Clause 1: Assessing the affordability of borrower's creditworthiness
1: Clause 1, page 1, line 4, leave out “must” and insert “may”
My Lords, I beg to move the amendment in the name of my noble friend Lord Naseby. He cannot be here today but he has asked me to make it clear that he is not opposed to the principle of this Bill, as am I, but he is worried that it ties the hands of the FCA and is too prescriptive. That is why he seeks to delete the word “must” in the first group of amendments and substitute it with “may”; rather than the instruction to the FCA to “ensure that”, he suggests “consider whether”; and the word “should” in the final amendment in the group is a grammatical change.
In all of these amendments he was guided by the advice of the Consumer Credit Association and I would like to justify the amendments by explaining the CCA’s concerns. I want to set out this properly in this group so that there is no misunderstanding where my noble friend is coming from—the amendments are not a rabid desire for unfettered market forces. These are not so much probing amendments as airing amendments, if your Lordships’ will accept the term, to air the concerns of the CCA. I know that the noble Lord, Lord Bird, with his tremendous experience in this matter, has considered them and will have impeccable detailed arguments against them. If that is the case, then we will have succeeded in airing these amendments today.
The Consumer Credit Association says that it is not against the general evaluation of credit referencing systems; however, they consider it inappropriate and disproportionate for the law to force firms to use and pay for rental data—or any other specific type of data—in their commercial assessment. It is concerned about what it calls unintended consequences.
At face value, most people would think that requiring lenders to use more data would inevitably lead to better decisions and improved consumer outcomes. However, a number of complexities appear not to have been properly considered, says the Consumer Credit Association. For instance, the rents of just under 4 million households—that is 40% of the rental market—are subsidised via housing benefit to the extent of about £5,000 per household per year. This means that the rent payments in these cases reflect receipt of subsidy rather than a tenant’s propensity to pay. Where the subsidy is paid direct to the landlord, this effect is even more pronounced. In the same vein, non-payment of rent may often reflect delays in paying the benefit rather than the unreliability of the tenant. It also says that well over 1 million tenants are already in arrears on their rent. The proposal would not help this large group; on the contrary, these consumers would find it more difficult to access credit and would therefore become even more financially excluded.
The collection and use of rental data is being marketed to landlords as a means of reducing arrears. The proposal would give unscrupulous landlords who fail to repair their properties increased leverage over tenants, because it would increase the risks for a tenant making any reasonable attempt to withhold or set aside their rent against getting repairs done to the building.
The CCA also says that it is not a given that council tax and rental data would add value for all types of lenders in all situations, yet all firms would be required to pay for this data whether or not they used it. This would be commercially inefficient and the cost would be passed on to consumers through higher prices for credit. It is the CCA’s strong view that firms are the best judges of whether it makes commercial sense for them to subscribe to products such as rental exchange and credit lending. Compelling them by law to do so would, on the other hand, be inappropriate.
Consumer representatives are divided on the potential impacts of the proposal but have flagged the risks of possible harm to some consumers. The Centre for Responsible Credit, for example, has urged caution, because failure to pay rent could lead to the loss of a home, bailiff action and, ultimately, imprisonment. Mainstream lenders are unlikely to consider the data predictive. For many people who miss a rental or council tax payment, it could lead to complete credit exclusion or higher cost credit.
The rollout of universal credit is expected to lead to a significant increase in rent arrears for housing benefit claimants. Similarly, private tenants face rising rents and a freeze on local housing allowance rates. In evidence to the Treasury Select Committee on 28 February this year, both StepChange and Citizens Advice acknowledged the potential negative impact. StepChange said:
“That is fine if the thing that is going to be included is something that you are paying well and on time. If you are behind on your rent and your council tax payment, all that is going to do is enhance the social exclusion for those individuals”.
Matt Upton of Citizens Advice said:
“It is important to acknowledge that it is a double-edged sword. As you say, we see lots of people struggling to pay those bills, and that will not necessarily affect them in a positive way … of the clients we see who struggle to access credit there is a proportion for whom credit referencing is a factor. For a greater proportion it is not the big factor”.
The ambition to increase access to credit for those who rent is laudable. As said by the noble Lord, Lord Bird, I believe that it will help about 80% of tenants, but the CCA says that the proposal’s potential benefits are uncertain, unquantified and currently unsupported by robust independent evidence. My noble friend Lord Naseby thinks that more studies on this must be done but he respects the point of the noble Lord, Lord Bird, that millions of honest, hard-working tenants who pay their rent and council tax would benefit from having their good record of payments used to get a mortgage or cheaper white goods.
I know that the noble Lord, Lord Bird, is keen to pick up the 20% who are in debt and seek ways to get them out of that hole, but my noble friend finds the CCA’s worries and concerns quite persuasive. As I read them, I found them persuasive too. I look forward to the answers of the noble Lord, Lord Bird, and the Minister. All we wanted to do was give these amendments an airing, raise the CCA’s concerns and wait to hear the answer.
My Lords, I am very supportive of what the noble Lord, Lord Bird, is trying to achieve with the Bill. I have to admit, I was not aware of the issue until I read the debates on it and the Big Issue article he wrote.
