Consumer Credit Bill

moved Amendment No. 3A:"Page 14, line 19, at end insert—" ““(   )   Matters which the court thinks relevant under subsection (2) may include— (a)   the personal and financial circumstances of the debtor; (b)   the health of the debtor; (c)   the literacy of the debtor, and the extent to which these matters were taken into account by the creditor.”” The noble Lord said: My Lords, the object of the amendment is to put on the face of the Bill considerations that some noble Lords may have read in a letter from the Zaccheus 2000 Trust in the Independent today. The purpose of the amendment is to inject into the Bill some certainty that the circumstances of vulnerable households will be taken into account when the courts consider a determination on Clause 19, unfair relationships. I move the amendment so that the case I am putting is recorded in Hansard and so should be able to be taken into consideration when the Government come to consider these matters as they have promised to do under a later clause. There have been rich pickings for 30 years despite the law, with legal door-to-door companies such as Provident plc regularly lending £1,000 with £700 interest repayable over a year to unemployed parents who receive income support at levels below the Government’s poverty thresholds. They are in poverty; they are desperate at Christmas time or when buying school clothes, and often have other debts. They turn to any port in a storm, never questioning whether the terms of the loan are unfair. There is no certainty in the Bill that those circumstances will ever be taken into account when courts are determining the meaning of ““unfair relationships””. My amendment requires a court to have regard to the personal and financial circumstances, health and literacy of the borrower, and the extent to which these matters were taken into account by the lender. The Bill requires courts to have regard to all relevant matters. Unfortunately, as noble Lords have said, it is far from clear what a relevant matter may be—a problem which also exists with the concept of extortionate bargains, which the Consumer Credit Bill is set to repeal. There are two different approaches. The court may take a narrow approach on the meaning of ““unfair relationship””, or a wider one. On the narrower approach, the court may consider itself limited to the solely commercial aspects of the loan, such as interest rates, credit charges, the overall amount paid for credit and repayment issues. The bargain may be considered solely in commercial terms, determined by banking and market practice and the terms of the contract itself. The blanket freedom to contract on any terms at common law and the rules of statutory interpretation would be the ultimate fall-back position for lenders and credit brokers, and has the potential to generate much argument. That would undoubtedly be the meaning that the expensive lawyers of the credit industry will maintain was the true intention of Parliament in any test of legislation, unless Parliament is prepared to state otherwise. A wider approach by the court could encompass such things as capacity, bargaining power of the parties, the income, expenditure and debts of the borrower, poverty, age and disability at the time the contract was made, effects on third parties—such as spouses and children—and the extent to which a lender should have taken these into consideration. It might cover the deemed or actual knowledge of the lender. Then the social goals and aims in protecting vulnerable consumers, their families and the consequences of enforcement upon them, would be considered. Few consumers, citizens advice bureaux or local solicitors would be equipped to deal with such arguments in a contested hearing if the court is not required to take them into account. Legal aid is granted on the assumption that there is a chance of winning the case, and is hard to come by under the provisions of the Legal Services Commission. The practical difficulty is that cases involving unfair relationships will vary immensely on the facts. Although terms and conditions may be standardised, the circumstances of each consumer will differ. Which circumstances will be considered relevant? Uncertainty over the scope of the judge’s powers in such a case will mean subjective value judgments and assessments of the consumer will inevitably impinge on the exercise of the court’s discretion. This runs contrary to one of the basic principles in the law of contract: the creation of certainty in business relationships. Coldunell Ltd v Gallon was a Court of Appeal decision on the meaning of extortionate credit bargains. The defendant’s son, a man in his fifties, borrowed money with his elderly parents of 86 and 91 providing security of their home for a short-term loan at 20 per cent interest. The plaintiff’s managing director was aware of the son’s position, but made no enquiries about the position of the parents and instructed solicitors to make arrangements. The parents received no independent advice and signed the contract. The son defaulted after four payments of interest had been made, thus having paid 80 per cent interest on the loan. The plaintiffs sought payment on the loan and the interest or, failing that, possession. The county court discharged the debt, accepting that the signature had been obtained by undue influence from the son, tainting the lender’s transaction. The court further decided that the bargain was not extortionate. At the Court of Appeal, it was held that the bargain was a proper commercial bargain, in which the lenders had acted like ordinary commercial lenders; and that a lender could not be expected to do more than properly and fairly point out to a guarantor the desirability of obtaining independent advice, and to require that the documents be executed in the presence of another. To expect a lender to ensure that the guarantor obtained legal advice, and to guard against the interception of the documents, would have extended the established principles to a dangerous extent that was not warranted. As a consequence, the elderly couple were forced to sell their home. From the way in which the Consumer Credit Bill is currently drafted, one cannot determine whether the facts would be cast as an unfair relationship or not. Working out valid legal principles to determine which matters might be relevant when deciding which contracts should be considered extortionate has proved very difficult, and is likely to be just as difficult in the new test of unfair relationships. If a parliamentary committee drafting the law cannot determine the issue at this stage, can an answer be expected from the county court? Unless Parliament clearly indicates that its intention is to protect people in vulnerable situations, within the legislation, there is every possibility that the legislation may be interpreted in a narrow way, and important considerations overlooked in the operation of the system in the county court. Both the Green and White Papers on the future of civil enforcement express the intention to protect vulnerable people from excessive enforcement. It would be consistent with this aim to make statutory provision enabling a court to identify a party as vulnerable at an early stage, and to take appropriate action. We often include the concept of reasonableness in legislation which passes through your Lordships’ House, and it has not always proved to be enforceable in the courts. There is no certainty in this Bill that vulnerable borrowers will be protected. Likewise, there is no certainty that courts will oblige the Government by filling the legal lacuna of ““unfair relationships”” that has been created in Clause 19. I beg to move.