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‘(9) Where the judgment that is the subject of a charging order application relates to an agreement regulated by the Consumer Credit Act 1974, the court shall not make a charging order if an order under sections 129 to 135 of that Act is appropriate.’.
I will not detain the Committeevery long on the amendments. The clause deals with charging orders. I have a specific concern about the Consumer Credit Act 1974 and various issues relating to agreements under that Act. The amendments are designed to resolve a possible conflict between the Bill and the 1974 Act. As it stands, the Bill might permit an unsecured creditor to obtain additional security for the debt.
When an unsecured creditor lends money or provides goods they incorporate in the price of the overall arrangement the concept that the debt is unsecured. That is inherent in the contract and the deal that is being done. If a secured debt were created, no doubt the cost of it to the debtor would be cheaper. The Bill gives an unsecured creditor the value of security. Generally speaking, for people who are not very well off, it means a charging order on their home. The clause introduces changes to the Charging Orders Act 1979, which provide creditors with a way of enforcing a court judgment by placing a charge on the debtor’s property.
A creditor who uses that procedure can secure a previously unsecured debt. A creditor who obtains a charging order can obtain a court order to sell off assets, subject to the charge, although obviously such sale orders are pretty rare. The Bill proposes that, even though there is an agreement between the creditor and the debtor for the repayment of the debt by agreed instalments and the debtor is keeping up those instalments, the creditor can obtain a charging order and ultimately bear down against the debtor’s home and arrange to have it sold off.
That concern has been put to me and my hon. Friends by Citizens Advice and other organisations. It relates to the interface between the Bill as it stands and agreements made under the Consumer Credit Act 1974. If we are looking at a package involving a debt agreement, different guidelines and ground rules will obviously apply to that debt if it is unsecured. The creditor should not be able, however, to gain extra security through the backdoor.
These are probing amendments. I should be grateful if the Minister put my mind at rest about whether there is a conflict between existing legislation and the Bill as it stands. What we do not want is to give additional, unforeseen, unintended rights to creditors that could well apply at the expense of debtors.
I, too, shall be brief. My hon. Friend the Member for Cardiff, Central mischievously saidto me that I should thank the hon. Member for North-West Norfolk for so effectively deploying, sentence by sentence and word for word, the arguments put by our noble Friend Lord Thomas of Gresford in the other place. I will tell our noble Friend that the hon. Gentleman put the case well.
There was an interesting little debate in the other place on this issue on 14 December, but at the end of it no one, including those who participated, were entirely clear about the outcome. I have read it twice, and I think we are all trying to get a third stab at it.
I stand to be corrected, but as I understand it, if somebody is paying off by instalments an unsecured loan on a car, for example, the issue is whether it should be possible for the creditor to come back and say, “You have kept up your instalments and paid the money, but I want more now. I want to secure the loan and have a charging order, and I will put a charge over your garden shed, garage or house.” Should it be possible for someone who has honoured their obligations and paid up—there is no question of their having defaulted—to be the subject of a stronger remedy?
The Consumers Association was concerned that that would tip the balance wrongly on the side of the creditor and against the debtor. We would argue that a good, paying debtor should not be subject to further impositions on their property if they have kept to the agreement that they entered into.
I heard the hon. Member for North-West Norfolk compliment the hon. Member for North Southwark and Bermondsey on the way he put his argument, but as the former was reading from the speech made in the Lords by the latter’s party colleague, I have some doubts about what was said. I shall put my argument first and then consider the detail of what has been raised, and I shall be happy to give way if I do not get to the points the hon. Gentlemen are concerned about, although I think I have grasped them.
First, we are concerned that amendments Nos. 136 and 137 could be seen to interfere unduly with judicial impartiality and discretion when considering whether to grant an application for a charging order or anorder for sale—they are, of course, quite separate applications and procedures—in the case of debts that are regulated under the Consumer Credit Act 1974. Clearly, judges will consider applications for the granting of those orders in a proper way, but to require them to favour the debtor is dangerously close to leaving them open to a charge of bias.
The issue has been raised several times before, when the judicial viewpoint was that judges did not wish to have the responsibility to take the risk of looking as if their impartiality might be compromised. Their stance has not changed; in fact, Baroness Butler-Sloss, speaking in the Grand Committee in the other place on 14 December, reinforced the need for any decision about the granting of a charging order to be a judicial one subject to discretion and not in any way trammelled.
When judges consider whether to grant a charging order or, indeed, take the later step by granting an order for sale, they are looking at a judgment debt. The originating source of the debt is by and large immaterial, and it would be inappropriate to place a restriction only on debts regulated by the Consumer Credit Act 1974. The creditor, who has legitimately obtained the judgment, has the right to seek enforcement by the most appropriate means available, including by way of a charging order or an order for sale. Equally, the judge has the right to decide whether he or she shall have one or not.
Broadly, two concerns have been aired. The first is obtaining priority by being able to secure a debt that would otherwise not have priority. In fact, the terminology in the statute is such that the debt does not become a secured debt by the charging order process. It is the judgment that is secured on the property, so there is not an inappropriate impact on priority. I hope that that covers one issue.
The other issue is whether a charging order should be available to somebody when, as the hon. Member for North Southwark and Bermondsey put it, the judgment debtor is complying with their obligations to pay. Let me make it clear that we are not talking about an order for sale on the property; we are talking only about charging the debt on the property. That is intended to avoid the mischief of a person agreeing to pay £4 a week off a £10,000 debt when they have a property somewhere that was perhaps not known about when the original agreement was made. They will now be totally free to simply sell the property off, bring into their own resources an amount of money—for example £100,000—and carry on paying the debt off at a low level. It is far better for the creditor to have what would in every other circumstance lie as a dormant order over the property unless and until there is a need to apply for a sale. Such security should be left in place so that if an occurrence such as the one I have described takes place, people have the security and can get the money back appropriately rather than waiting for the instalments to tick over for years and years. However, I emphasise that there is a big difference between a charging order that simply sits on a property and an order for sale. There is a completely separate, additional procedure for the order for sale.
I hope that the Minister will indulge me in this question. Is she saying that somehow the person who owes the money has deceived by not listing their assets? Usually, when someone has an obligation they must list all their assets and if they do not, they have broken the law in some way. Alternatively, is the Minister saying that if somebody suddenly wins the lottery or inherits a new house, there is a new asset to which a creditor can have an attachment? It would be helpful if that could be clarified.
It could probably be either. Yes, of course, if somebody did not disclose their assets when required to by the court, they would have broken the law. We are talking about the need for a quick remedy to deal with that problem. Such a remedy is available by charging any property that comes to the creditor’s notice through the court process in the way that Ihave described. On the other situation, if somebody inherited something or, as the hon. Gentleman says, won the lottery and bought something that could be charged, it is realistic that, the circumstances of the debtor having changed, there is an ability to make use of that change.
I understand the first point that the Minister has made. However, on the second point, let us say that, hypothetically, I have a debt to which my assets are attached. Let us say that I then clear my debt obligations in the instalments that were, for example, laid out by the hon. Member for North Southwark and Bermondsey, pay off what I have agreed that I owe and suddenly five years later, I inherit a house or receive another asset. Is the Minister saying that the court has the ability to grandfather a decision that was made earlier and attach the asset so that the full amount that was owed rather than the part that was paid off would have to be paid off five or 10 years later?
The first requirement is the debt, so if a debt has all been paid off, the ability to charge any property does not exist because there is no debt. Thatis condition number one. If the hon. Gentleman is talking about some form of compromise between parties and unpicking that compromise by means of this—