I also have some worries about the potential unintended consequences raised by the noble Lord, Lord Blencathra, which I have communicated to the noble Lord, Lord Bird. We have to think about the context: more people are getting into rent arrears, partly because of universal credit and partly because of cuts to the benefits they rely on—in or out of work—at a time of rising rents. We know that council tax arrears are also going up because of what has happened to the council tax support system. This group of people will not be helped by the Bill. That is understandable: the Bill will help those with a good record, which is very useful and important. In his reply, I would like the noble Lord, Lord Bird, to assure the House that things will not rebound on that group and that they will not be in a worse position than they otherwise would have been. It would be helpful to have that assurance on the record.
My Lords, I supported the noble Lord, Lord Bird, on Second Reading. This Bill is a small but important public policy step to help bring creditworthiness equality to people who are good payers of rent and credit. The questions asked by my noble friend and the noble Lord, Lord Blencathra, are important.
First, this is not the silver bullet to solve the problems of creditworthiness; it is one thing that might assist. If the Bill passes and lenders are required to incorporate rental data, individuals can opt out of any system of rental payment data sharing. That is the first thing that needs to be put on the record. For most, the inclusion of such data is part of a positive journey to more equal access to affordable credit, although I agree that it is vital to be guided by those who are not as fortunate, including those let down in various ways.
Missed or late payments from a third party, including from the DWP, can already be noted on an individual’s credit file through what is known as a “notice of correction”. This principle is applied to any “notified payment” on an individual’s credit file, including a spousal dispute, incorrect calculation or late payment. Although I agree that it is right to be alive to the laws of unintended consequences, here, the consumer would be in control. That is very important. They can opt out and add notices to their credit file. As we will no doubt be looking into after the APPG inquiry, rental payments and electricity payments are normally the last things that an individual fails to pay. For people in this situation, any previous non-payment of non-essential items will already have affected their credit score, but if we can help these people, we should. I hope that the work being led by John Glen MP and HM Treasury with the noble Lord, Lord Bates—we had a very useful discussion about this—is taking this important consideration into account via the Rent Recognition Challenge. The noble Lord, Lord Bird, will raise this point later with the noble Lord, Lord Bates, and discussions are ongoing.
Reforming the consumer credit world is a big undertaking. Although we may not be able to immediately change someone’s circumstances through this measure, we may be able to better support them and prevent them getting further into the quagmire of problem debt. As the FCA put it to the noble Lord, Lord Bird, before Second Reading, it is important to know who is in trouble to,
“get our arms around them and help them”.
I thought that quote was very appropriate.
My Lords, I am a real fan of the unamended version of the Bill. Some 40 years ago, when I was in my early 20s and trying to get credit for the first time, I remember the struggles—I think that most women will share them because of the era—of trying to establish any kind of credit history and demonstrate that I was reliable and could manage my finances and the stresses and strains of all of that. I had to go through the most convoluted routes to establish that history. In the Bill, the noble Lord, Lord Bird, has captured the opportunity for many people to use their reliability in making key payments—rent and council tax—to establish credit history. In some ways, the noble Lord, Lord Blencathra, gave the game away when he mentioned, very early, that part of the industry’s resistance is based simply on the cost of gathering this data. I really do not think that that should be an obstacle to so many people who demonstrate in their lives that they are capable of managing money being able to make the decision that they need to access credit and have a reasonable avenue to do so.
My Lords, we on these Benches fully support the Bill as originally drafted and therefore oppose the amendments in group one for all the reasons set out so far by other Members. Renters are such a large part of the population now. They have every right to be full participants as consumers. I will give a very specific example: if you are a renter in social housing—78% of renters in social housing pay their rent in full and on time—and you go to buy a washing machine, currently, because you are described as high risk, you will pay between £300 and £1,000 more. Could somebody please explain to me how it is possible that someone can steer clear of arrears when they are in a scenario where, if they are not an owner-occupier, they pay between £300 and £1,000 more for a washing machine? We need to stand firm on the current wording in the Bill and not allow this probing amendment to be aired. A small change in the renting threshold would mean that an additional 4.8 million consumers would be more attracted to mainstream and lower-cost renting.
On arrears, while I understand that this is a point of concern, the whole point of this is to bring people who are renters into the sunlight with information about them. The FCA has also said that it would be good to know who these people are. The alternative is unscrupulous lenders. That is where we drive people to if they are not in the full sunlight of creditworthiness and there is data about them. For those very brief reasons, we urge noble Lords to reject these amendments and to understand that renters are increasing in number. Just today the BBC announced that the proportion of 35 to 54 year-olds who live as private tenants has nearly doubled in 10 years since 2006. The real problem is that the number of people who are renting is doubling but government policy is not keeping pace with this scenario. This very fine Bill tries to do so.
My Lords, I did not speak in the Second Reading debate but I add my support to the Bill sponsored by the noble Lord, Lord Bird, and speak against the amendment. The Second Reading debate showed that several things were being put together and confused. The Bill’s purpose is simple. Obviously the problem is that the poor do not get access to credit, or they do at very high interest rates. That is not the problem that would be solved here. There is also the problem that lots of people are in arrears. If they are they will have a low credit rating. That is often as true for owners. That is not a problem.
