Consumer Credit Bill

My Lords, it is a great honour and privilege to follow the noble Lord in his maiden speech. He had a distinguished career in the other place and held a number of important offices, ending up with the somewhat arduous task of being chairman of the Conservative Party. But despite the many successes that he has had, I was reminded during his speech that he has had his failures as well. The noble Lord, Lord Rodgers of Quarry Bank, came into the Chamber. I believe that he defeated the noble Lord when he was trying to get his feet on the first rung of the ladder. It is very encouraging that the noble Lord, Lord Mawhinney, has sought to make his maiden speech quite so soon after his elevation to this House. There are those Members of this House who have held high office whom we do not see much; there are others who, we are glad to note, feel that they have a further contribution to make. I take it that the thoughtful, excellent speech that the noble Lord has delivered today is an earnest that we will hear more from him in the future. After all, to use a word that has become common in the past few days in various contexts, I have a feeling that the noble Lord has a ““hinterland””; in fact, he has several hinterlands. He has Northern Ireland; he has the Church of England; and he has something which is quite rare in this House, let alone in the other House: he is a scientist. In all those respects, he will be welcome to speak on whatever subject he chooses. We all must welcome his arrival in this House and wish him well for the future. I declare an interest, albeit a past interest, in that between 1976 and 1992, I was head of the Office of Fair Trading, which was responsible for the licensing system that was established by the Consumer Credit Act 1974. It was realised even then that we had moved on a great deal. The checks to determine the fitness of someone to hold a licence helped to clear the industry of some of its worst elements. The Minister has already indicated that it is most helpful that the Bill widens the criteria on which a trader can be tested by covering competence as well as fitness. A very serious weakness of the 1974 Act was that the only sanction for misbehaviour was the nuclear one. To say that some eminent bank should be deprived of its licence to lend to hundreds of thousands of people because of some minor misdemeanour would have been absurd. The current Bill, I am happy to say, proposes a flexible range of sanctions, including reprimands and fines as appropriate. It is worth saying—the right reverend Prelate and the noble Lord, Lord Mawhinney, mentioned it—that the Crowther committee stated in 1971 that most people used credit wisely. I read that phrase again recently. I had a feeling that the committee was perhaps being a little over-optimistic. Or perhaps that was the feeling in 1971. I think that most people probably still use credit wisely, but it is evident that there are more worries about it now. However, the freedom of access to credit should not be unduly restricted. There is hardship today among people who are over-committed, but that hardship could be far worse if, for example, a statutory ceiling on interest pushed more people into the arms of illegal money lenders and loan sharks operating in the shadows of our major cities. I notice that it was mentioned in the debates in the House of Commons that the OFT draft guidelines on fitness to hold a licence refer to the need to be sure that the borrower can repay the loan. I do not know how many of those credit banks and credit card purveyors to whom the noble Lord, Lord Mawhinney, quite rightly referred really check up on the student who was mentioned by the noble Baroness, Lady Miller. I do not suppose that they check up at all—they just hope for the best. If that is to become a reality, however, we need to hear a lot more from the OFT and its guidelines. The 1974 Act included provisions to protect consumers from so-called extortionate credit bargains. There seems to have been an all-party view in the House of Commons in the passage of the Bill that that definition of extortionate credit bargains was so high a hurdle as to be pretty useless. For 30 years, experience suggests that the provisions have hardly been of any use in protecting vulnerable consumers from exploitation. The Government are right—subject to a qualifying remark I will make—to replace them with Clauses 19 to 22, so that a court can consider all aspects of the agreement and the way it is operated to see if the relationship between the creditor and the debtor is unfair. I understand the concerns of banks and others, some of whom have lobbied me on the subject and, no doubt, have lobbied others. They are worried about the uncertainty of the test. They do not know when the relationship will be regarded as unfair. In the nature of things, legislation cannot foresee all the circumstances in which vulnerable consumers may be exploited. Given that we are unlikely to have another consumer credit Bill for another 30 years, how can anyone foresee what relationships may be regarded as unfair? Reliance ought mainly to be placed on the courts. Clause 22—which I confess I do not fully understand and hope the Minister will help to explain—talks about giving guidance on the inter-relationship between the provisions on unfair relationships and Part 8 of the Enterprise Act 2002, allowing the Office of Fair Trading to bring proceedings against anyone who harms the collective interests of consumers. Will the Minister give an indication of the OFT’s intentions regarding Clause 22? Without such guidance, I should mention something significant: the legal opinion of eminent counsel Michael Beloff QC, obtained by the banks, is that these provisions do not satisfy the requirement of legal certainty in the European Convention on Human Rights. I do not know whether that is so, but that is a belief, and, as the opinion has been made available to me and others over the months, I am sure the Minister may be able to provide an indication of an answer. I welcome too, as do the Citizens Advice Bureaux, not remarkably, the introduction of the ombudsman scheme allowing for better access to justice—and, as the Minister emphasises, without charge to the consumer. That is most important. Since the 1960s, ombudsmen have been gradually dealing with disputes, both in the private and public sector. They have been a great success as an alternative dispute resolution. One of these successes has been the financial services ombudsman, Mr Walter Merricks, and the extension of that scheme to consumer credit—financed by a levy on the licensees, incidentally—builds on proven achievement. I would like to raise a matter that has not been referred to by the Minister, perhaps because it emerged just before the general election and has been followed up since. In March 2005, around the time when the Consumer Credit Bill passed through all its stages in the Commons and had its First Reading in this House, just before the election, Her Majesty’s Treasury published an important report by Sir Philip Hampton, chairman of Sainsbury’s, entitled Reducing Administrative Burdens. It has some significance on the Bill now before us; and I believe that we should be told what that significance is. A key proposal in the Hampton report is to create a new body at the centre of government to co-ordinate the work of consumer protection and local authority trading standards. In July—which your Lordships will appreciate was just after the general election—the Government put out a consultation paper on the Hampton proposals, for which the response period has just expired. The Bill assumes that the well established Office of Fair Trading, for which I have a certain regard, will continue to be the licensing and enforcement body, as it has been since the Consumer Credit Act 1974, when it has worked in close harmony with local authority trading standards officers. But I am worried that on two counts the Hampton report creates great uncertainty, in saying that although the new consumer protection agency could be based within the OFT, it might be preferable to create a new body separate from the OFT’s competition responsibilities and therefore,"““wholly focused on this major task””," as the consultation paper says. That seems to be the favoured proposition of the Government’s consultation paper. But then a mere footnote on page 65 of the Hampton report says that the Government may want to consider,"““whether the consumer credit functions of the OFT should pass to the Financial Services Authority””." Nobody else has mentioned that—it was not mentioned by the Minister today. I am not at all sure that it is desirable to separate the consumer protection functions of the OFT from its competition policy functions, and the Hampton report is clearly in two minds about that because it talks of the need for strong linkages between consumer and competition policy. Further, it is a new complexity to this House’s consideration of the Bill that instead of assuming that the consumer credit licensing powers as amended by the Bill will remain in the experienced hands of the OFT, it may be transferred to that super-regulator, the Financial Services Authority, with its vast-ranging other responsibilities. I hope that I am not being awkward in asking the Minister whether he can throw light on those responsibilities. I realise that I am perhaps placing a burden on the Advocate General for Scotland whom I welcome in giving her maiden speech in this debate, but this is an important issue and I hope that we can consider it.