Consumer Credit Bill

Public Bill Committee, 25 January 2005.

Standing Committee E

Consumer Credit Bill

Gerry Sutcliffe (Labour, Bradford South)

I beg to move,

That—

(1) during proceedings on the Consumer Credit Bill, in addition to its first meeting at 9.25 a.m. on Tuesday 25th January, the Standing Committee shall meet at —

2.30 p.m. on Tuesday 25th January; and

9.25 a.m. and 2.30 p.m. on Thursday 27th January, Tuesday 1st February and Thursday 3rd February;

(2) the Bill be considered in the following order, namely, Clauses 1 to 55, Schedule 1, Clauses 56 to 59, Schedule 2, Clauses 60 to 68, Schedule 3, Clause 69, Schedule 4, Clause 70, new Clauses, new Schedules and remaining proceedings on the Bill;

(3) proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 6.55 p.m. on Thursday 3rd February.

Welcome to the Committee, Sir John. It has been my pleasure to sit with you on Finance Bills and on a variety of other Committees over the years, and I am delighted that you will be chairing our proceedings, together with your co-chairman Mr. Benton.The Bill has been well consulted on. It is a long time since the last Consumer Credit Bill was passed in 1974. When the White Paper was published, there was a great deal of consultation with industry and with consumer groups on the regulations that flowed from it, so the Committee will have a wealth of information at its disposal to enable it to deal adequately with the Bill. I am delighted that the hon. Member for Tewkesbury (Mr. Robertson) is in his place, and I look forward to his words of wisdom. Alongside him sit his Whip, and the hon. Member for Richmond Park (Dr. Tonge), who is in place of the hon. Member for Gordon (Mr. Bruce) this morning, who is away on parliamentary business.

The Committee has a wealth of talent, Sir John, given its experience on many issues, including debt. It would take too long for me to go through the expertise and knowledge of each Member—and, as a former Whip, I have other information as well. I look forward to their involvement.

The Bill is important, as it will affect the lives of all our constituents. Unfortunately, there are many sad stories of people getting into a great deal of difficulty with debt, and that is one of the reasons why the Bill is needed. I know that we will give it due consideration.

Laurence Robertson (Conservative, Tewkesbury)

I join the Minister in welcoming you to the Committee, Sir John. I do not have his breadth of experience of serving under you on Committees, but I am sure that it will be a very pleasurable and enlightening experience.

The official Opposition are, of course, opposed to programme motions, and we voted against the programming of this Committee because we feel that these things should be more open-ended. Important issues are before us, and we cannot tell how long it will take to discuss them. However, we are where we are, and I have no intention of prolonging this part of the proceedings.

Jenny Tonge (Liberal Democrat, Richmond Park)

I apologise, first of all, for the absence of my hon. Friend, the Member for Gordon.

This is a new and interesting area for me: if you were coming to the Committee Stage of a Bill to regulate gynaecologists, Sir John, you would understand how I feel. It will be a very interesting experience. I have—this can be checked with our Whips—no personal experience of this subject, apart, I am proud to say, from my mortgage. However, I am not sure that my constituents are in the same position, as many, many people come to my surgery who have got into huge difficulties. For that reason my party and I welcome the Bill.

Question put and agreed to.

Gerry Sutcliffe (Labour, Bradford South)

On a point of order, Sir John. I should like to deal with an issue that arose on Second Reading, on which some hon. Members would like clarification. Several Members asked whether the Bill could allow for lay representation in Scotland for time order applications. We discussed that with the Scottish Executive and the Scotland Office, and there is considerable support for permitting lay representation in time order applications in Scotland. As I said on Second Reading, the Government would like all people in the United Kingdom to be able to exercise their rights in the same way. Therefore, Sir John, we will return to that issue on Report.

John Butterfill (Conservative, Bournemouth West)

Thank you.

I remind the Committee that there are a money resolution and a Ways and Means resolution in connection with the Bill. Copies of the resolutions are available in the Room.

Hon. Members should give proper notice of any amendments, as it will not be my intention or that of my co-Chairman to accept starred amendments. I also remind hon. Members that mobile phones and pagers should either be turned off or turned to silent.