The virtue of the Bill is to say that if people are behaving like regular, honest payers of their debt on time they ought to get some sort of compensation or reward for that. If people are paying rent regularly they should be treated on par with those who pay their mortgage regularly. It is such a simple idea that I do not know why people are upset about it. For one thing, the cost of recording payments is much lower than it used to be because they are completely automatic. If we can tell the FCA to persuade people to get into a blockchain system that would be a very efficient way of recording payments, both on the part of the landlord who receives it and the tenant who pays it. It would be very easy to build up a databank of regular payments. From there we could easily get on to some sort of financial app that will give them the credit they deserve.
If we keep the Bill to this particularly narrow but very useful aim we should be very happy to support it. It is required that we do not treat two groups of virtuous people unequally. Those who pay their mortgage on time and those who pay their rent on time should be treated equally because they are both behaving honestly.
My Lords, I listened very carefully to what my noble friend said in introducing the amendment, but I really think it is a very bad amendment. It throws out the whole value of the Bill completely. It would just reinstate the current position. That is not what we are aiming to do. We are aiming to make this possible for people who really have no knowledge or awareness of finance or how to do things. These people would be the very ones to be overlooked with a “may”, because they do not push themselves forward in the same way, yet they need the information and the help, certainly if they have been good payers of rent. I remember when I was looking to get a mortgage for the first house I ever bought—I did not succeed in getting one at the time. The whole house cost £7,500, which in those days was a lot of money. A dental chair-side assistant was paid two pounds 10 shillings a week; a highly skilled receptionist was paid £7. We are talking about a long time ago. Although those were times when I knew nothing whatever about mortgages, these are times when you need help and you want to have your case considered. The more modest you are or willing to be squashed the more you were squashed. It is not a good amendment and I am sorry to say that I cannot support my noble friend on it. I want to retain the status quo in the original wording of the Bill, which would be very much more helpful to those who need help.
My Lords, I also support the Bill in its original unamended form. I will explain briefly why. I apologise that I was unable to be present at Second Reading. As others have already said, I fundamentally believe that there should be parity of treatment between tenants and homeowners.
I had the privilege of chairing the Lords Select Committee on Financial Exclusion last year, which explored the connection between consumer credit and financial exclusion. We heard that for the many low-income households without financial safeguards, credit, including high-cost, short-term loans, was the only way of keeping on top of family finances for regular or emergency expenditure. As we all know, this phenomenon is particularly prevalent owing to increasingly precarious work and the casualised forms of employment around, meaning that both income and expenditure needs for individuals and families can easily spike without warning.
It was clear to us—the committee heard this very strongly indeed from the evidence—that consumer credit is increasingly the de facto safety net for many people on low incomes to meet essential needs. But we also heard that many credit agencies do not take rent into account. Most social and private renters therefore often have thin credit histories and do not have access to the lower-cost mainstream lending options. What we heard most of all—this is why I feel so strongly on the issue—is that those people are too often forced to turn to high-cost and predatory sources of credit, such as payday lenders or rent-to-own companies.
Frankly, I was shocked when I heard some of the eye-wateringly high forms of interest on credit and how much it can cost for someone who goes to somewhere such as BrightHouse to buy white goods or something like them. They are paying so much over the odds. This directly contributes to the poverty premium, established to be at around £1,000 per year per person, which is paid by poorer people for products and services because of a lack of consumer credit or creditworthiness. As my noble friend Lady Grender said, this particularly affects young people. On Tuesday this week we heard excellent work from the Intergenerational Commission of the Resolution Foundation that showed that one-third of millennials can now expect to be renting for their entire lives. We have to make sure that policy is in line with the reality of how people live their lives.
The chief executive of BrightHouse gave evidence to our committee in 2016 and made the point that its customers had very few options. It is time to give those people some other options and to bring them back into the mainstream. This Bill does that. It can help redress some of the damage of exclusion and insecurity that plagues those struggling to make ends meet and prevent an already disadvantaged Generation Rent falling into further cycles of debt and despair. It really is time that we make rent count and it is long overdue that we do.
My Lords, I support the Bill in its unamended form and echo what the noble Baroness, Lady Tyler, just said. BrightHouse had to repay £14.8 million to 384,000 clients last year because the Financial Conduct Authority judged its behaviour to have been unreasonable. The Bill makes available more reasonable credit, although not necessarily the cheapest, to all those who rent.
If you do not have a credit record, life is very dangerous. I went on to the web this morning to see quite what finance was available. Fast Loan UK claims to offer:
“Responsible Loans For Everyday Lives”.
The APR it charges on one of its loans is 907%. That does not sound terribly responsible to me.
One source of reasonable credit for people on very low incomes and who need it most is credit unions. We have often spoken in this House about the need for more credit unions. They do a good job, but there are nowhere near enough—there are 384 members of the credit unions association. However, if you search for “credit union loans” on the internet to find out where you might access them, you come across “Credit Union Loans” with an APR of 277.5%. The irresponsible lenders have twigged that the way to get customers is to pretend to be what they are not. They are not responsible lenders. While I support the Bill in its unamended form, I hope that we might encourage the FCA to police this sort of thing rather more carefully.
My Lords, the noble Baroness’s point about credit unions is vital. On my way to London early on a Monday morning, I often see people near Neath station queuing outside their credit union. For them, it is a lifeline.
