Consumer Credit Bill

My Lords, the amendment tabled by the noble Lord, Lord Razzall, concerns guidance on fitness to be issued by the Office of Fair Trading in relation to its licensing function. This amendment is the same as that tabled by my noble friend Lord Borrie in Grand Committee, which, due to my noble friend unfortunately being ill at that time, was spoken to by the noble Baroness, Lady Howe of Idlicote. The OFT’s guidance will provide lenders with information on 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. The noble Lord, Lord Razzall, has suggested in his amendment that the issue of responsible lending should be covered by this guidance through an explicit duty to lend responsibly. I explained the purpose of the OFT’s fitness guidance in some detail in Grand Committee. I shall not repeat what I said, other than that the OFT, as a licensing authority, issues licences to businesses which are fit to conduct consumer credit or related business. 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 the guidance will take a negative form because it tells affected persons what types of conduct might expose them to OFT enforcement action or to being denied a licence. As I explained in Grand Committee, and in relation to Amendment No. 5 today, the Government believe that all lenders should behave responsibly when lending. However, they do not believe that the way to encourage this is through the setting of inflexible procedural rules. A positive duty to lend responsibly may, considered in isolation, appear attractive. However, by imposing such a positive duty, the consequence is that the guidance will need to provide lenders with sufficient information to comply with that positive duty. That would involve the compilation of a list of rules of what is and is not responsible lending. Given the many different ways in which lending can be undertaken, this could be a potentially complex and open-ended exercise. Such a list would also 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. It would be inappropriate to require the OFT to include a specific positive duty to do something in guidance with no detail to back it up, and the Government do not accept that such an approach is valid. It would encourage a tick-box culture where businesses would claim both responsibility and fitness in lending simply because they tick all the boxes on the list. We want to encourage responsible lending. But we do not believe that the way to do this would be to include an unhelpful duty in the legislation or in guidance. We are convinced that it will lead to the development of a multiplicity of procedural rules, which we want to avoid. I think that that is a common theme which is running throughout our approach to this Bill. We want to give flexibility and not get tied down in specific procedural rules which can be used to suggest that unfair practices are fair. I hope that in the light of this explanation the noble Lord will withdraw his amendment.