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Lending (Regulation) Bill

Volume 488: debated on Friday 27 February 2009

Second Reading

I beg to move, That the Bill be now read a Second time.

I thank the hon. Member for Chesham and Amersham (Mrs. Gillan), whose Bill preceded mine. I congratulate her most sincerely, and as a co-sponsor of her Bill, I wish her well as she goes into Committee with it.

I thank Which? for the support that it has given me with this Bill. Obviously, the Bill is dear to my heart, but it is also dear to the hearts of many in the House. I should like to apologise to Opposition Members; this Bill was put together very much at the last minute, and I did not have the opportunity to approach them for their support. However, having spoken to a number of them, I know that many support the concept of what I am trying to do with the Bill.

I thank my hon. Friend for giving way at this early stage in his speech. I am a co-sponsor of this Bill—and indeed a co-sponsor of the Autism Bill. This Bill is dear to the hearts of not only my hon. Friend and many in the Chamber, but many of our constituents. I am thinking especially of the parents of the young people—18 and 19-year-olds—who have over the years regularly been sent unsolicited applications for credit cards and greater loans with absolutely no advice. Those young people have often got into debt that they should never have got into.

My hon. Friend is absolutely right. We are here today to try to lessen what has been happening in the consumer marketplace.

Some would say that this small Bill is trying to lock the stable door after the horse has bolted, and yes, to a certain extent that could be claimed. However, that does not mean, given that many individuals, households and families find themselves in financial difficulty, that we should not make an attempt to stop, as soon as possible, some of the practices covered in the Bill.

I want to be brief, because the ultimate aim of this process is to get the Bill into Committee. Having discussed the matter with my hon. Friend the Minister, I know that it has a fair degree of support. As he knows, I am happy for amendments to be tabled in Committee to change or take out anything that people are not happy with.

Clause 1 deals with unsolicited offers of credit. Several credit card companies are still sending out unsolicited credit card cheques. I myself have been the recipient of several of those over the past five or six years—thankfully, I would add, never taking up the offer. A survey in October by Which? showed that 46 per cent. of respondents had been sent unsolicited credit card cheques in the past. These cheques tend to have higher APRs and handling fees and offer less favourable repayment conditions, and they are often targeted at the most vulnerable consumers.

Having read the hon. Gentleman’s Bill, I am bound to ask him a question in the light of the De Larosière report, which has just come out in the European Union and concerns the regulation of all financial services and all banking, with the proposal to shift the whole lot to a European level. The Bill refers to

“organisations representing consumers of financial services; and…any other organisation”.

Does he agree that it is absolutely disastrous for us to send all this off to the European regulatory system, and that we should be ensuring that we legislate here, on our own terms, in this House of Commons, however much reform may be needed?

The hon. Gentleman always puts me at a disadvantage when he talks about issues European. However, I think that we are probably moving on to common ground in this regard, and I look forward to his support, if he can possibly see his way to giving me that. We need to get our own house in order—that is vital for the people of this country.

I congratulate the hon. Gentleman on having the opportunity to present his Bill for Second Reading. He said that it was put together very much at the last minute, so I am not attempting to pick holes or be pedantic, but could he explain what the words “offering credit” in clause 1(a) are supposed to refer to? They seem to be entirely superfluous given that later on in the Bill there is a definition of what a credit card cheque is. Perhaps it means something that I have not yet divined.

I thank the hon. Gentleman for his intervention. On occasion, unsolicited credit card cheques arrive with individuals who do not even have credit cards, so they represent an offer to people who may not yet be involved in credit. I have already put it on record that I am more than willing to see amendments tabled if absolutely necessary and if that tidies up the Bill. Let me also say that I am not being critical of the Clerks, who gave magnificent assistance with this.

I had hoped that the Bill would cover 100 per cent. mortgages, but I thought it appropriate to remove that aspect because in the past week to 10 days much has been said about what level of mortgages should be offered, especially to first-time buyers. However, the issue of unsolicited credit charge cheques remains. Unlike credit cards, these cheques are not subject to protection under section 75 of the Consumer Credit Act 1974. Individuals have found, to their great cost, that as well as interest rate levels being much higher, the interest kicks in as from the time that the cheque is cashed.