My Lords, from the Cross Benches, I support the noble Lord, Lord Bird, and oppose the amendment. I know that the motivations of the noble Lord concern mostly poorer people who need credit to buy white goods and the rest—we have known for many years that the slogan, “The poor pay more”, has been more than true—but I want to refer to those members of Generation Rent who have a chance, albeit a sometimes slim one, of being homeowners and need every help in getting their creditworthiness to the highest-possible status to move from being a tenant to a homeowner, and who are held back by the way in which credit agencies operate. It may be said that the people in Generation Rent do not wish to be homeowners —that they live an “Uber lifestyle” in which you do not own a car; you call Uber. That can apply to many aspects of life. However, surveys continue to show that people wish to be homeowners and for very good reason: home ownership brings with it security, which you do not get in the private rented sector. Even if your tenancy is for a full year, a lot of people find that it is hardly enough to enable you to settle down and, certainly, to bring up a family—we are now seeing ever more families in the rented market.
Home ownership remains an aspiration. Although you might be paying more for a mortgage on day one—if the mortgage company can provide a loan for you—rents will rise roughly at the level of earnings, which is RPI or CPI plus 1% or so, year after year and, in 25 or 30 years, those rents will be enormous. When you come to retire as a tenant, a lifetime of tenancy means having to move home on retirement because your income will drop but your rent will keep rising. Home ownership gives you not just the security of tenure but the financial security of knowing that, although it may take 25 or 35 years, eventually you will be free of debt. Anything that inhibits people from breaking into home ownership, which is what people aspire to, is extremely important.
People say, “Nowadays in London and the south-east, what is the point of talking about home ownership? Prices are so far beyond the reach of those on ordinary incomes this will never happen”. We now have planning consents across London for an enormous number of new apartment blocks. We are seeing come out of the ground 520 apartment blocks of more than 20 storeys for residential use. A massive housebuilding programme is coming down the line. Those who have built those apartment blocks, some of them overseas investors, believe that the starting price will be about £500,000 for the majority of the flats. Someone who is on £50,000 a year—there are not that many people on such a salary—will be able to get a mortgage of £250,000 and not £500,000. The trouble is that we are running out of Russians; we are running out of overseas buyers who are prepared to pay £500,000. I predict that home ownership, which has been sharp decline, will come back into fashion. The opportunities will recur; prices will have to come down to meet the incomes of those who aspire to own. We should ensure that the credit lines for them are as clear as possible, which is what the noble Lord, Lord Bird, would do.
My Lords, I indicated at Second Reading that Her Majesty’s Opposition were very much in favour of this Bill. In a debate in Westminster Hall, the shadow Finance Minister made it clear that he too was in favour of it.
I appreciated the way in which the noble Lord, Lord Blencathra, introduced the amendments—it was more probing than assertive. He will have recognised that representatives of almost every part of the Chamber have been against the amendments and said that the Bill should stay as it is in this crucial provision. The noble Lord, Lord Bird, is more qualified than me to respond to all these points and I shall therefore defer to him, but he must have been encouraged by the enormous support across the Chamber for his Bill as it stands.
My Lords, I strongly support the Bill in its unamended form and do not support the amendments proposed by the noble Lord, Lord Blencathra. When the noble Lord responds to the debate, can he tell the Committee a little bit more about who the members of the Consumer Credit Association are? I do not know whether BrightHouse is a member of the CCA, but if he could tell us it would be helpful.
I grew up on a council estate in the 1960s and 1970s. Both my parents worked and made sure that they paid their rent—it was the first thing they ever did. My dad had two jobs to ensure that our rent and rates were paid. It is important that people who meet their financial obligations week in, week out have that taken into account when they seek credit. As the noble Lord, Lord Best, said, it is always the poor who pay more, and that is totally unfair—of course, that goes for many things in life. When I go into my local newsagent, I see people queueing up with their little fobs to get their electricity; they pay more. And there are other things—it is just unfair. What the Bill does, on which I congratulate the noble Lord, Lord Bird, is begin to make sure that, if you have a good credit record, that is taken into account properly, so that when you seek credit you can get a fair price and will not always have to pay the most.
My Lords, I thank my noble friend Lord Blencathra for moving the amendment, but before I turn to the amendments I shall make some general remarks about the noble Lord, Lord Bird, and his Bill. I should state categorically that the Government’s position is not one of opposition to the purpose he seeks and which so many noble Lords have spoken very powerfully about, which is to ensure that people’s rent or credit history is taken into account when credit decisions are made. The question is about the means by which we achieve that, whether this legislation is the right way to do it and whether we should seek to mandate it.
My noble friends Lady Gardner and Lady Wheatcroft were right to point out that, in effect, the amendments would undermine the Bill because they would give to the Financial Conduct Authority discretion, which in many ways it has at present, to act in these ways should it so wish. The underlying concern is very real, and it is shared by John Glen, the new Economic Secretary to the Treasury, who is working very diligently on this, and it is shared by the Government. We recognise the very real concerns of people on low incomes seeking to access credit.
The report of the committee chaired by the noble Baroness, Lady Tyler, to which the Government have responded, called in its recommendations for having a Minister for financial inclusion, and that is something we have made some progress on. Financial inclusion is very important, and we are building upon a series of measures that we have sought to introduce, starting with the cap on payday lending, to stop the exploitation that was happening, with some of the horrendous interest rates that my noble friend Lady Wheatcroft referred to.
