Consumer Credit Bill

Amendments Nos. 18 and 20 concern issues of transparency. I will deal with each of the amendments in turn. Amendment No. 18, moved by the noble Lord, Lord Razzall, is concerned with the information that consumers need to make informed decisions about credit products. Transparency of information for the consumer has been at the heart of the Government’s approach to consumer credit reforms. New regulations are already in force, which require consumers to be given pre-contract information about the key features of credit products. That will help consumers to shop around for better credit products and will serve to increase competition in the UK. The Government have also revised the regulations on the form and content of credit agreements. These prescribe equal prominence throughout the credit agreement, so that lenders can no longer hide details away in small print. They also provide that certain key information about the agreement is included up-front. The noble Lord’s amendment is more concerned with post-contract transparency. The 1974 Act has limited requirements dealing with post-contract information. Those are primarily limited to information about running account credit agreements and, more generally, situations of default. The Bill will address that significant deficit in information provided to consumers. As Members of the Committee will know, the Bill includes provisions requiring lenders to provide more information to debtors during the life of the loan. The Committee will know that a lack of information can cause serious problems. All too often debtors do not know their true debt position and that, in turn, can lead to a significant increase in the amount owing. The new information requirements will mean that debtors receive, where appropriate, regular information about the state of their credit account; arrears; default sums; whether they are incurring interest on judgment debts and how much interest they have incurred; and how to deal with debt management problems. Many lenders already provide much of that information, but we want to ensure that all lenders provide clear, concise information to consumers. We will consult on the content of new information requirements and the form in which it should be provided, which will be implemented through secondary legislation. Turning to the specific purpose of the noble Lord’s amendment, I draw the attention of Members of the Committee to Section 78(4) of the 1974 Act and to the Consumer Credit (Running Account Credit Information) Regulations 1983, made under that provision. Section 78(4) requires lenders to provide debtors with regular statements about a running account credit agreement, including prescribed information about the state of the account. The information prescribed in the 1983 regulations includes, among other things, the amount of any interest payable by them and applied to the account during the period to which the statement relates. The regulations further provide that, where the statement shows that interest has been applied to the account during the period to which the statement relates, the debtor shall be given sufficient information to be able to check the calculation of the amount of the interest that has been applied; or a statement concerning the rate of interest which has been used to calculate the amount of the interest so applied; or a statement that the rate of interest which has been used to calculate the amount of the interest so applied will be provided by the creditor on request, together with a clear explanation of the manner in which the amount of the interest so applied has been calculated. In setting out additional information requirements under the Bill, we need to strike a balance between what is reasonable for the lender to provide and what information will be of most benefit to the consumer. We need to bear in mind information requirements that already exist. While the Government agree with the noble Lord that lenders should be transparent in all their dealings with consumers, they do not believe that this proposal would provide consumers with any additional information rights as compared with those that already exist under the running account regulations. Amendment No. 20, which was tabled by the noble Lord, Lord De Mauley, seeks to do two things. First, it seeks to provide that the Secretary of State shall be empowered to specify in regulations the method in which an annualised percentage rate must be calculated. It also provides that if the rate is not so calculated, the credit relationship that it relates to shall be ““deemed”” to be an unfair one. That there should be a standard method by which annualised percentage rates are calculated is an important and necessary measure, and it is something that the Government have done. I draw the attention of the Committee to Section 20 of the 1974 Act, which provides that the Secretary of State may make regulations,"““for determining the true cost to the debtor of the credit provided . . . under an actual or prospective consumer credit agreement””." It also permits the Minister to prescribe what may be taken into account when making that calculation, and what method should be used when making the calculation. Members of the Committee will understand that the Minister has the power to specify in regulations the method by which the total charge for credit—the presently accepted method of which is the annualised percentage rate or APR—may be calculated. Thus subsection (1) in the amendment is not needed. The Minister has exercised that power through the Consumer Credit (Total Charge for Credit) Regulations—they were amended in 1999 after extensive public consultation—to standardise the manner in which APRs are calculated. In addition, in 2004 new rules were introduced in relation to the way in which APRs are to be used in advertising and other pre-contract disclosure. The second point on Amendment No. 20 relates to the provisions on unfair relationships, which we shall discuss later in more detail. The Government’s position is that an unfair relationship cannot be defined in every circumstance as simply being the presence of one thing. The provisions in the Bill are designed to provide consumers with a means to obtain redress in relationships that are unfair. Whether a relationship between a creditor and a debtor is unfair will depend on the circumstances of the individual case. The point that the amendment seeks to make is that, if an APR is not calculated or disclosed in the specified manner, the relationship will automatically be deemed unfair. That cannot be right. The APR may not be disclosed properly, but that may not disadvantage the debtor—indeed, it could be to his advantage. The arbitrary approach adopted by the amendment would simply deem such conduct to amount to an unfair relationship, even when there was no unfairness. The amendment proposes that a procedural issue should, in effect, conclusively define whether the substance of the relationship is unfair. The test is about permitting the court to examine the substance of the relationship and not just its form. It is general because there are many ways in which unfair relationships can manifest, and we want the courts to have a test that is flexible enough to tackle them. The amendment also seeks to deploy the provisions on unfair relationships as a specific sanction for non-compliance with a part of the Act. The 1974 Act already sets out penalties flowing from a failure to comply with the requirements on the total charge for credit. Those penalties are appropriate to the particular non-compliance with the Act. It may be that not complying with the Act’s requirements about APRs is relevant to the question of whether there is an unfair relationship, but it is not and cannot be determinative. The standard calculation of APRs is important, as recognised in powers given to the Minister in Section 20 of the 1974 Act. But the amendments are either not necessary or impose inappropriate sanctions for a failure to comply with the Act’s requirements. Accordingly, I ask that the noble Lord withdraw his amendment. There was particular comment about what had been prescribed in the way in which APRs are calculated. The Government believe that businesses should be able to determine the manner in which interest is applied to accounts, otherwise businesses would lose an important element of product differentiation. I hope that that will satisfy the Committee. In relation to some of the specifics of the APR calculations, if Members of the Committee were happy to send us some examples we could have a chance to look at them.