Does the hon. Gentleman agree that there is an increasing tendency among credit card companies, irrespective of the fact that interest rates have now dropped to 1 per cent., to increase dramatically the amount on credit cards? People who are already in difficulties over credit card payments are finding the situation absolutely intolerable. Will he want to cover that in his Bill if it gets into Committee, if it ever does?

The hon. Gentleman is once again absolutely right. Out in the marketplace, those who possess a credit card are being exploited to a certain extent. We could have a Bill in its own right on credit cards, but I would like to cover two or three more elements of my Bill.

Clause 1 deals with the unsolicited increase in credit card limits. That is permitted under the banking code, but the result of a Which? survey in October showed that 58 per cent. of respondents had had their credit card limit increased without even requesting it. That can, regrettably, lead to unaffordable amounts of credit being made available to consumers.

I wonder whether I might probe that particular issue. The hon. Gentleman rightly raised the point about the number of people receiving an increase in unsolicited credit limits. Does he have any figures on the proportion of people who took up that additional offer? He may not—it is merely a question of inquiry.

I am afraid that I do not have those figures. If I had been a Minister, I could have said that I would write to the hon. Gentleman, but I am sure that those figures could be made available.

My hon. Friend has done the House a real service in introducing this Bill, because it plugs an important gap, even if it is a little late for some who have got themselves into debt. The answer to the question he was asked is that we do not really know, because when credit limits are extended, people might nibble at them a bit at a time, rather than using all the money in one big hit. One of the risks is that people may drift into spending more than they can afford a bit at a time, without realising that they are getting themselves into a mess.

My hon. Friend is absolutely correct. People tend to escalate into levels of debt. Not everyone goes out, has one massive splurge of purchasing items and winds up in debt they cannot afford.

The provisions dealing with unsecured loans in clause 2 are there because it is important that individuals who are taking out loans recognise, if they are home owners, that there is a potential for court action under the Charging Orders Act 1979, which may result in their ending up in court and thereafter having to sell their property to make up for debts that have become unaffordable. The courts in England and Wales in 2007 showed a tenfold increase since 2000—97,000 charging orders were made during that period. The method of calculating interest rates is a complex issue that confuses most consumers. I would dearly like something to be done through this Bill to standardise that process.

I do not know whether the hon. Gentleman is about to finish, but he has not mentioned credit unions, unless I have missed something. I am seeking to set up branches of credit unions in my constituency precisely for the reasons that lie behind a lot of his thinking. Credit unions offer those who can least afford extravagant interest rate arrangements the opportunity to avoid loan sharks, and to live a reasonable and fair life with very modest amounts of money passing one way or the other.

The hon. Gentleman and I are very much on common ground here. He has come on to my ground in talking about credit unions. They are not covered in this Bill, but I know that one of my colleagues is looking to strengthen them in his private Member’s Bill. I very much support that idea, and I think that it has support across the House. Credit unions are there to be used by those who can least afford to find themselves in any kind of financial difficulty.

I congratulate the hon. Gentleman on bringing forth the Bill. Will he clarify whether it would have any financial implications for the Government?

None that I am aware of. Although I had merely a brief discussion with my hon. Friend the Minister some two weeks ago, I do not believe that anything in the Bill would have financial implications for the Government. I am keen to hear what he has to say today, and he might be able to enlighten the hon. Lady, myself and the rest of the House on that matter.

I begin by commending the hon. Member for Dumfries and Galloway (Mr. Brown) for introducing the Bill and for the way in which he did so.

As we have heard, the Bill is intended to address one of the most important and, I suspect, long-lasting problems that this country faces, namely debt. Personal debt is now more significant here than in any other major economy. Estimated as standing at, I believe, £1.4 trillion, it is now larger than the UK’s entire gross domestic product. Of course, the Government themselves have been borrowing and spending recklessly, leaving us with a national debt in excess of £1 trillion. During the good years, they failed to prepare for the downturn, and as we know, the result is a burden that will fall on us and on future generations.

The Bill addresses one aspect of personal debt, namely credit card debt. I know that many Members will, like me, have seen appalling instances of individuals finding themselves with dreadful debts that they have no prospect of clearing. Whether those debts came through momentary weakness or, on occasion, financial ignorance, people are beginning to realise just how burdensome consumer credit card debt can be.