One of the problems was that a lot of the poorest people did not have bank accounts. Therefore, we introduced basic bank accounts, which are fee-free accounts, to get people into that area. Another initiative, which the noble Lord, Lord Desai, talked about, is the use of technology: he referred to blockchain and fintech solutions, which I shall come to shortly. We see great potential in open banking, allowing people to share their bank records online—their payment history, their incomes and outgoings—with people from whom they might be seeking credit. Again, that may be something that helps in that area.
Several noble Lords talked rightly about the appalling way that the poorest in our society are preyed upon by illegal money lending—loan sharks, as they are referred to. In fact, John Glen, the Economic Secretary, announced less than a month ago, I think, that we will be putting another £5.5 million into the fight against illegal loan sharks in England, Scotland, Wales and Northern Ireland.
The noble Lord, Lord Hain—and, I think, the noble Lord, Lord Kennedy—made reference to credit unions. We see credit unions having a huge role to play in this area: that is one reason why the coalition Government introduced significant investment in credit unions and changed the way in which they can operate. Some £38 million was put into helping credit unions to form, to operate and to raise capital: we think they are a crucial part of seeking to tackle this type of exploitation.
My noble friend Lady Wheatcroft mentioned the rent-to-own process, whereby many people are drawn into some appalling financial deals. This speaks to two problems. The first is that such firms need to be regulated—they are regulated, and that is why the Financial Conduct Authority levied the very heavy fine on them that was referred to, which meant that money went back to customers. The second problem is: where can people go to for advice? Where can they find what credit is available and whether they are paying too much? That was the purpose of trying to create a new single financial guidance body.
I come to the particular measure that is before us. I have to confess—and I am privileged to put on record a certain interest here—that the noble Lord, Lord Bird, is a hero of mine. I think what he has done for the poorest in our society is absolutely heroic, and I have great admiration for him and for what he is seeking to do through this Bill. I have really appreciated the opportunity to have a conversation with him and with the noble Baronesses, Lady Thornton and Lady Lister, to discuss ways to take this forward. One of the solutions we have come up with, since Second Reading in November, is the rent recognition challenge. The rent recognition challenge fund is an alternative if the legislation route is deemed too heavy and too costly. I take the point made by the noble Baroness, Lady Kramer, which I shall come back to, that we should not worry about the cost of collecting the data, but somebody has to pay and therefore if the cost of collecting the data increases, somebody has to pay for that. We thought through this particular problem and asked whether we could try to do this another way by trying to leverage technology. We came up with the rent recognition challenge, a £2 million fund which we announced following the Bill’s introduction.
I pay tribute to the noble Lord, Lord Bird, for persuading us to do that. I have often said to the noble Lord, as somebody who has spent a lot of time introducing Private Members’ Bills from the Back Benches in this House and not getting a great deal of traction, that he should not underestimate the fact that he has managed to get £2 million out of the Treasury. The noble Baroness, Lady Thornton, says, “Already”. I agree: it is testament to his powers of persuasion.
I want to update the House on something I think is pertinent, because I want to share with noble Lords that we are taking this very seriously. We recognise that there is a problem; it has been identified not just by us. The Financial Conduct Authority published the High-cost Credit Review - Update at the end of January which carried a lot of information and highlighted a lot of the concerns that the noble Lord, Lord Davies, mentioned.
We announced six winners, six fintech firms, who will receive £100,000 each to come up with solutions and will have the opportunity to bid further in July. The first is Bud, which creates open banking technology for lenders to use in their existing apps. Canopy is a deposit-free renting service that replaces the deposit with an insurance policy. CreditLadder is the UK’s first tenant rent reporting service for the private rental sector; it has previously worked with the Big Issue. The META Labs project First Home Coach is an all in one home-buying companion for first-time buyers. Movem is a digital rental passport, allowing comprehensive tenant referencing. RentalStep is a new rental platform that connects landlords and tenants while helping tenants to boost their credit scores. These are real fintech start-ups with cutting-edge people. There was a huge amount of competition for that funding. They are working now to find those solutions.
One of the benefits of the solutions being proposed under the terms of the rent recognition challenge and where we are going with the fintech—I am trying to find my precise note on this; if I get it wrong I will correct it in writing—is precisely this point about what happens with the people who have a poor credit history and poor credit score. Will they get caught up and be doubly disadvantaged by this in seeking to access finance at a reasonable cost? That is why the solutions we are looking at would allow people to opt in to share their financial data or to keep it private. Again, we think that technology offers us some opportunity to do that.
In his powerful contribution, the noble Lord, Lord Best, talked about Generation Rent. We do not want that; we want generation home and we want to give as many opportunities as possible for that to happen. That is why the Government have announced £15 billion as an overall housing package to make that a priority. I am delighted that my noble friend Lady Williams has joined me on the Front Bench. She is now a Minister at the Ministry of Housing, Communities and Local Government. No?
You were? I am sorry.
That is why we now have a Secretary of State for Housing, Communities and Local Government. With all these points I am trying to set out that we do not believe that this Bill is the right way forward because it is too prescriptive in its approach. The amendments cut across the purpose and effect of the Bill so we do not support them either. But we are mindful of the importance of the responsibility to act in this area and we are doing that in a whole range of areas, as I have outlined to the House today.
