Consumer Credit Bill

moved Amendment No. 1:"Page 2, line 8, leave out ““the agreement includes””" The noble Lord said: In speaking to Amendment No. 1, I shall speak also to the other amendments in the group and to Amendment No. 8, which relates to a similar issue although it is slightly more complex. Like all Members of the Committee, we are extremely grateful for the extensive briefings we have had from organisations, a number of whose representatives I see on the red seats. In going through amendments on which we have had extensive lobbying, I shall in some cases move the amendment although I have not been joined by the Conservative Opposition, and in other cases they will move an amendment in which I do not join them. In a lot of cases we have put our names to each other’s amendments. But on all the amendments we look forward to the Government’s response. By definition, every amendment has to be a probing amendment because we cannot vote on it. In the light of the Government’s reaction we will consider what to do with the issue on Report. The first group of amendments, which are quite technical, relate to procedural issues in regard to declarations made by high net worth borrowers. Amendment No. 8 is more substantive and relates to the application of the later provisions in the Bill on unfair relationships. As Members of the Committee will be aware, Clause 3 inserts new Section 16A into the 1974 Act. That provision would give the Secretary of State power by order to provide for the exemption of consumer credit agreements or consumer hire agreements from the regulation of the 1974 Act where the debtor or hirer has a ““high net worth””. In order that an agreement may be exempted, certain tests must be met, including that the debtor or hirer must be a natural person—that is, not a partnership, unincorporated association or a body corporate—and must make a declaration in the specified form that he or she,"““agrees to forgo the protection and remedies that would be available . . . under [the 1974] Act if the agreement were a regulated agreement””." Representations have been made to us by a number of bodies that the high net worth debtor exclusion has a number of shortcomings. For the benefit of Hansard, it would be useful to list what it is thought that they are. First, unlike the similar exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, this exclusion does not allow for self certification and is administratively very cumbersome for high net work debtors and affluent customers. Secondly, it makes the carve-out unworkable because the customer will need to deal with yet another adviser for certification and is often reluctant to do so. His or her advisers may be unwilling to provide the statement required given the liability issues involved where, for example, income can be readily verified. A requirement for a person of specified description to substantiate what is clearly apparent is clearly disproportionate for this group of individuals. Next, there is a requirement to update certification annually, which is onerous and burdensome. Overdrafts, for example, require annual review, but it is unlikely that a high net worth individual consumer’s asset base and/or income would substantially alter year to year. Further, it only covers customers acting in their individual capacity and not otherwise. The current draft requires the declaration to be made in the agreement—that is, in proposed new Section 16A(1)(b). Lenders will therefore need to maintain a separate suite of agreements containing the specified declaration. That creates unnecessary red tape and expense. The territorial application of the Consumer Credit Bill is not clear and potentially applies to overseas clients or to transactions with an overseas element. In particular, it is not clear what triggers the application of the Bill. Is it inter alia the UK residence of the debtor, the creditor’s principal place of business, that the agreement is negotiated and sold in the UK or simply signed in the UK, or that credit is extended in the UK or repaid in the UK? Those of us who have had experience of those jurisdictional issues will know the potential concern. High net worth borrowers are invariably sophisticated borrowers acting with the assistance of professional advisers. The prospect that they might be able to reopen an agreement is unnecessary and destabilising, and there is concern that some element of the business will go overseas were the clause to remain in this form. The substance of the amendments is as follows. In the first place, the high net worth debtor exclusion would be amended to promote self-certification or to give the Secretary of State power to decide whether to require a third certificate or self-certification. Secondly, the exclusions would be expanded to cover unincorporated vehicles in line with the FSMA (Financial Promotion) Order; namely, high net worth unincorporated bodies or persons. Thirdly, in the interests of reducing the unnecessary burdens on business that I referred to earlier, it is preferable that a declaration can be made in a document separate to the agreement, and that would be achieved under Amendments Nos. 1 and 2. Fourthly, we are suggesting the Secretary of State exercise existing powers under Section 16(6)(c) of the 1974 Act to clarify that the Consumer Credit Bill will not regulate a consumer credit agreement other than where the borrower is in the UK, except obviously—and you would expect me to say this—in connection with the possible implementation of the consumer credit directive. Fifthly, we are also looking to remove proposed new Section 16A(8), which would continue to apply provisions relating to unfair relationships to high net worth individuals otherwise exempted under proposed new Section 16A. Sixthly, we feel it would be appropriate when life partners—husband and wife—borrow jointly but income is concentrated in an individual’s name for one of the two partners to be able to certify, so that certification is not necessary for both partners. The Government have already accepted that high net worth individuals may in specified circumstances forgo the protection of the 1974 Act. In the RIA, they give the reason for making that exemption:"““In respect of high net worth consumers, we have considered the concerns of industry that such consumers seeking large sums by way of personal borrowing would, if constrained by regulation under the Act, simply move their business to offshore financial centres with the consequences of a significant reduction in business for British consumer credit businesses””." Next, we suggest that any application of the provisions on unfair relationships to exempted high net worth individuals militates against that objective, particularly while the provisions lack detail and are unclear. We will obviously come on to that in later amendments. As machinery has been put in place to exempt high net worth individuals, we feel that it is inappropriate to do so on a partial basis, and these amendments deal with that anomaly. I have gone into some detail on the reasons for the amendments, for which I apologise. However, I emphasise that the proposals do not reduce consumer protection at all. High net worth individuals will still be required to make the declaration, and there is every chance that setting out the declaration as a separate document will mean that more attention is drawn to it than if it formed part of a larger document—part of the agreement. I beg to move.