Although individual borrowers are primarily responsible for the situation in which they find themselves, the hon. Gentleman is right to highlight the responsibilities of the credit card industry. Sharp practice must be identified and tackled effectively. That is why, a few weeks ago, my party set out a clear plan of action that mirrors many of his concerns. For example, our approach would include the provision of a free national financial advice service, funded by the financial services sector. We would also clarify and improve the standard of information provided for credit card customers and end excessive store card interest rates. Those measures would be part of a package that would relate to many of the hon. Gentleman’s points. Essentially, they would be about informing, empowering and protecting the consumer.

That is why the Opposition will not seek to oppose the Bill. We share many of the concerns of its sponsors, but I say to the hon. Gentleman that we are not yet convinced that, as currently drafted, it is necessarily the right way forward. I shall give a couple of examples of why that is the case. First, it would ban unsolicited credit card cheques and unsolicited increases in credit limits. That aim is laudable, but my concern is that that would not necessarily tackle the fundamental problem. Inevitably, the unscrupulous would find other ways to entice people to borrow. If we are to deal with the fundamental problem, we need to address the reason why some people make bad borrowing decisions. After all, when there is an unsolicited increase in credit limit, not everybody uses it, at least according to the evidence that I have seen. Only some people spend the extra money. Sadly, as the hon. Gentleman said, it is often those who can least afford to do so. To really help, we need to ensure that people are better informed so that they can learn to borrow within their means.

My hon. Friend will have heard my comments about the proposed European regulatory arrangements and my concerns about them, which I set out in a letter to the Financial Times today. In line with our party policy, will he reaffirm that the sort of arrangement that we are discussing should be kept in the framework of Westminster legislation, as the shadow Chancellor and the shadow Economic Secretary have said, and not be subsumed into European legislation? Does he agree that we should ensure that the House retains its supremacy?

Absolutely. I make a habit of never disagreeing with the shadow Chancellor. I am sure that he is right about the issue, and I am happy to confirm that for my hon. Friend.

Clause 2 requires anyone selling an unsecured loan to ensure that the borrower is aware that it could be turned into a secured loan by court judgment. The Bill targets the right outcome. Transparency of information is vital so that people understand the exact consequences of their actions.

Clause 3 deals with the standard method of calculating interest rates on credit cards. There is undoubtedly a bewildering range of different interest rates and terms, and consumers need help. However, I am not convinced that Whitehall’s determining a single methodology would prove practical. Indeed, it could restrict innovation and consumer choice. The Bill needs to be careful: it is one thing to provide for standardisation and transparency, but we would be worried about a narrowly prescriptive measure.

The Bill rightly tries to tackle the problem of credit card debt, and we share the promoter’s concerns, but we have reservations and believe that the measure has missed an opportunity to deal with financial information. Perhaps the Minister will deal with that important point in his response. We will not oppose the measure, which deserves further parliamentary consideration. We look forward to participating in that process to help those in debt and empower consumers generally.

In the spirit and tradition of the House, I join others in congratulating my hon. Friend the Member for Dumfries and Galloway (Mr. Brown) on introducing an important Bill, which raises significant issues, especially given the current difficult times.

I note the interest in the Bill of my hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble) and the hon. Member for Stone (Mr. Cash), and that of the Liberal Democrat Members present, whose constituencies do not immediately come to mind—I apologise. I join my hon. Friend the Member for Dumfries and Galloway in praising the continuing work of Which?

The Government believe that the provisions are compatible with the European convention on human rights. I confirm that we welcome several of the key principles that underpin the measure, but like the hon. Member for Hertford and Stortford (Mr. Prisk), we have several concerns about some of the detail. I welcome my hon. Friend’s commitment to work with us on the detail, so that we would consequently be happy for the Bill to make progress.

The Minister may know what I am about to say, but I shall say it none the less. Does he agree that the proposals in the De Larosière report and the European Commission proposals, which will come forward next week, to regulate the whole banking and financial services sectors at European level—it is proposed to implement them and put them into legal form between the end of this year and 2011—are completely alien to the way in which we should legislate in this House, on our own terms? Does he agree that it would be disastrous for the City of London, for financial services, and indeed for the Bill, if we allowed that to happen?