My noble friend Lady Wheatcroft made important remarks about the exorbitant rates charged to people who are often very vulnerable in the impression that they receive when being sold these products. Following those remarks, does my noble friend not agree that the plethora of advertising—particularly on television—which presents itself to these vulnerable people ought to also contain, as in the case of cigarette sales, clear warnings on every such advert that independent advice or advice that might be obtainable through government agencies or others should be taken before anyone commits themselves to such appalling transactions?
My noble friend is right to draw attention to this. This is why we have the FCA as an independent body to regulate activities in those areas. It is why it took the robust action it did in the case mentioned earlier by the noble Baroness, Lady Wheatcroft.
I am most grateful to the Minister for giving way, particularly since up to now I have been only a spectator to this legislation. I was particularly taken by the fact that he referred to illegal moneylending and the so-called sharks. It is important to remember that the people who have to go to those sharks cannot hope to achieve any kind of credit from the kinds of operations that the noble Baroness, Lady Wheatcroft, referred to. The loan sharks’ weapons are intimidation, abuse and sometimes violence when it comes to recovery. Illegal moneylending is notoriously difficult to prosecute and therefore I would be grateful to hear that the Government understand that and that the initial sum which has been offered is not the end of the matter.
Just to update the noble Lord on this point: the money that has been announced will help investigate and prosecute illegal lenders and support victims and those vulnerable to loan sharks. Overall, this is a 16% increase in funding. In England £100,000 seized from loan sharks will be spent on encouraging people at risk of being targeted by loan sharks to join a credit union as an alternative. The quadrupling of funding will help vulnerable consumers access a safer form of finance and get their lives back on track.
We often hear that financial institutions are fined for doing things wrong. I know that those fines go into the general fund and are used for various things. One good thing they could be used for would be to support the credit union movement so that it can advertise the alternatives that are around. It is not just the monetary fines, it is the fact that the punishment is advising the public to go elsewhere and that there are cheaper alternatives. Often the credit union movement cannot have adverts in the Tube and on the buses and elsewhere, and it cannot fund phone lines. It would be useful and a good way to deal with fines from financial institutions. Perhaps the Minister will take that back to his colleagues in the Treasury.
I am very happy to take that back. It is an example of the innovative ideas that we can discuss as alternatives to the measures before us today in terms of legislation. As the noble Lord was speaking, I was thinking of the Libor fines. Those sums were significant —some £600 million or £700 million—but the then Chancellor designated that they would be given to the families of servicemen and the emergency services. There is an example there. My point is that I think there are solutions which would better achieve the effect that the noble Lord, Lord Bird, is rightly trying to achieve.
My Lords, the Minister has been very generous with his time. The virtue of the Bill of the noble Lord, Lord Bird, is its sheer simplicity. So often Governments come up with incredibly fragmented, complex and convoluted attempts to solve a problem. The Minister pointed a moment ago to the cap on payday lending. He will remember that the Government resisted that right to the very last, with exactly the same kinds of arguments about fintech, alternative approaches, different ways of dealing with it, cost and trying to crack a nut with a hammer. But they now laud that cap on payday lending. My suspicion is that if they decided to support the Bill brought forward by the noble Lord, Lord Bird, they would very soon be lauding that solution, its simplicity and its universal application.
I hear what the noble Baroness says but, as other Members have pointed out in the debate, there is the risk of some unintended consequences as a result of taking this approach. I have also outlined that we are not dismissing the problem, but are seeking an alternative route to solving it which we believe will be more effective and fairer, and avoid some of those unintended consequences. If that turns out not to be the case, of course we are always open to review our position vis-à-vis proposals such as this, and we will continue to act in that way because our first priority is to protect the most vulnerable and help them make a better future for themselves and their families by getting access to home ownership.
I really enjoyed that. That was a brilliant array of political parties coming together in the House. I am really glad. I am also glad that the noble Lord, Lord Blencathra, introduced the amendments in his name and that of the noble Lord, Lord Naseby, because they allow us to address the laws of unintended consequences. The noble Baroness, Lady Lister, also raised the question.
I come from a long line of people who did not pay credit. I am not likely in my dotage to be grassing up the people I come from. My mother used to go to a doorstep lender, who would direct her to a particular shop, where we paid through the nose over and again in the 1950s, 1960s and 1970s, until she died in absolute poverty in the late 1970s. I am not going to grass these people up, I assure your Lordships. Actually, I am much more interested in the 15% or 20% of people who are going to find it very difficult to get credit. They are finding it very difficult to get credit now.
One of the sure signs of social exclusion is the fact that you cannot go to certain shops or buy in certain areas. You cannot even go to Argos. As has been proved by the work of those such as Jesse Jackson in America, as soon as you move into a situation where you can get ordinary credit like other people do—they call it white man’s credit—that is almost like a nudge towards respectability. As soon as you can start saving a bit of money in a credit union, that is a gradual, psychological move. What we are doing is trying to avoid a problem of unintended consequences for a group of people who, at the moment, are in abject poverty and have an incredibly bad ability to get credit, so that they go to payday shysters, sharks and all sorts of people like that. Those people are there already.
