Consumer Credit Bill

The examples given by the noble Baroness are all regrettable. The Government are working to ensure responsible lending. We believe that these issues are capable of being dealt with in the unfair relationship test that we are introducing and with the improved Office of Fair Trading powers. We are coming at the issue in what we believe is a practical and sensible way. The amendment tabled by my noble friend Lord Borrie concerns the guidance on fitness to be issued by the Office of Fair Trading in relation to its licensing function. This guidance will provide lenders with information as to those matters that, in the opinion of the OFT as a licensing authority, might indicate a lack of fitness to hold a consumer credit licence. My noble friend Lord Borrie also raised the issue of responsible lending and suggested that the OFT be required to specify a duty to lend responsibly in this guidance. Before I address the issue of responsible lending I shall, for the benefit of noble Lords, set out the intended function of the OFT’s guidance on fitness to hold a licence under the Act. The OFT, in its function as the regulator responsible for the Consumer Credit Act, has certain functions in relation to the regulation of the activities of businesses holding licences to conduct a business that either provides consumer credit, consumer hire or some related services. Key to this function is the issuing of licences. In order to hold a licence under the Act, a business is required to be ““fit””. As part of its function as the licensing authority, the OFT may issue guidance to businesses to assist them in their compliance with the requirements of the Act or to assist them in knowing what types of conduct might mean that they will be considered to be unfit to hold a licence. The OFT can look at any evidence of irresponsible lending when assessing a lender’s fitness to hold a consumer credit licence. The draft OFT guidance on fitness states:"““Fitness takes into consideration any matter which may have a bearing on your ability to deal with consumers, including credit competence and evidence of trading practices.””" Accordingly, it is generally the case that guidance takes a negative form. It tells affected persons what types of conduct might expose them to OFT enforcement action or to being denied a licence. The Government believe that all lenders should behave responsibly when lending. The manner in which they do is a matter for them to determine, depending on the circumstances of the debtor and the nature of the transaction. But the Bill does not include a specific duty to do so, as it is implicit in both the unfair relationships and fitness tests. For many, ““responsible lending”” imposes a requirement that lenders do certain, specific things before extending credit. But this approach does not take into account the debtor’s particular circumstances, nor does it accommodate the many different ways in which credit can be provided. Any duty to lend responsibly would lead to pressure to compile a list of what is and is not responsible lending. Given the ways in which lending can be undertaken, this could potentially be a complex exercise. Such a list would not be enough. It would encourage lenders to think that as long as they have complied with the list, they have lent responsibly. But that cannot be so in all cases. Therefore, the Government’s position is that it is inappropriate to require OFT to include a specific positive duty to do something. As we believe that a duty to lend responsibly is a core theme of the Bill, we do not believe that requiring the OFT to include it specifically in its guidance, with the almost inevitable list of what is or is not responsible lending, would be helpful, leading, as we believe it would, to a tick-box culture where businesses claim fairness and fitness simply because they have ticked all the boxes on the list. The Government are keen to encourage responsible lending and believe that the Bill will do that. I hope that in the light of this explanation the noble Baroness will feel able to withdraw the amendment.