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Clause 60 - Funding of ombudsman scheme

Consumer Credit Bill – in a Public Bill Committee at 5:30 pm on 28th June 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)

I hope that my remarks on clause 60 will further clarify the funding of the ombudsman's scheme for the Committee. The clause sets out the arrangements for the funding of the compulsory ADR. In line with the best practice principles underpinning the funding of the ADR scheme, it should be self-funding and free to the consumer. As the clause states, all standard licence holders not already covered by the compulsory jurisdiction will pay to cover the costs of the FOS in setting up and running the consumer credit ADR.

Those costs will be met in two ways. First, businesses under the jurisdiction of the FOS will be charged a small levy, which will be set by the FOS with the approval of the Financial Services Authority. The levy is likely to be between £10 and £20 per year.

Secondly, a case fee will be payable by those businesses whose complainants are considered under the ADR scheme. The fee will also be set by the FOS with the approval of the FSA and is likely to be about £360 per case. The majority of firms will never pay the case fee. It is unlikely that all complaints will require ADR, and those firms that now come before the FOS get the first two cases a year free. The ADR levy will be collected by the OFT with the licence fees, and the money will be passed on to the FOS. The OFT is best placed to collect the money, as it already has details of the all Consumer Credit Act licences. The OFT can charge extra for costs incurred in collecting the levy, and the FOS will periodically reimburse the OFT. The clause is necessary to provide funding for the ADR scheme. I hope that I have made it clear to the Committee what we seek to achieve.

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

I am grateful to the Minister for that explanation. I draw his attention to proposed new section 234A(9), which states:

''As soon as practicable after the end of—

(a) each financial year of the scheme operator, or

(b) if the OFT and the scheme operator agree that this paragraph is to apply instead of paragraph (a) for the time being, each period agreed by them, the scheme operator must pay to the OFT an amount representing the extent to which collection costs are covered in accordance with subsection (2) by the total amount of the contributions paid by the OFT to it during the year or (as the case may be) the agreed period.''

I take it that that means that the OFT should be reimbursed by the ombudsman for its costs. What happens with trading standards departments? As we heard earlier, they will be carrying out some of that work on behalf of the OFT. Will they be eligible to have their costs covered for work that they have done for the OFT? In that regard, subsection (10) of the proposed new section would appear to be a difficulty, because it states:

''Amounts received by the OFT from the scheme operator are to be retained by it for the purpose of meeting its costs.''

That suggests that the OFT would not be able to pass on funds to trading standards departments. Will they be covered for the costs that they incur? Will subsection (10) allow money passed to the OFT to be passed on to trading standards departments to reflect the work that they have done?

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

I can understand where the hon. Gentleman is coming from, but we are talking about the working of the ADR scheme, and it is not envisaged that trading standards departments will be involved in the collection process. The OFT will do that, so there will be no need for the OFT to reimburse trading standards departments.

Question put and agreed to.

Clause 60 ordered to stand part of the Bill.