Consumer Credit Bill

My Lords, I apologise to the noble Lord, Lord Beaumont, who has shared the opportunity to grace the electoral chances of his party with more than one party in recent times. So far as concerns the noble and learned Baroness, Lady Clark of Calton, it is difficult for those of us who have not yet heard her maiden speech to congratulate her in advance. However, if the reputation with which she comes to this House is, as I know it will be, replicated in her maiden speech, then early congratulations are not premature. From these Benches, as right across the House, we welcome the Bill. I think it is more than 30 years since there was last a consumer credit Bill, and the Government—or those responsible—are to be congratulated on the timetabling. Having just lost the Bill when the election was called, they have fought their corner to include it early in the current government programme. Clearly, in the 30 years since the previous legislation was enacted, as noble Lords have indicated, there has been a massive explosion of credit. That may be regretted in certain quarters, but it is worth indicating, and reflecting on, the fact that credit has meant a significant improvement in the standard of living of a lot of people. The right reverend Prelate the Bishop of Worcester might reflect on whether the world is a better place since the days when people had to save to have a fridge or washing machine—white goods that we all regard as an essential part of everyday life—because people can use credit to have a standard of living that they might not otherwise be able to achieve. It is easy to criticise the actions of credit card companies and lenders, and of course I share that criticism. However, we should not ignore the serious benefits to society—particularly those less well off—of properly managed credit. That leads us to the real issue: what is properly managed credit? Clearly, nobody wants to live in a world in which people take on liabilities that they cannot afford, with the financial tragedies that often result. The first issue—on which I think the Government have the almost unanimous approval of your Lordships, and the general consensus seems to be in support of the Government’s position—is whether we should cap interest rates. There has been a very effective campaign led, although not exclusively, by the Reverend Paul Nicholson. We have all been subjected to lobbying from that quarter over the months. From these Benches, I detect that the general opinion of your Lordships is that it would not be correct to impose that credit cap. The Bill is correct in that. Most of us accept the evidence from the National Association of Citizens Advice Bureaux and others that the imposition of interest rate ceilings can exclude high-risk borrowers from the licensed commercial credit market. That is a rather pompous way of saying that if we imposed interest rate caps a lot of people would fall into the hands of unscrupulous moneylenders whose methods of collection would not commend themselves to your Lordships’ House. Having said that we support the Bill, that does not mean that we do not have concerns. My party and the other opposition party raised a number of concerns as the Bill went through the other place. The first is over the new powers being given to the Office of Fair Trading. There is a concern that it will effectively be able to create new law simply by issuing guidance. A number of the provisions and powers given to the OFT under this legislation are quite draconian. I can do no better than repeat the words of my friend Norman Lamb, a Member of Parliament in another place on Third Reading:"““There needs to be a legislative framework for the exercise of these onerous powers; unfettered discretion is dangerous””.—[Official Report, Commons, 14/6/05; col. 1006.]" We will be looking to put guidance for the Office of Fair Trading’s exercise of these powers into the Bill. The second concern, which other noble Lords have touched upon, is with the definition of ““unfairness””. I am sure that we will have another go at the question of defining ““unfair relationships”” in Committee. In another place, the Government resisted an attempt to define ““unfair relationships””. Those of us who have either been, or have access to, lawyers, can spend a lot of time asking whether we are treating this as a definition under the Unfair Terms in Consumer Contract Regulations 1999; or whether we are going to go back to the definition of the noble and learned Lord, Lord Bingham of Cornhill, in The Director-general of Fair Trading v First National Bank in 2001; or whether we are going to simply say that it is a matter for the courts. The problem with saying that it is a matter for the courts is that it will take a considerable period of time for a body of precedent to be established to provide a definition of an unfair relationship. I know the other side’s argument, and the arguments are finely balanced. The Government will say, as they said in another place, that we do not know how the definition of unfairness is going to develop in the years ahead. But we will be arguing that there is no reason why the Government cannot take regulatory powers to provide a definition of an unfair relationship and amend it as we go through the next decade. We will be arguing for that in Committee. There are other issues on which we were unsatisfied with the Government’s proposals as the Bill passed through another place. The first is the question of data. The Minister touched on it in his remarks. There is an issue regarding the capture and dissemination of data in pre-1999—or pre-1998, I forget which—agreements. The Government’s position appears to be that it is a serious issue and that extensive consultation needs to take place before they can bring in regulations or legislation to deal with it. The problem with that approach is that legislative time is precious. We have not had a consumer credit Bill for 30 years. If this is a serious issue, what powers do the Government think they will have to deal with the issue? Do they think that they would require primary legislation? If so, how will they find the legislative time to bring it in? If we are going to spend time dealing with this issue, which we would all welcome, is it not possible for the relevant consultation with the industry and government departments to take place before we get there? The next two points are rather technical, but they are important. We are concerned that they have been omitted from the Bill. The first is the calculation of interest. I think I am right that we are unique among western democracies in regarding the statement of the APR on any credit card statement as requisite to tell people the interest they are paying. I think I am also right that virtually every card company calculates the APR in a different way. This is a serious concern. If we are going to legislate once in 30 years and have it enshrined for the next 30 years, could we not deal with the question of greater transparency on the calculation of the interest rate paid on credit cards? The second point is again quite technical, but it affects a lot of people. It concerns the issue of cheques to credit card holders. There is a lot of misunderstanding and a lack of transparency here. People do not appreciate that cheques are treated by most credit card companies as credit card transactions at a different rate of interest that kicks in on the day the cheque is written. We want to probe that area and see whether the Bill can be improved. Finally, a technical issue has been presented to those of us who have been lobbied by banking and lending organisations. It is also a question of principle. It is the issue of retrospection with regard to unfair relationship provisions. I do not want to give any noble Lords who may be expert on the subject a lecture on how the securitisation of mortgage lending works. Yet securitisation is a significant issue in the provision of proper competition between the traditional lending banks and building societies and other lenders. There, a collection of financial mortgage instruments is taken together, often financed from overseas, to provide more funding for the mortgage market. The industry is significantly concerned with the issue of unfair relationship provisions, and the proposal that those should be introduced retrospectively. The DTI originally suggested, in a policy statement communicated to lenders in February 2004, that the provisions dealing with unfairness would be applied in any forthcoming legislation to all existing agreements, but that lenders would have no financial liability in respect to actions taken before the law was changed. As the Minister will be aware, there is considerable concern that the Bill as currently drafted reverses that policy decision by the DTI. We will certainly wish to address that issue from these Benches in Committee, and looking at the eager anticipation on the faces of the Conservative opposition, I detect that they might support us on that.