There are the 80% or 85% who the noble Lord, Lord Blencathra, pointed out that I would refer to as being lifted out—the respectable people. Great—let us give them the thumbs-up but let us do what the FCA said when it came to see us in the House. It said that what we have to do is to help the people who are paying the credit and put our arms around the people who are not, because we do not even know who they are. They are ducking and diving, bobbing and weaving. They come up with all sorts of semi-legal and illegal things to live through the day and the week, the month and the year. If there are some unintended consequences then it will be our duty to look at ways of changing legislation and not simply writing off 80% of people to protect the 20%, when the best protection you can give to those 20% is to find out who they are, get very close to them, embrace them and use them. Those are the people who I work with and where I have come from. There is absolutely no way that I would ever come anywhere near to grassing those people up.
I also make the point that the only way in which your credit actually matters is when you go to Argos or Carphone Warehouse and say, “I would like to have a TV”, or whatever it is they are selling, so that you opt in to share your data with them. If you are the poorest of the poorest and you have a bad credit record, you will not be going there so this is an academic argument. The people who will not want to share their credit record are not doing so and not going to Argos; the people who go to Argos are saying, “I’m going to Argos because, thanks to the rent I’ve been paying, I think I stand a very good chance”. Then they say, “I’m going to try and get myself a bigger flat. I’ll try to move from social housing into ownership, and I want desperately the fact to be known that I have been so diligent and useful to my landlord and to myself, by paying the rent”. I would love it if the noble Lord, Lord Blencathra, could withdraw his amendment. Thank you very much.
My Lords, one of the unintended consequences of moving and speaking to such apparently innocuous amendments was to get a passionate speech from the noble Lord, Lord Bird. It is worth being the sacrificial lamb to hear that incredibly powerful speech.
When I was in my 20s, before I was elected, I was an even more precocious brat than I am now and everything was clear-cut and certain. There was right and wrong, and black and white. Then I became elected and everything became grey. There was no right and wrong anymore; it was all a bit uncertain. When I read the briefing from the CCA I thought, like my noble friend Lord Naseby, that there were some good points in it on some relevant matters, which were worth airing on the Floor of the House. I say to the noble Lord, Lord Kennedy, that I have no idea who the supporters of the CCA are. I did not inquire as I did not think it was relevant. I thought the arguments and worries it had were worth airing, no matter who the backers are.
The only other point I want to pick up is from the noble Baroness, Lady Kramer. I think she was a bit unkind when she said that I gave the game away in saying at the start that the provision would force firms to use and pay for rental data. My motivation was not to flag up concerns about organisations being made to pay but to float some of the worries of unintended consequences. I could retaliate to her by saying that, of course, Experian may make a lot of money out of dealing with the 4 million who have good credit at the moment and are paying their rent on time. The economic argument may cut both ways.
I think that I floated those arguments in less than five minutes and I can be very brief now: I do not think that I have commanded a majority of the House. I can say that to the noble Lord, Lord Davies. Mind you, the Government have not commanded a majority of the House on 14 crucial issues and they were not necessarily wrong either. However, I find the arguments of the noble Lord, Lord Bird, and others who have spoken incredibly persuasive and powerful. We have done our job today. We have given these amendments an airing and heard persuasive arguments against them. I beg leave to withdraw the amendment.
Amendment 1 withdrawn.
Amendments 2 and 3 not moved.
Clause 1 agreed.
4: After Clause 1, insert the following new Clause—
“Review and termination
(1) The FCA must carry out a review of whether rules pursuant to section 1 have been effective in achieving their objectives.(2) The review must be carried out no later than two years after the passing of this Act.(3) As soon as practicable after conducting the review and no later than 6 months after section 1 has been in force for two years, the FCA must—(a) produce a report on the outcome of its review, which must include a recommendation as to whether or not the FCA considers the rules should be extended; and(b) publish the report.(4) Section 1 and rules pursuant to it will cease to have effect unless a resolution to maintain them has been passed by both Houses of Parliament within 6 months of publication of the FCA report.”
My Lords, I can be even briefer in moving and speaking to these amendments. They are fairly self-explanatory, so I do not need to go through them in detail. They would provide for a review of how successful the measures have been and for a sunset clause.
Amendment 4 would ensure that the effectiveness of the rules is assessed after two years of their operation. I think it is important to do that, whether my amendments are accepted or whether the Bill as it stands passes into law. The legislation and the FCA rules would cease to have effect no more than three years after implementation unless, further to the FCA’s report, Parliament approves their continuation. This is a sunset clause, in line with better regulation principles. It is similar to the approach taken in the Domestic Gas and Electricity (Tariff Cap) Bill. If Parliament is to direct an independent regulator such as the FCA to introduce rules on a particular issue, then my noble friend Lord Naseby and I think it reasonable to seek to ensure that if those rules are not having the impact Parliament hoped for, they would cease to have effect.
I see that other noble Lords have tabled amendments which I think do roughly the same thing, unless I have completely misunderstood them. I may have done so and am happy to be corrected. Amendment 4 would insert a simple new clause so that after two years, we would review how well the Bill is working and give Parliament a chance to continue with the rules or not, as the case may be. I beg to move.
