My Lords, I turn first to Amendment 10. The Government agree that it is important that when a consumer buys goods they should have confidence that they have free use of them without worrying that someone else has a claim to them. The consumer should always be made aware if someone else has a claim to the goods so that it does not come as a nasty surprise later. While I appreciate that the intention of the amendment is to ensure that this happens, Clause 17(2) already addresses this point appropriately and proportionately.
Clause 17(2) requires the trader to disclose any outstanding claims or charges over the goods. The provision makes it a term of the contract that there are no charges that the consumer was not told about or does not know of. If such charges are not disclosed to the consumer, the trader will have breached the contract and the consumer may claim for damages.
In simple terms, the trader makes a contractual promise that there are no charges or claims over the goods other than those disclosed. If the consumer is unaware that goods are subject to any charge, and the trader has not told them of any charge, they can expect the goods to be free of any charge. They will have protection if this is not so. That protection already exists under the current law and Clause 17(2) retains it. By making this a term of the contract, subsection (2) also provides a means of access to compensation for the consumer.
Clause 17(2) potentially goes further than the amendment in that it requires the trader to disclose all outstanding claims or charges. The amendment would require disclosure only when the claim or charge might impact on the consumer’s enjoyment or use of the goods or cause them financial detriment. I worry that
this could be a potential source of dispute between the consumer and the trader. It is not clear how the consumer could demonstrate that a particular claim should have been expected to impact on their enjoyment or finances. The approach that is already in the Bill in Clause 17(2) is simpler; it is sensible; and it provides stronger protection to the consumer.
I want to respond more specifically on logbook loans, as addressed in Amendments 3, 5 and 56. One market where there are examples of consumers buying goods that have other claims to them is that of logbook loans. Across the Government, we share the Opposition’s concerns about the risks to consumers from such loans. The Government believe that people should be able to borrow and have the tools to make an informed decision about which credit products are right for them, but consumers should be confident that they will be treated fairly when things go wrong.
As the noble Lords will be aware, responsibility for consumer credit regulation, including logbook lenders, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April. Consumers are far better protected under the stronger, well resourced FCA regime. The FCA defines logbook loans as “higher-risk activities” and, as a result, lenders face closer supervision. Moreover, logbook lenders are in the first phase of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and compliance with its rules.
It is important that consumers are aware of their rights before taking out logbook loans. The FCA therefore requires logbook lenders to provide a pre-contractual explanation to borrowers of their rights before any agreement is signed. On the noble Lord’s point about logbook lenders and affordability tests, logbook lenders are required to meet the standards that the FCA expects of lenders, including making affordability checks. These rules are binding, and the FCA can take action where wrongdoing is found.
Logbook lenders are subject also to the FCA’s high-level principles, including the overarching requirement to “treat customers fairly”. The Government have ensured that the FCA has a wide enforcement toolkit to take action where its rules are breached. There is no limit on the fines that it can levy and, crucially, it can force firms to provide redress to consumers.
The FCA actively monitors the market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. Indeed, the FCA 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”.
In addition to this robust action from the FCA, I confirm that the Law Commission has agreed to a request from Treasury Ministers to look at how best to reform the Bills of Sale Act. This legislation underpinning logbook loans is old, lengthy and incredibly complex, and affects businesses as well as consumers. Evidence suggests that around 20% of bills of sale are used by small businesses rather than individual consumers. As a result, the Government believe that the Law Commission
is best placed to undertake a thorough assessment of how to bring this complex, arcane and wide-ranging Victorian legislation up to date. This project is now under way and the Law Commission launched its call for evidence last week.
The Government believe that this package of action will fundamentally strengthen protections for consumers using logbook loans. I therefore ask the noble Lord to withdraw his amendment.