Consumer Credit Bill

My Lords, the noble   Baroness, Lady Miller, and the noble Lord, Lord De Mauley, have tabled Amendment No. 5 in relation to the unfair relationships test in Clause 19, which provides for what is, in effect, a responsible lending duty. I am delighted that the noble Baroness has accommodated one of my objections, but I am afraid that it does not go to what seems to me to be the heart of the Government’s objection to this. Before going into those details perhaps I may say that all the examples that the noble Baroness gives of what appear to be unfair relationships are exactly the issues that we want the court to consider. Where we part company is that we believe that an extremely complex and difficult issue of trying to pin down exactly what these unfair relationships are is likely to get us into far more difficulty; and of course it has the real danger of excluding the next lot of malpractices that lenders come up with. We want to keep the flexibility so that we can attack, if necessary, the new unfair practices that arise and do not get into the situation of saying that a particular practice is unfair in all circumstances, because in some cases it will not be. Amendment No. 5 seeks to introduce a duty on lenders to lend responsibly by requiring them to do certain things before offering credit and providing that a failure to comply with those procedural requirements creates an ““unfair relationship””. I dealt with the Government’s position on responsible lending duties in Grand Committee, both in relation to the amendment previously tabled by the noble Baroness and also the amendment previously tabled in Grand Committee by my noble friend Lord Borrie and now re-tabled by the noble Lord, Lord Razzall, as Amendment No. 8. The Government believe that all lenders should lend responsibly. The manner in which they do so will depend on the needs of the customers they serve. For this reason we do not think that a specific duty with rigid procedural rules, of the type set out in this amendment, is necessary or appropriate. Nor do we believe that there is a need for a general duty on the face of the legislation. To adopt an approach requiring lenders to comply with a positive duty would demand definition of what is required of them. As I explained, we do not think that that would work. Amendment No. 5 attempts to address this problem by linking the applicability of the unfair relationships test to the issue of the lender making inquiries about a debtor’s ability to repay. The Government believe that that is only one of many relevant factors, and that that is all it can and should be. The amendment seeks to elevate this issue above others in determining the existence of unfair relationships, and the Government do not believe that that is appropriate. The Government want to encourage responsible lending, and I believe that the Bill will do that. But they do not believe that this approach, with its propensity to lead to a multiplication of procedural rules for lenders, is the most effective way of ensuring that. The Bill is about balancing the interests of lenders with those of consumers. The Government believe that responsible lending comes with a proper recognition of risk, which is provided by the Bill through improved consumer rights and redress and enhanced OFT powers. I hope that, in the light of this explanation, the noble Baroness will withdraw the amendment.