party

My hon. Friend makes an important point. People are extremely concerned about this. Other members of the household might not know that somebody has been borrowing money, and a letter might arrive stating, ''I am writing formally to advise you, as I am required to by law, that you are in arrears, having missed four payments.'' In those circumstances, no matter how hard the person concerned tries to explain, other people in the household will simply not believe that they are not in arrears. That will create tremendous tensions and pressure in the family. That is a certain way of driving people to loan sharks. The sort of people who will lend money in an illegal way are the sort of people who will not honour these sort of commitments. People who want to keep things quiet or secret will be forced more in that direction.

I urge the Minister to consider the matter further. In a letter published in The Independent yesterday, the Reverend Paul Nicolson observed:

''There are seven million adults in the UK with literacy age of 11 years, who will not be able to read the leaflets—let alone fill in the forms.''

Some of those adults are the sort of people we are talking about—people who are borrowing because they have no other way of paying the weekly bills. We must find a better way than the one currently being proposed to look after their interests and give them protection.

I ask the Minister to consider two options. First, a distinction must be drawn between cases in which four payments have been missed in a given period—two months, let us say—and cases in which payments have been missed over a much longer period, for instance on a year-long contract. Secondly, as the hon. Member for North Norfolk suggested this morning, the letter of arrears notification should not apply where there is no prejudice to the interests of the consumer, so in circumstances where no additional debt is incurred—no charges or additional interest payments—that letter will not need to be sent. We are all trying to avoid causing unnecessary distress to people, but the position that the Minister is pushing for will cause precisely that.

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

I acknowledge hon. Members' fears about this issue. We are talking about short-term credit and people on weekly payments. Surveys and research show that they are at higher risk of having debt problems. Even though they do not incur charges or interest on some missed weekly payments, I am concerned that the amendment extends the period in question from the six weeks that we propose.

I am concerned about people missing payments, whether aggregated over four weeks or independently over a period of time. I am worried about allowing that position to arise, given the research that has been done on people with short-term loans.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

Talking about research, I was looking at some literature on this matter from the Consumer Credit Association. I respect what the Minister says about the need to   alert people when they are in arrears, so that an alarm bell is rung, they can get debt counselling, and steps can be taken at an early stage. The key question is whether the Bill sets out the right way and the right time to do that, hence the amendment. As the Consumer Credit Association says, the

''customer is likely to be alarmed at getting such a notice. This will come across as an aggressive move by the lender.''

Does the Minister have any thoughts on that?

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

Again, I thank the hon. Gentleman for the spirit and the intention of his comment. We do not disagree about what we want to achieve; it is the method of achieving it that we disagree about.I still do not think that the amendment is the right solution, but I recognise that there is a problem. I think, the safest thing to do is, at a later stage, to reflect on the issue how to differentiate the different categories of missed repayment.

Photo of Mike Penning Mike Penning Conservative, Hemel Hempstead

I seek clarification. I am aware that the Minister has had research done, as have other people. What I am frightened about—I think we are all frightened about this—is driving people to the loan sharks and thugs that work on the streets. If people think that they will be harassed for something that they have not done wrong, they will look for an alternative that will not harass them. That is dangerous. Perhaps later we can examine the aggregated period and consider options so that if someone gets four weeks behind, it is not aggregated. What we do not want to do is drive people to the thugs and nasty guys.

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

I fully accept that, and as I said this morning, the Bill is not the only vehicle that we are using to tackle the problem of loan sharks. Had I been able to answer my question at Trade and Industry questions this morning, I would have talked about what else we are doing. I agree that we do not want to drive people from the legitimate market into the hands of loan sharks. However, I am not convinced that the amendment is the best vehicle for delivering what we all want, because arrears notices are a warning, even though I accept that technically there may not be an arrears position.

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party

The Minister accepts that there may not be an arrears position. If so, why would someone be sent an arrears notice? Surely, by definition, an arrears notice should be sent to people only if they are in arrears. If they are not, they should not receive the letter.

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

This is where the debate on missing payments becomes over-complicated. The amendment does not meet the technical requirements to consider the four weeks or payments over 12 months, so I think that the best way forward is to say that if the hon. Gentleman withdraws his amendment, I will look at how we deal with the issue in a definition and come back to it on Report. On that basis, I hope that he will withdraw his amendment.

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party

I am prepared to do that in principle, but will the Minister agree to a meeting at the end of the Committee stage and before Report to see whether we can work out an agreed form of words? If we can agree to that meeting—I am sure that the   Liberal Democrats would be keen to attend—I will withdraw my amendment.

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

I am prepared to do that. We are trying to achieve a consensus, and if this is a major point, we must be able to find a form of words that meets all our requirements.

Photo of Charles Hendry Charles Hendry Shadow Minister (Higher Education and Intellectual Property), Deputy Chair, Conservative Party

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.

Clause 10 ordered to stand part of the Bill.