Amendment 5 (to Amendment 4)
5: After Clause 1, in subsection (1) leave out from “whether” to end of subsection and insert “its rules, legal instruments, guidance, and policies, including those rules pursuant to section 1, have been effective in improving the creditworthiness of borrowers who rent and who pay council tax.”
My Lords, this is a probing of an airing, to give the technical term. The primary aim of this amendment is to counteract the other amendments tabled by the noble Lords, Lord Naseby and Lord Blencathra. Amendment 5 has been tabled to say, “This needs to happen now”. Its primary point is that the FCA needs to conduct a review and do it now.
I am fully aware that the FCA is at the moment conducting a high-cost credit review. However, its most recent conclusion is that it is,
“prepared to look at solutions designed to increase the choice”,
and encourage the,
“availability of alternatives to high-cost credit”—
in other words, more delay. The main point I want to make as a result of this amendment is that tenants cannot wait any longer. The number of tenants is doubling and government policies are not keeping pace. What we need is the immediate implementation of this, not to wait and have a two-year delay. That is the primary reason for this probing amendment. I thank the noble Lord, Lord Kennedy, the right reverend Prelate the Bishop of St Albans and the noble Baroness, Lady Jones, for supporting this amendment. It is an amendment to an amendment, so if the noble Lord, Lord Blencathra, withdraws his amendment, it falls by the wayside.
When I had my Private Member’s Bill banning tenants’ fees, the Government used the unintended consequences argument, asked whether the problem could be solved via the market and then rightly changed their mind, but it is taking a very long time for this to come through. I sometimes wish that the Prime Minister had put a date on this, rather than on one or two other items that have come before noble Lords this week.
I take the opportunity of this amendment to say to the Minister that I think he should support the Bill and give it a fair wind, and that the Government Benches should give a fair wind to more time for it so that it has its Report and Third Reading stages and is sent to the other place. The number of tenants is increasing enormously and legislation is not keeping pace. The FCA needs to conduct an urgent inquiry into the people who were described in the debate on the previous group of amendments, and for that reason I am attempting to amend the amendment.
My Lords, I think I can be brief on this group. I thank my noble friend for moving the amendment. This group of amendments concerns the proposal for the Financial Conduct Authority to conduct a review into the experience of rental tenants, with particular regard to their ability to demonstrate their creditworthiness under the existing rules.
I remind the Committee that the FCA recently consulted on proposed changes to its rules and guidance on assessing creditworthiness in consumer credit and has undertaken research on this subject, which carefully considered the factors that firms take into account when making lending decisions. This consultation made direct reference to the current limitations on sharing rental data and the potential for new technology to alleviate them. That is the purpose behind the rent recognition challenge.
Furthermore, in April 2018 the FCA announced that it will conduct a market study on credit information. A consumer’s credit information affects how likely they are to be able to access a range of financial services, including mortgages, loans and credit cards. Consumers may experience harm, such as restricted access to credit, if this information, such as rental payment history, is not shared effectively. The FCA’s aim is to ensure the credit information market works as well as possible to maximise the benefits that it can deliver for consumers. The FCA will also collect evidence to gain a better understanding of the potential for harm in this market and, if necessary, identify remedies. This study will be launched in quarter four of 2018. Finally, the FCA conducts a review of all new interventions as a matter of course and continues to monitor the market for consumer detriment on an ongoing basis.
In conclusion, I put it to the Committee that the need for a further review by the Financial Conduct Authority into this issue is unclear, as the regulator is already carrying out extensive work in this field. The Government’s position on the Creditworthiness Assessment Bill therefore remains unchanged.
I am pleased that the noble Lord has withdrawn—I feel a great victory. We have to move on to the next stage, and I thank the noble Lord, Lord Bates, for this great opportunity to respond to what we said. I thank the noble Baronesses, Lady Grender and Lady Thornton. It seemed all a bit “spaghetti” just now, so forgive me my trespasses. I will sit down. Thank you very much indeed.
My Lords, this was a simple little amendment asking for a review of the law after a couple of years. I did not understand why the noble Baroness, Lady Grender, needed to amend the amendment. If she did not like what I was seeking to do, she should have just opposed it. I can understand her saying that we cannot have the bit whereby a resolution of Parliament could reject it after a couple of years, but rejecting a review after two years seems a bit unreasonable. I was not seeking to delay the Bill for two years. The amendment merely states—and I happily stand to be corrected—that after the Bill promoted by the noble Lord, Lord Bird, is in force, the FCA should conduct a review after a couple of years. That seems a completely safe and innocuous thing to do. However, I make that point in defence of my amendment. We have been discussing this important Bill and these amendments for just one hour and 10 minutes. That has been a worthwhile way to spend that time. No one on any side has sought to delay the Bill or to wreck it. The noble Lord, Lord McAvoy, will confirm that between 1997 and 2001, if I and my late colleague Eric Forth MP wanted to delay a Bill we could keep going all night, but we are not in that mood and that mode because this is a rather good Bill. I felt the amendments deserved an airing this morning, which they have had.
Amendment 5 (to Amendment 4) withdrawn.
Amendments 6 to 8 (to Amendment 4) not moved.
Amendment 4 withdrawn.
Clause 2 agreed.
In the Title
Amendment 9 not moved.
Bill reported without amendment.