Consumer Credit Bill

moved Amendment No. 5:"Page 14, line 29, at end insert—" ““140AA   DUTY OF CREDITORS (1)   Except as provided in subsections (2) and (3), this section relates to any credit agreement governed by this Act. (2)   Before opening an account or entering into a credit agreement including— (a)   the increase or extension of any existing agreement; (b)   the original issue of a credit card (but not its renewal); or (c)   the increase of any credit limit on a credit card, it shall be the duty of the creditor to ascertain the ability of the intended debtor as at that date to meet his obligations thereunder, taking into account any other actual (but not contingent) obligations he may have. (3)   A creditor shall be deemed to have satisfied his obligations under subsection (2) if prior to making the agreement he has made such enquiries as may be reasonable and available in the circumstances. (4)   The Data Protection Registrar may make and from time to time amend such rules as he deems appropriate to enable or facilitate the provision or exchange of information by or between creditors and potential creditors in relation to an intended new credit agreement or an extension or increase of an existing agreement. (5)   In the event of the failure of a creditor to comply with the provisions of this section, any resulting agreement shall be presumed to have been entered into as a consequence of an ““unfair relationship”” within the meaning of section 140A, but such presumption may be controverted in appropriate cases.”””” The noble Baroness said: My Lords, this amendment is similar to one that I tabled in Committee. In simple terms, it places an obligation on creditors whose activities are governed by the Act to ensure that the proposed debtor has the means to meet the obligations he is taking on. In Committee, I could not press it and, in any event, I wanted to consider the objection that the Minister had to my original amendment. Our Chief Whip has just told me—in our little chat a moment ago, when I nearly missed saying ““not moved”” on Amendment No. 4—that although we thought that the prohibition against voting tonight would end at 7.10 pm, when the photograph was to be complete, so many noble Lords are going out to have dinner that he has agreed with the noble Lord, Lord Grocott, that we shall not vote for the rest of the evening. Under these circumstances, we reserve our position on all the amendments because, if we do not, and we cannot bring them back at Third Reading, we will not have been able to vote on them anywhere: not in Grand Committee, not on Report and, as is the custom, not on more than one of them at Third Reading. I hope the Minister will be gratified to note that I have taken his specific objection fully into account and have modified my amendment in the light of his comments. Originally, I suggested exempting clearing banks, building societies and housing associations, small hire-purchase agreements and loans by individuals or pawnbrokers. However, the Minister complained that that would create,"““categories of lenders who might be regarded as ‘good’ and . . . those . . . who are ‘not so good’””.—[Official Report, 8/11/05; col. GC163.]" Well, far be it from me to be so judgmental. I came to the conclusion that I could accommodate his objection, not because I agreed with it, but by tarring all creditors with the same brush, as the Government desire. This is because I believe that the type of creditor whom I wanted to exempt from the not-very-onerous provisions of the new clause was following that desirable, indeed, essential practice in any case. The amendment introduces a new Section in the 1974 Act that 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 them to make inquiries about the ability of a debtor to pay before granting any credit or increase in credit. At Second Reading, and in Grand Committee, I reminded your Lordships of the notorious Meadows case, where an original liability of just £5,750 ballooned to a staggering £384,000 and the court used judicial ingenuity to cancel the debt. I also referred to the case of a student, Rose Heiney, who was approved for her third gold card in two months, with a credit limit of £6,000 and drawing facilities of £500 in cash every day. Several times a day, advertisements appear on the television offering credit facilities to people notwithstanding their poor credit rating or them being subject to county court judgments. Subsection (3) of the amendment requires the potential creditor to make only,"““such enquiries as may be reasonable and available””." The subsection 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 that a student living in digs is in receipt of an annual income of tens of thousands of pounds a year or possesses assets of millions. 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 about the credit history of an applicant. The sanction for non-compliance with this section, that is, failure to check the creditworthiness of the potential debtor, is to be found in the proposed new section 140A. Under new section 140A(1)(c), the court is to have the power to rule that a transaction shall be presumed to be unfair because of:"““any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement . . . )””." One of the things that would not have been done would have been to make adequate enquiries about the debtor’s ability to pay. Adequate in this case means taking into account the very moderate and simple enquiries that proposed subsection (3) of this amendment requires. New Clause 140A gives the court very wide discretion to decide whether a relationship is unfair. Subsection (1) begins by stating that the court ““may”” make an order. Subsection (2) states that,"““the court shall have regard to all matters it thinks relevant””." The proposed new Clause 140AA is a necessary adjunct to new Clause 140A because it will concentrate the court’s mind on the question of responsible lending. I hope it will also, when spelled out in black and white, concentrate the minds of those creditors who do not adequately take into account the debtor’s ability to pay. I hope that the Minister will now agree that I have accommodated his one and only objection to the amendment as previously drafted—at least, it was the only objection that he raised at the time—and will now accept it as a useful strengthening of the Act by protecting potentially vulnerable debtors without adding one iota of burden to those creditors who already act responsibly. I beg to move.