I am sure that the hon. Gentleman understands that those matters are for my colleagues in the Treasury, and that Ministers who tread on the Treasury’s turf do so at their peril. However, I agree with him that the matters that we are debating today are in the House’s purview, and I hope that will support me and others to make progress.

Let me try to deal with the specific issues that hon. Members have raised. Clause 1 deals with unsolicited credit card cheques. As my hon. Friend the Member for Dumfries and Galloway has noted, there are a number of concerns about the use of such cheques. They are usually sent to consumers unrequested, tempting them into spending that they might not be able to afford. Such cheques typically carry a fee and a higher rate of interest. There is now worrying evidence that, rather than borrowing for what is referred to in the jargon as “discretionary purposes”, consumers are using such cheques for essential expenditure and to deal with cash-flow shortfalls. In the light of that evidence, the Government welcome the measures proposed by my hon. Friend.

Clause 1 also refers to unsolicited limit increases. It seems clear that the ease of access associated with credit that is granted automatically offers greater scope for irresponsible borrowing than credit for which customers must actively apply. Unfortunately, some consumers will take the view that since the lender has offered a limit, it must be affordable and within their means. It is right that we should seek to protect them from that risk. However, I should make it clear to the House that we have not held the usual period of consultation on the matter. The Government would therefore seek amendments to the Bill as drafted to take powers to address the issue in secondary legislation, once consultation had occurred. That is consistent with the approach to regulation taken in the Consumer Credit Act 2006 and would allow a proper period of consultation and analysis.

On charging orders, I share the concerns that a number of hon. Members have voiced in the House, and to which my hon. Friend has given expression this afternoon, that home owners may not realise that defaulting on an unsecured loan could eventually lead to the forced sale of the family home. I am therefore supportive of the principle that underpins clause 2. However, we are already able to take such a step through existing legislative powers, so primary legislation is not required.

We will soon be amending many of the statutory information requirements relating to consumer credit agreements, when we implement the new European consumer credit directive. The Government will consult later in the spring on our proposals on how to transpose that directive. I propose to consult then on whether to require warnings about charging orders to be part of that exercise. In the light of that, we should like to encourage my hon. Friend to withdraw the relevant provisions, should the House grant the Bill a Second Reading.

Clause 3 deals with the standard interest rate calculation methods, which my hon. Friend also talked about. He will know that the issue was raised in a super-complaint to the Office of Fair Trading which resulted in an extensive market study. In its final report in February 2008, the OFT rejected the proposal that had been made. Therefore, the issue has been considered recently and I am not aware of any new evidence that has been presented. In the light of that, the Government cannot support that provision. Measures are being taken to strengthen consumers’ ability to make an effective comparison among credit cards and products, so that they can shop around with confidence.

From what the Minister is saying, it seems that he wants a complete re-write of clause 1, in order to make the power a provisional power, and that he wants clause 2 to be considered further and brought back sometime in the spring in some form as determined by the Government. He is saying that he wants the Bill to go through, but not in any recognisable form. That does not seem entirely fair to the Bill’s promoter, whose original intention I support.

With all due respect, the hon. Gentleman is being slightly unfair in his description of what the Government are seeking to do. We support the principles underlying the Bill. I have made clear our support for one of the clauses, largely as drafted, and for the principles behind another, and we will seek to achieve a third set of provisions through existing powers, but I cannot support the final clause. With that explanation of the Government’s position, I have made it clear that the Government support the Bill’s progress, and I commend it to the House.

I start from a disadvantage, in not having any notes to explain fully what the Bill is about. However, one thing that it does not seem to be about, but which it should be about, is the warnings given by the Government to the people whom they are inviting to lend them money. The Government are borrowing some £2 trillion, and the principles of affordability—whether the money can be repaid, and if so, when—should apply equally to them and the people who are lending to them as they do to other individuals. I fear that the Bill will create one law for one group of people and a completely separate set of laws for the Government.

I also believe that the Bill undermines the principle of individual responsibility. We should make it clear to people who are embarking on taking out loans—

The debate stood adjourned (Standing Order No. 11(2)).

Ordered, That the debate be resumed on Friday 15 May.