Consumer Credit Bill

moved Amendment No. 21:"Page 14, line 16, at end insert—" ““(   )   Regulations may make provision indicating the circumstances in which the relationship between the creditor and debtor may be regarded as unfair.”” The noble Baroness said: I shall speak to Amendments Nos. 21, 22, 23 and 24, all of which relate to the concept of unfair relationships between creditors and debtors. The victim of the unfairness is likely only to be the debtor. The clause, in introducing the concept of unfair relationships, is seeking to protect debtors against creditors, who are presumed to be in the stronger position. Clause 19 gives the court power to determine whether, in the circumstances of a case, the relationship between the parties is unfair to the debtor. This principle is found in new Clause 140A(2), which is being added to the 1974 Act. It allows the court to,"““have regard to all matters it thinks relevant””." I should mention in passing that Clause 20, with which this amendment is not concerned, describes the consequences of such a determination of unfairness. Very sensibly, the clause does not attempt to describe all the circumstances in which an agreement could be regarded as unfair. As I have just said, under new subsection (2) that is left to the discretion of the court, depending on the facts of the case. However, despite rightly leaving open the question of what in the abstract is or can be described as unfair, there is no reason why, if we can pinpoint specific instances where something obviously and unarguably is unfair, we should not define it in the Bill. The four amendments to which I am speaking seek to put specific clothes on the general terms of the clause without interfering with the concept of generally leaving matters to the court in all cases. Amendment No. 21 introduces a new subsection which empowers the Secretary of State to make regulations to establish further defined grounds under which an agreement should be deemed unfair. The previous Consumer Credit Bill is, as we all know, more than 30 years old. We do not wish to wait another 30 years to bring the law up to date if, in a world of rapidly changing methods of finance, we cannot readily and rapidly adapt to the new situation or—more likely—to some new scam prejudicing debtors and the public. Any such new regulations provide flexibility but will require parliamentary approval. Amendment No. 22 slightly modifies the discretion given to the court when it decides whether an agreement is fair. In addition to taking into account all matters that it thinks relevant, the court is also to consider whether the part of the agreement that is complained about is in plain, intelligible language. It will still be up to the court to decide, in its complete discretion, what is clear and intelligible. Amendment No. 23 follows from that. It provides that if the court decides that the language of the agreement is clear and intelligible to the debtor, the onus of providing that the agreement is unfair is shifted to the debtor instead of the creditor having to prove that it is fair. That brings me to the main part of my amendment to Clause 19. The amendment introduces a new section to the 1974 Act, which my marginal note describes as ““the duty of creditors””. In essence, the duty it imposes on creditors is the simple, sensible and appropriate one of requiring creditors to make inquiries about the ability of the debtor to pay before granting credit or an increase in credit. At Second Reading, I reminded your Lordships of the notorious Meadows case where an original liability of just £5,750 ballooned to a staggering £384,000. The court used judicial ingenuity to cancel that debt. I also referred to the case of a student, Rose Heiney, who was approved for her third gold card in two months, which had a credit limit of £6,000 and drawing facilities of £500 per day in cash. For practical and commercial reasons I have provided for some obvious exceptions from this rule of checking the debtor’s ability to pay. They are: clearing banks; mortgages to building societies and similar organisations; hire-purchase agreements involving less than £1,000, which the Secretary of State can increase from time to time with inflation; and any financial organisation granted special exemption by the OFT, which will cover, for example, reputable overseas banks, pawnbrokers and loans by individuals. I must tell your Lordships that one credit card company complained to me that exempting clearing banks was an unfair advantage. It also told me that it invariability made full inquiries before issuing a card and setting limits. I thought, ““Good for them, but what’s their problem?””. Any reputable organisation not being one of those I have suggested should automatically be exempted. It can apply to the OFT for exemption under proposed new subsection (2)(d). I do not think that I said that very well, but I was trying to say that if there was a company that I had not mentioned as an exemption, it could apply. Even where there is no exemption from the section, either automatically or by licence from the OFT, complying with the provisions of this new clause is not onerous. Proposed new subsection (5) requires the potential creditor to make only,"““such enquiries as may be reasonable and available””." The provision goes even further to modify the creditor’s obligation to make enquiries. He is allowed to rely on any written statements of the debtor that are not manifestly incorrect or improbable. On the other hand, it will be of no use for a creditor to accept without proof—as happened in the Rose Heiney case—that a student living in digs is in receipt of an annual income of tens of thousands of pounds a year or possesses assets worth millions of pounds. To facilitate the checking of information provided by a potential debtor, subsection (6) allows the Data Protection Registrar to allow the exchange of information between creditors on the credit history of a particular applicant. The sanction for non-compliance with this section—the failure to check the credit worthiness of the potential debtor—is that the transaction shall then be presumed to be unfair. However, even that sanction is modified in the creditor’s favour since the section allows the presumption to be contravened in appropriate cases. I beg to move.