Consumer Credit Bill

The amendments tabled by the noble Lord, Lord Razzall, will change the requirements that exist in relation to the manner in which the exemption for business lending is recognised by the lender. It may assist noble Lords if I explain the manner in which Clause 4 works. Clause 4 deals with the exemption of business lending from regulation under the Act. It inserts a new Section 16B into the Act to do that. Noble Lords should note that when I say ““lending”” or ““credit”” when speaking to this clause, I also mean ““hire””. Clause 2 will have the effect of removing the financial limit above which credit is not regulated under the Act. That means that in future credit of any amount made available to consumers will be regulated except where specifically exempted under the Act. The new subsection (1) provides one such exemption. It states that the Act does not regulate consumer credit or consumer hire agreements for more than £25,000 where that agreement is entered into wholly or predominantly for a business purpose. Agreements for business purposes of £25,000 or less will continue to be regulated under the Act. But the effect of Clause 1 is that, in future, this will apply only where the borrower is a sole trader, an unincorporated association, or a partnership of three or fewer people. A ““business purpose”” is not defined. We believe that to try to do so would be unhelpful. It would either exclude from regulation some consumer transactions; or mean that many transactions that are for business purposes would continue to be regulated. The best persons to determine the purpose of the credit are the parties to the agreement. New subsection (2) provides that a person may make a declaration as part of the agreement that the credit is either wholly or predominantly for a business purpose. Such a declaration will give rise to a presumption that the borrowing is for business purposes and will serve to reduce any burden on the business to establish the purpose of the loan before extending credit. But under the new subsection (3) the presumption will not apply if the lender, or a person acting on his behalf, knows or reasonably suspects that the credit is not wholly or predominantly for a business purpose. The new subsection (5) provides that, where an agreement involves more than one lender, such knowledge on the part of one of them will bind them all. The Secretary of State may, under new subsection (4), make regulations setting out the form and content of the declaration as to a business purpose. The new subsection (6) states that business borrowers are not prevented from applying to reopen the agreement on the basis that it flows from an unfair relationship. Turning to Amendments Nos. 9 and 10, I have explained to noble Lords the reasons why the Government were not minded to accept the amendments of the noble Lord, Lord Razzall, in relation to the manner in which a debtor exercises the high net worth exemption. The Government will resist Amendments Nos. 9 and 10 for similar reasons. Lenders are free to lay out the agreement in any way they see fit, provided that they comply with the requirements of the Act and with the regulations concerning the form and content of agreements. The clause provides that the declaration be part of the agreement. The requirements on the face of the Bill are sufficiently flexible so as to address any concerns about the need for additional suites of agreements for business lending. It leaves to regulation its form, content and the manner of signing those declarations. The Government will consult on the precise requirements and are keen to work with industry to ensure that the declaration may be made in a practical and cost-effective way. The effect of Amendment No. 11 would be to remove those persons covered by the exemption for lending wholly or predominantly for business purposes from the application of the unfair relationships provisions of the Bill, which are set out in Clauses 19 to 22. This amendment therefore has a similar effect to the noble Lord’s Amendment No. 7, which sought to remove the application of the unfair relationships test from lending covered by the high net worth exemption. The Government will resist the noble Lord’s amendments for similar reasons, in essence because debtors should be entitled to challenge unfair relationships and lenders should not enter into unfair relationships, whatever the consumer’s purpose. For those reasons, I ask the noble Lord not to press Amendments Nos. 9, 10 and 11.