Consumer Credit Bill

moved Amendment No. 27:"After Clause 22, insert the following new clause—"    ““APPROPRIATION OF PAYMENTS (1)   Any payment made by a credit card or store account debtor in respect of the sum due from him may be appropriated by him at the time of making the payment to any part of that debt, and, in the absence of any such appropriation, it shall be deemed to be appropriated to the debt in the chronological order in which it was incurred. (2)   Every statement of account sent to the debtor shall prominently and in simple language draw the attention of the debtor to the effect of this section.”” The noble Baroness said: This amendment is to ensure that credit card holders have the same rights as regards payments made on their running accounts with their credit card creditors as they would have with their bankers in respect of their current accounts. Let me, with some diffidence in a House whose Members include so many distinguished lawyers, explain in a very brief form what the law is. We are discussing running accounts—where the whole debt is not cleared at any one time, while further debits may be added to it before it is cleared. The debtor has the right to specify when he makes a payment which part of the account—which invoice perhaps—he is paying. If he does not specify which part of the running account he is paying, the creditor has the right to appropriate the payment to any part of the running account that he chooses. That could even be to part of the account that was no longer enforceable because it was statute-barred, or to an unsecured part of the debt where he has security for another part. The creditor also has the advantage of not having to make the appropriation at once, as the debtor does, but he can do it at any time. In the case of banks, however, the rule is modified to the extent that there is a rebuttable presumption that the earliest payments are appropriated to the earliest debits. That presumption is known to every first-year student of the law of contract as the rule in Clayton’s case. Clayton’s case was decided in 1816, almost 190 years ago, and has operated throughout the banking system perfectly satisfactorily ever since. There were, of course, no credit cards in 1819, and some credit card companies are operating their systems to the distinct disadvantage of their customers. The Committee will have noticed that I said some credit card companies; not all of them operate the unfair or undesirable practices that I am about to describe. Some offer to transfer debts owing to other companies at a rate of 0 per cent for a period of, say, six months. However, when the customer incurs further debits on that account, the card company may credit payments to the zero-rated part of the account rather than the interest that is bearing the new debts. Other credit cards have varying rates of interest on differing parts of the account. There may be significant differences between interest charges on purchases of goods and services and cash advances. Some credit card companies can and do appropriate payments on account to the lowest interest-bearing part of the account, to their advantage, and to the disadvantage of the debtor. The noble Lord, Lord Razzall, tabled Amendment No. 17, which had been grouped with this amendment. I would have left it there had I seen that he meant highest, not lowest. When I saw ““lowest””, I thought that I did not want the amendment to be grouped with mine as that was not the way I wanted to go. In operating running accounts, to all intents and purposes, credit card companies are no different from banks operating current accounts. There is no essential difference between a customer signing a debit slip, instructing the credit card company to pay a bill on his behalf, and the same person handing over a cheque drawn directly on his current account. Many, but not all, of the credit card companies are themselves extensions of the business of clearing banks. There is no reason why these quasi-bankers should operate under a different set of rules from what I might call the ““proper banks””. Indeed, if some predictions I have heard are correct, in our increasingly cashless society, and with the advent of electronic banking, banking accounts operated by paper cheques will possibly become obsolete in the future. The effect of this amendment is to place the credit card companies in the same position as banks, which, as I have pointed out, to all intents and purposes they are. The amendment provides that in the absence of any contrary instruction from the customer, the first payment is to be treated as payment of the first debit. The second paragraph of my proposed new clause requires the credit card company prominently to draw the attention of their customer to his right to appropriate any payment on account to any part of his account. This will not need any obscure or legal phraseology, which might be confusing to the customer. It would be sufficient simply to say, ““If you are only paying part of the total account, you have the right to apply it to any of the items with which you have been charged. If you want to exercise this right, say how much and which item here””. I have been told by the representative of one credit card company that this provision would interfere with the automatic payments system they use. I do not accept this as a reason to exempt credit card companies from the rules that apply to other parts of the modern banking system. An optical reading device will soon spot an entry on a bill and flag it up for attention by a real human being, rather than by an impersonal machine. In any case, it is probably true that most credit card debtors will fail to avail themselves of this facility, but then the rule of ““first in, first out”” will apply in the same way as with ordinary bank accounts. The fact is that the right of appropriation probably exists anyway, unless negatived by the minute print of credit card contracts. I thank the noble Lord, Lord Razzall, for supporting this amendment. I hope the Government will accept that this is a provision which not only has cross-party support, but which also provides the same justice to debtors of credit card companies as Clayton’s case has provided to bank customers for almost 190 years. I noticed that when I started this amendment, the noble Lord, Lord Mackenzie, mouthed the words ““Clayton’s case””. I pointed out that this is very much something that first-year students of law would know about, providing they did not, like me, suffer senior moments and forget all about it. I should tell the Minister that, totally aside from the amendment, when we were looking up the matter, I opened a book. On its flyleaf it said that it had been presented to me as head girl of the school in 1950–52. I had written down the right side—and I showed it to my noble friend—all the law cases that I had gone through in the book. I can say honestly and truthfully that Clayton’s case and the other one, Carhill v Carbolic Smoke—the Committee can laugh at that one—stand out as something one never forgets. I beg to move.