Consumer Credit Bill

I shall address that issue in a few moments, so I hope that my hon. Friend will bear with me. Consumers should have the right to challenge unfairness where it exists and obtain redress where appropriate. That is why the Bill will introduce a mandatory alternative dispute resolution system—an ADR scheme—for consumer credit matters, thus giving consumers a fast and effective means to challenge unfair practices without the need to resort to court action. Importantly, all consumers will have access to redress using the ADR scheme, not just those who can afford to pay for it, because it will be free and no lawyers are necessary—not that I have got anything against lawyers. Decisions taken under the ADR scheme will also be binding on the consumer credit business, so that consumers can be confident that redress is achievable. The system will be run by the Financial Ombudsman Service—an independent and credible ADR scheme that already provides ADR under the Financial Services and Markets Act 2000. Thus the FOS already deals with approximately 75 per cent. of all consumer credit business by value. Disputes that arise under the Consumer Credit Act 1974 will enter the ombudsman’s jurisdiction on a phased basis, thus giving business time to prepare for the new regime and ensuring that the FOS is not overwhelmed by consumer credit disputes. However, ensuring fairness on both sides of such disputes has been a key part of the Government’s work on developing the system, so complaints will be considered by the FOS only when a lender’s internal complaints-handling procedures have been exhausted. The FOS will be able to refuse any frivolous or vexatious claim. The Bill will also empower consumers by replacing the out-of-date extortionate credit test. Too many people have found out the hard way that, 30 years after its introduction, the test does not provide effective redress. Not only does the current test set the bar too high to be of real use for consumers, but its application is usually confined to the cost of credit or terms of the credit bargain at the time it was made. Hon. Members will appreciate that taking out a credit card or personal loan is not just about how much the agreement says that it will cost; there are many other factors to take into account. The Bill will introduce a new test based on the principle of unfairness, which was mentioned by my hon. Friend the Member for Northampton, North (Ms Keeble). Consumers will be able to apply to the courts to challenge agreements where an unfair credit relationship exists. That will allow the consideration of all aspects of the transaction, including the lender’s conduct before and after making the agreement, its administration of the loan and the terms and conditions of the agreement. It will also ensure that the courts will have a wide discretion to assist those who face unfairness from lenders. We have given careful consideration to the nature of the new unfair relationships test and have explored its implications thoroughly. If we are to give consumers the rights and redress mechanisms that they deserve, it is imperative that the test works effectively. It is also important that the test does not constrain or impede the courts’ ability to do justice in every case. That is why I will not try to define an unfair relationship. It is for the courts to determine such things according to the relevant facts of each case. Unfairness is not a new concept for the industry, and fair lenders have nothing to fear from its introduction.