Consumer Credit Bill

This group of amendments, tabled by the noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Razzall, concerns the provision of annual statements to debtors. I shall address the amendments in small groups as their Lordships’ amendments are directed to different purposes. Amendments Nos. 12 and 14, tabled by the noble Earl, concern the provision of statements to agreements of less than one year’s duration. Amendment No. 13, tabled by the noble Lord, Lord Razzall, concerns the electronic provision of statements and Amendments Nos. 15 and 16, also tabled by the noble Lord, Lord Razzall, concern the penalties that apply to a failure to provide statements. The noble Earl, Lord Mar and Kellie, has emphasised an important issue by tabling his amendment. Consumers are entitled to be kept informed about their credit situation and the level of their indebtedness. The amendment provides that debtors will receive clear and concise information about their fixed-sum credit agreements on a regular basis. I will explain what we are seeking to achieve with Clause 6 of the Bill. It inserts a new Section 77A into the Consumer Credit Act 1974 which requires creditors to provide debtors with annual statements in respect of fixed-sum credit agreements that have a duration of more than one year—that is agreements that carry on for more than one year, rather than those that have a term of more than one year specified in the contract. A fixed-sum credit agreement arises where a single amount of credit is repayable, usually over a fixed-term in regular instalments. Subsection (1) states that a creditor must provide a debtor with annual statements. The first statement must be provided within one year after the day on which the agreement was made. Subsequent statements must be provided at intervals of no more than one year after the previous statement was issued. It does not necessarily require statements to be issued on the anniversary of the agreement first being made, but permits the lender the flexibility to determine the date during the year that it will issue the statement. The Secretary of State will specify the form and content of annual statements in regulations to be made under the new subsection (2). These requirements will be consulted upon once the Bill becomes law. The new subsection (3) states that a creditor cannot impose a charge on the debtor for the cost of producing an annual statement. The new subsection (4) states that a creditor is not obliged to provide annual statements after the debtor has made his final payment. The obligation to provide a statement is intended to be self-enforcing. New Sections 77A (5) and (6) state that where a creditor does not give the debtor an annual statement when required, the creditor is not entitled to enforce the agreement until a statement is provided; the creditor cannot charge interest during the time when no statement has been provided; and the debtor is not liable to pay any default sum that would have been payable during the period when the statement should have been provided or refers to a breach of the agreement which occurred during that period. The default sum is defined by Clause 18 and includes any sum, except interest which will become payable by the debtor in connection with a breach of the agreement, such as a late payment charge. New subsection (7) defines the period of non-compliance which is the period from the day after the last day on which the statement is required until the end of the day when the creditor provides the statement. New subsection (8) makes it clear that the requirement for annual statements does not apply to non-commercial agreements—that is agreements that are not made by the creditor in the course of business—or to small agreements of £50 or less. Debtors should be regularly informed of their financial situation, and this clause ensures that they are. I turn to Amendment Nos. 12 and 14, tabled by the noble Earl, Lord Mar and Kellie, which form the first category of amendments in this group that I shall address. The Government have considered providing consumers with clear and relevant information in some detail. However, this is an area where we need to strike a balance between providing information to debtors and imposing requirements on lenders. The Government believe that in Clause 6 we have found a balance between those concerns and the practical issues associated with providing the required information. Agreements for periods of less than one year are generally for smaller amounts of money and are unsecured. Consumers with such agreements often use credit products that provide information about the loan in the form of account books which the consumer retains. I turn to the question raised about some of the bookkeeping being illegible. The OFT is an independent regulator, constituted under the Enterprise Act 2002. As such, I cannot commit the OFT to a position on the manner in which it would conduct its regulatory functions. There are also other transparency requirements intended to protect the debtor at key points—arrears and defaults—to ensure that potentially serious problems may be highlighted early and sorted out. In relation to larger loans over longer periods, a particular problem is that in many cases no information is provided. However, we recognise that all borrowers should receive information that they need at critical points when they are at risk of problems. For that reason, we shall require in the Bill that all lenders give consumers early information about arrears and default sums. As I said before, the Government believe that this policy recognises a balance between providing information and the administrative burden on lenders. The amendment tabled by the noble Earl would