Consumer Credit Bill

My Lords, I thank noble Lords who have participated in this debate. I know that concerns have been expressed about the way in which the OFT might discharge its duties under the legislation and that the noble Lord, Lord de Mauley, has had an exchange of correspondence with my noble friend Lord Sainsbury. That correspondence has been placed in the Library of the House. I am aware that this exchange will be reiterating stated positions, but it is important that we get them on the record. I am sorry that our response is likely to disappoint the noble Lord. I will address the arguments set out in the letter from my noble friend Lord Sainsbury and emphasise, for the benefit of noble Lords, why this amendment is unnecessary. The concept that the noble Lord has placed at the centre of the amendment, that of general duties for the OFT, seems to be drawn from Section 2 of the Financial Services and Markets Act 2000, which sets out the regulatory objectives of the Financial Services Authority. That suggests—it was indicated in the way the amendment was moved—that the noble Lord considers that the two bodies share a common regulatory outlook and approach in addition to having similar functions. They do not. Parliament, through the Financial Services and Markets Act 2000 and the Enterprise Act 2002, has deliberately and clearly made the OFT and FSA very different organisations in terms of structural organisation, function and regulatory approach. The FSA has extensive rule-making powers, which are not subject to parliamentary oversight. The only requirement is that FSA must immediately provide the Treasury with a copy of the rules once made. That approach is very different from the way in which consumer credit is handled under the Consumer Credit Act 1974 and in this Bill. Detailed rules relating to consumer credit are made by secondary legislation, which, as the noble Lord knows, is subject to parliamentary scrutiny. All that the OFT can do is provide guidance about the manner in which it will administer its functions under the Act. In that sense, OFT guidance defines the ability of the OFT to act in certain circumstances. Where we believe that the OFT’s powers could impose burdens on business, such as in setting fees and penalties, the OFT is required to gain the approval of both DTI and Treasury Ministers, who are answerable to Parliament for their decisions, before publication, which again is not necessary in the case of the FSA. The OFT’s functions under the Consumer Credit Act 1974, both as it is now and as extended by the Bill, generally relate to the licensing of businesses as being fit to engage in a licensable activity under the Act. There are, however, various other pieces of legislation—the main ones are the Enterprise Act 2002, the Competition Act 1998 and the Consumer Credit Act 1974—through which the OFT enforces both consumer and competition legislation as well as undertaking various market initiatives. The OFT’s task is to pull all its roles, which are set out in that legislation, into a coherent whole, and its published goal is,"““to make markets work well for consumers. Markets work well when there is vigorous competition . . . When markets work well, good businesses flourish””." The FSA’s regulatory objectives go well beyond licensing and embrace the conduct of regulated businesses in accordance with certain principles defined by the FSA after proper consultation. Moreover, Parliament has determined that this broader role should be qualified by reference to certain general objectives in the Financial Services and Markets Act 2000. I therefore do not believe that the FSA’s regulatory objectives, with specific reference to consumer credit, provide a precedent for the OFT’s activities under this Act, and I hope that this summary of the difference between the two helps to support my resistance to the amendment. I shall now discuss the individual elements of the noble Lord’s amendment, the first of which is consumer protection. The whole purpose of the Consumer Credit Act 1974 and this Bill is to ensure that the OFT protects consumers. The preamble to the 1974 Act states this, and it is the purpose behind the bulk of the provisions of the Act and the Bill. The licensing system is ultimately there to protect consumers by ensuring that a licensee is fit, both before a licence is granted and throughout the lifetime of the licence. Other new powers in the Bill are also designed as consumer protection measures; my noble friend Lord Borrie made that point with some force. I listened carefully to the noble Lord, but it is still not clear to me what else he thinks the OFT should be doing or would do differently, or what else it should be expected to do if a specific objective on consumer protection were added to the Bill. We have not heard anything about that. The second element of the noble Lord’s amendment relates to the maintenance of a competitive market and the promotion of an efficient and innovative consumer credit industry. As I have already said, the OFT’s specific role in consumer credit is primarily limited to licensing, which is a consumer protection measure. We do not believe that the fitness test is broad enough to accommodate considerations of the level of competition in the market or in a market sector, or the promotion of an efficient and innovative industry. Nor do we believe that it would be appropriate in this context. Indeed, we believe that it could even be positively harmful in some circumstances. For instance, we would not want to create a situation—one might call it a balance—where the OFT might grant a licence to a less fit person because it might be desirable to have more of a certain type of business in the market. Nor would we want competition issues to be a factor in applying requirements because the Consumer Credit Act 1974 is not the appropriate way in which to deal with such issues. As I have already mentioned, the OFT already has powers under the Enterprise Act 2002 and the Competition Act 1998 to deal with anti-competitive behaviour across all sectors. It does not need additional requirements linked specifically to its functions under the Consumer Credit Act 1974. In fact, it is clear that the OFT already considers competition issues in the consumer credit market as part of its wider role. In fairly recent times, the OFT has referred both the store card and the home credit markets to the Competition Commission, as well as considering the sale of payment protection insurance. I still believe that what is already set out in the Bill is more than sufficient a safeguard, given that the OFT is also subject to the usual range of accountability measures—a point which the noble Lord, Lord Razzall, stressed—such as NAO scrutiny and appearances before House Committees. OFT decisions can also be subject to judicial review. In previous debates, the noble Lord has suggested that this should be used only as a last resort, and I agree. However, the fact remains that the sanction is there and could be used if necessary. To conclude, the amendment is unnecessary and could cause problems because the duties for which it provides are of a general nature. If noble Lords believe such duties are necessary, they may feel that they should be contained in the Enterprise Act, which deals with the OFT as a whole. It is not appropriate, in our view, that such general duties should be included in legislation that deals with only one part of the OFT’s responsibilities. The point on competition is particularly inappropriate because the OFT’s duties under the Consumer Credit Act are primarily to do with licensing, and it should not apply competition criteria to individual licensing decisions. This does not, of course, prevent the OFT applying its powers under the Enterprise Act and Competition Act to the consumer credit market generally. I hope this explanation will allow the noble Lord to withdraw the amendment.