Perhaps the hon. Gentleman would like to speak to the hon. Member for North Swindon (Justin Tomlinson) about that. He raises a very important point: the more we can help young people to understand some of these complex financial systems and how to manage money, hopefully, fewer people will end up in debt—particularly unaffordable debt—in the future.
Returning to the FCA rules on hire-purchase contracts for household goods and what has been called the “BrightHouse clause,” the FCA’s new rules will require firms to provide pre-contractual explanations
and information in line with European requirements. I hope that answers the point made by a number of Members on both sides of the House. The information will include the cash price of the goods being financed and the total amount payable. The FCA rules will require that information to be provided to consumers before they sign up. I hope that will ensure greater transparency for customers.
The rules also mean that firms have to adhere to debt-collection rules—a point raised by the hon. Member for Makerfield—including treating customers who are in default or arrears with forbearance and due consideration. They also require firms to assess credit worthiness and affordability, including the potential to impact adversely on the consumer’s financial situation and their ability to make repayments as they fall due. There are, therefore, broad requirements on firms to try to tackle some of the hon. Lady’s concerns about consumer detriment.
When firms sell associated insurance products, they must do so in line with the FCA’s requirements for assessing a consumer’s eligibility to claim on a product and the high-level principle of treating customers fairly. Those are new requirements to ensure that we try to tackle consumer detriment. The Government believe that the tough and decisive action taken by the FCA will ensure that customers are better protected as a result.
Finally, we discussed the issue of logbook loans at some length in Committee and I completely understand the concern about the potential for consumer detriment as a result of these products. The Government believe that people should be free to borrow and have the tools to make an informed decision about which credit product is right for them, but consumers should be confident that they will be treated fairly and that the regulator will step in when things go wrong.
As the hon. Member for Walthamstow will be aware, logbook lenders now also fall under the responsibility of the FCA. As I have said with regard to other credit firms, I believe that consumers will be far better protected under the FCA regime than they have been in the past. The FCA has been very clear that logbook lenders are among the firms that it considers pose the greatest risk to consumers, and they will be in the first phase of firms that have to be fully authorised from October. Logbook loans are defined by the FCA as higher risk activities and, as such, lenders face closer supervision and higher regulatory costs.
Logbook loan providers are now also required to meet the standards the FCA expects of lenders in making thorough affordability checks and providing the adequate pre-contractual explanations to consumers. They are also subject to the high-level principle of treating customers fairly. Indeed, the FCA considers this area to be a particular concern. It has said that it is
“putting logbook lenders on notice”,
and that its new rules give it
“the power to tackle any firm found not putting customers’ interests first.”
It is therefore taking its new responsibilities very seriously.
In addition to the FCA’s robust action, Treasury Ministers have asked the Law Commission to look at how best to reform the Bills of Sale Act—as we know,
the legislation underpinning logbook loans is old, lengthy and incredibly complex—and, as the hon. Member for Gainsborough (Sir Edward Leigh) highlighted, the Government believe that the Law Commission is best placed to undertake a thorough assessment of how we can bring the legislation up to date. It has responded favourably to the Treasury request, and it will confirm its upcoming work programme soon.
The hon. Member for Walthamstow raised concerns about people buying cars with outstanding loans against them and about the impact on customers. She said that a large proportion of second-hand cars are sold with pre-existing charges. The Bill, like the existing law, is clear that there is a legal obligation on the seller to notify the buyer of any outstanding charges. The Bill covers business-to-consumer sales, and sales between individual consumers have the same level of protection under the Sale of Goods Act 1979, which provides that the seller must have the right to sell the goods. That applies to all contracts for the sale of goods, so it covers private sales, in addition to purchases of goods from a shop or a business. Goods must be free from any undisclosed charge or encumbrance, which applies to hire-purchase terms for goods sold on, as well as to logbook loans. The private seller is in breach of contract if they do have the right to sell, or if there are undisclosed charges on the goods, which means that the buyer can get their money back from the private seller.
The Government are concerned about the impact of unscrupulous traders in all these areas. That is why we have taken so much action and given such strong powers to the Financial Conduct Authority, and I do not believe that the Opposition’s new clauses are the right way forward. The Government’s approach is the right one for protecting consumers, particularly the most vulnerable, and I hope the hon. Member for Walthamstow will withdraw new clause 6.