require lenders to repeat a lot of information that consumers already have in a different form. It would also require lenders, many of whom are at the smaller end of the scale in terms of business size, to issue statements at a specific time in relation to each agreement. For many lenders who have many loans of different durations, such an exercise could be complex. It could pose difficulties for small lenders with limited administrative resources, which are particularly common in this sector. Perhaps I can emphasise that point. The noble Earl wondered whether there would be a real difference in administration. If one envisages someone wishing to send out annual statements and doing so by reference to predetermined fixed dates for which their systems are geared up, if those systems then had to be tailored to each specific loan under this proposal, it would create a situation of quite a different scale. Imposing that kind of burden could limit the range of products available to consumers by decreasing the flexibility of products on offer and increasing their price, which could disadvantage those consumers who seek short-term credit. Lenders whose agreements last for more than one year will be required to provide annual statements. While the Government agree with the noble Earl that lenders should be transparent in all their dealings with consumers, the Government do not believe that this proposal balances the interests of consumers in receiving information with the potentially considerable administrative burden on lenders that this proposal would create. On Amendment No. 13, tabled by the noble Lord, Lord Razzall, the Government understand the sentiment behind it and are keen to facilitate the information to consumers in the most appropriate and practical manner. However, the noble Lord’s amendment is unnecessary. My honourable friend the Parliamentary Under-Secretary of State made reference to this point in Standing Committee in the other place and explained that Amendment No. 13 is unnecessary because the Bill, and the current provisions in the CCA, do not prevent the statement being sent electronically and, in fact, facilitate electronic communications between debtors and creditors. New Section 77A (1) states that the creditor shall give the debtor the statement. ““Give”” is defined in Section 189 of the CCA as,"““deliver or send by an appropriate method to””," and would, therefore, cover an electronic communication. The Consumer Credit Act 1974 (Electronic Communications) Order 2004 amended the definition of ““give”” to ensure that it covered electronic communications such as e-mails. The form of any statement under new Section 77A will be specified in regulations. Any regulations that are made under new Section 77A(2) will obviously be drafted in a manner consistent with Section 77A(1) and will not preclude the use of e-mail. Section 176A of the CCA also provides that the person to whom a document is being sent electronically must agree to it being sent to a particular electronic address and in a particular electronic form. The last category of amendments contained in this group concerns the penalties that apply to creditors who fail to provide statements as required under new Section 77A. The noble Lord, Lord Razzall, proposes in his Amendments Nos. 15 and 16 to allow the Secretary of State, by order, to specify the degree to which the debtor is liable to repay any interest in circumstances where the creditor has failed to provide a statement in accordance with new Section 77A. It may assist the Committee if I explain the manner in which the sanction for non-compliance with the obligation to provide annual statements works. The obligation to provide a statement is intended to be self-enforcing. New Sections 77A (5) and (6) state that where a creditor does not give the debtor an annual statement when required: the creditor is not entitled to enforce the agreement until a statement is provided; the creditor cannot charge interest which relates to the period during which the required statement has not been provided—I understand that in certain circumstances that might be quite a complex calculation, but the principle is very clear; and the debtor is not liable to pay any default sum that would have been payable during the period when the statement should have been provided. A creditor either provides a statement in accordance with the section, or he does not. The Government’s view is that there should be clear sanction for that failure to comply with the law. The clause as drafted provides that. There should also be one sanction. The Government do not believe that it can be argued that some debtors ought to be treated differently because of some difference in their situations or their agreements. Nor do the Government believe that the sanction should be diluted. Lenders will be required to provide statements. If they fail to do so, they should suffer a penalty. There is no scope for half-measures—the statement must be provided as required. It is the Government’s view that the penalty should be one which strikes most directly at the creditor’s failure to provide the statement—by removing the interest owing under the agreement—and provides real encouragement to compliance. Noble Lords will appreciate that creditors do not have to incur these sanctions; they simply need to comply with new Section 77A. I hope that I have explained to noble Lords why these amendments are problematic for the Government. While our commitment to transparency is a strong one—as shown by the penalties included in the Bill for non-compliance—we are also very conscious of the need to ensure that the obligations are not unduly onerous for business. Accordingly, I ask that noble Lords withdraw their amendments.