Consumer Credit Bill

My Lords, before I begin what I had intended to say, I only realised as I read the newspaper today that it is the Minister’s birthday—a very significant one. With the leave of the House, I pass on all our good wishes to him. I thank the Minister for his full and clear explanation of the Bill. We are already somewhat familiar with it, due to it being the second time that it has reached your Lordships’ House, after twice passing through the other place and being dropped here because of the general election. First, I shall restate our attitude to the general principle of the Bill, as stated by my honourable friends during both Second Readings in the other place. The Bill presents Parliament with a valuable opportunity to bring the law on consumer credit—which is largely based on a 30 year-old law—up to date. The whole market, the attitude of borrowers and the opportunity to incur debt have changed out of all recognition since 1974. For example, the number of issuers of credit cards has risen from a handful in 1974 to some 1,300 today and whereas a credit account with a major store was then a sort of status symbol, they are now pressed on customers at every possible opportunity. That is an important background that the Bill has to address. It took 600 years of banking history for household debt to reach half a trillion pounds but in the eight years since the Government took power, it has more than doubled to more than 1.1 trillion. One household in five is now using more than a quarter of its income on consumer credit repayments. I assure the Minister that I am not making any political point on this by suggesting that it is anything to do with the Government, but it is a fact that the current buoyant state of the consumer market is not caused by a comparable increase in GDP or by the wise stewardship of the Chancellor of the Exchequer. It is caused by the torrent of credit available to almost everybody and anybody and the daily incitement to remortgage the family home, instead of treating the windfall in house prices as extra security for old age. Having said all that, I am saying in general terms that we accept the Bill and are pleased to see it come before this House. I find most objectionable the sort of television advertisement in which someone is paraded in front of the camera to explain how his crushing burden of multiple debts has been replaced by a single affordable monthly payment. So far, so good. But then he goes on to say, ““So we even had enough left over to pay for a new car or a new holiday”” as though building up further debt was an acceptable or appropriate way to behave. Do these people not realise that they will be paying for that holiday for the next quarter of a century or that the car will long have been scrapped before they have finished paying for it? It is no wonder that the Bank of England has repeatedly expressed concern at the level of personal indebtedness and the economic consequences that will ensue if the bubble ever bursts. In supporting the objectives of the Bill, we have certain reservations that, despite two opportunities during its passages through the other place, the Government have not been able to rectify. There is a lack of detail in some aspects of the Bill that could have been cleared up since January, when it received its First Reading in the other place. That is bad for business and consumers alike. With 11 months of extra time, there is no reason why drafts of the regulations in respect of matters that the Government choose to cover by secondary legislation should not be available now for us to see. The Government should also know that, in view of the far-reaching effect of the regulations that will affect so many vulnerable people, we will press for those regulations to be subject to the affirmative procedure. While endorsing the extended protection that the Bill will give consumers, it should be an underlying principle that no additional burden is placed on legitimate business without there being a positive effect. The case that the Minister mentioned was not familiar to me, but I know of the infamous Meadows case, where a loan of £5,750 escalated, despite payment of instalments, to a staggering £384,000, resulting in the courts having to exercise some judicial ingenuity to strike down that iniquitous claim. Clause 19 introduces a so-called ““unfairness test””. That fulfils the much-needed objective to redress the balance between creditor and debtor in the same way that legislation on unfair terms and conditions does in other fields. However, we believe that it definitely needs modification, so that it still removes any imbalance against the debtor but will not provide an unfair escape loophole to avoid a legitimate debt incurred with a reasonable and responsible creditor. The Government have not met our concerns on this point. We will introduce some amendments in what we consider to be one of the core provisions of the Bill for your Lordships and the Government to consider. I have listened with care to what the Minister said about data-sharing. I am sure it will not surprise him that I intended to bring that up, and say why we thought it was a valuable tool. In view of what he has said about the review they will initiate, however, I shall leave out a couple of paragraphs of my speech, which will no doubt please your Lordships. To give one simple fact, there were 13,229 individual bankruptcies in the first quarter of this year—an increase of 1.6 per cent on the previous quarter, and nearly 28 per cent on the same quarter in 2004. Then there are the functions of the OFT. We believe that they need to be spelt out more precisely, including the way that it should be empowered to issue so-called guidance, which can have far-reaching effects on the credit industry. We want that guidance to be subject to oversight by the Secretary of State who in turn is, of course, answerable to Parliament. The Bill provides for civil penalties for certain breaches of its provisions. These penalties should be subject to five-yearly reviews and amended, if appropriate, by order—in the same way that some criminal penalties are, without taking up parliamentary time with primary legislation. There is also what is called the ““half-rule””, which I confess I had never heard of until I started looking into the Bill and received numerous briefs from the lobbyists about it. As anyone who has ever read the extraordinary fine print of a hire-purchase agreement will know, the rule relates to the consequences of early cancellation of the agreement by the hirer. Saying that I had never before heard of it makes it quite clear that I never read a hire-purchase agreement until now; I leave such things to my husband. The half-rule is claimed to be an out-of-date issue, but we will be putting down a probing amendment to ascertain the Government’s view, which has not hitherto been made clear. We have views on the unsolicited increasing of credit card limits and the blatant sales device of credit card cheques. Those are designed to suck the customer into extra spending and liability to interest. I do not know which of your Lordships read page 20 of the Times today. It was in reading the Times that I discovered it was the Minister’s important birthday today, but on page 20 Rose Heiney, a student, tells her story in her own words. She has just been approved for another gold card—the third in the last two months, with a loan facility of £6,000 and the withdrawal power of £500 a day. She said, quite rightly, that she will probably end her studies in debt anyway; she has to live, to buy books, and so on. She tends to be a rather extravagant girl, and she said she certainly does not need more credit cards foisted upon her. I hope that the Minister will in due course look into such things—they do cause problems. I do not want to take up more of your Lordships’ time at the moment, as other noble Lords are, I know, waiting to speak on this important subject. But I would like to mention that my noble friend Lord Mawhinney and the noble and learned Baroness, Lady Clark of Calton, will both be making their maiden speeches today. I look forward to hearing them and would like to congratulate them in advance, for obviously I know not what they say. I also congratulate the noble Baroness who will be responding to this debate with her maiden speech, and wish her every success in her time on the Front Bench. We will table any necessary amendments in good time, so as to enable the Government to have ample opportunity to consider them—instead of being able to say, straight off, no, we do not have time. We want them to be able to consider our amendments carefully. This is a sufficiently uncontroversial Bill for the Government to be able to discuss with us any differences which are likely to be on detail rather than principle. I hope that they will feel able to do so. My noble friend Lord De Mauley will be winding up and will mention some other matters that concern us. While mentioning my noble friend, it is right that I mention to your Lordships as a courtesy to Ministers and to the House that he has kindly agreed to take a substantial part in the carriage of this Bill from these Benches to give me a chance to recover from a very nasty gastric ulcer from which I am suffering. However, let me assure your Lordships that that is nothing whatever to do with the Government or, indeed, the Minister, who has crossed swords with me many times across the Dispatch Box.