Clause 1 - Definition of ''Individual''

Gerry Sutcliffe (Labour, Bradford South)

Clause 1 amends the definition of ''individual'' in section 189(1) of the Consumer Credit Act 1974. The definition is important because an agreement is only a consumer credit agreement or consumer hire agreement as defined by the 1974 Act. The agreement is therefore capable of being regulated by the Act if the debtor or hirer under the agreement is an ''individual'' within the meaning of the Act.

As it stands, the definition in section 189(1) gives an extended meaning to the word ''individual'' that includes partnerships or other unincorporated bodies of persons of any size, as long as the members of the partnership or unincorporated body are not exclusively bodies corporate. Bodies corporate are not included in the definition of an ''individual''; they therefore receive no protection as debtors or hirers under the Act. Medium-sized and large partnerships, as hon. Members will know, are often highly sophisticated businesses, such as international firms of lawyers and accountants. They can look after themselves and do not require the protections afforded to ordinary consumers. That being said, the Government recognise the need to foster and protect small businesses to encourage enterprise in Britain.

In order that they might grow, many small businesses require access to ready credit, such as credit cards or hire purchase. Many people who are starting out in business operate with little distinction between their private and business lives. They also have the same, or similar, low levels of credit expertise and face similar borrowing risks to ordinary consumers. The clause will amend the definition of ''individual'' to include partnerships of three or fewer people, as long as not all of them are bodies corporate. That means that any small partnership including natural persons will continue to enjoy protection under the 1974 Act.

Hon. Members should note that sole traders are, and will continue to be, ''individuals'' within the meaning of the Act. They, too, will continue to be provided with the same protections they currently enjoy under the 1974 Act. The definition will continue to include unincorporated associations, provided that not all their members are bodies corporate, because the members of many of those bodies, which often perform valuable charitable and community work, are ordinary people. They, too, should continue to enjoy their current protection under the Act.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2 - Removal of financial Limits etc.

Gerry Sutcliffe (Labour, Bradford South)

Clause 2 removes the current financial limits in the 1974 Act. The financial limit defines those consumer credit agreements and consumer hire agreements that are protected under the Act. Only agreements that provide credit or that require hire payment of up to the £25,000 limit are protected. The limit was initially £5,000, which was a considerable sum in 1974. It was raised to £15,000 in 1985, and the current £25,000 limit was introduced in 1998. To many consumers, £25,000 is no longer a substantial amount of borrowing; the average debt consolidation loan now exceeds £25,000. Therefore, subsections (1) and (2) will remove the financial limit that applies to consumer credit agreements and consumer hire agreements. In future, all agreements, for whatever amount, will be subject to regulation under the Act, unless specifically exempted. Exemptions already exist under section 16 of the 1974 Act. The Bill proposes additional exemptions in clause 4 for business borrowing and business hire agreements that exceed £25,000, and in clause 3 for high net worth borrowers and hirers.

The effect of subsection 1(a) is to remove the definition of a ''personal credit agreement'' from the 1974 Act. That term is used in sections 8(1) and 10(1) of the Act to refer to agreements providing credit to an individual for any amount. The term ''consumer credit agreement'' is used to identify credit agreements in which credit does not exceed £25,000. If the financial limit is abolished, those distinctions become redundant.

Subsection (3) extends the provisions of the Act that regulate the form and content of credit advertisements to regulated credit agreements, regardless of the sum involved and regardless of whether the creditor or owner requires security in respect of that agreement.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3 - Exemption relating to high net worth debtors and hirers

Laurence Robertson (Conservative, Tewkesbury)

I beg to move amendment No. 9, in clause 3, page 2, line 27, after 'description', insert

', who shall not be connected through pecuniary interest to the lender'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss amendment No. 10, in clause 3, page 2, line 30, at end insert—

'(d) must be signed by the debtor in the presence of an independent witness, who shall not be connected through pecuniary interest to the lender and shall not be the person who has made the statement referred to in subsection (1)(b).'.

Laurence Robertson (Conservative, Tewkesbury)

This is the first clause that might be considered to be in the meaty bit of the Bill. It deals with an exemption that relates to high net worth debtors and hirers, which means that certain people who are declared to be of high net worth do not come within the scope of the Bill. In a sense, it is difficult to understand why the clause is in the Bill, but there is a precedent in the insurance industry. People who go to, for example, Legal and General or Prudential to make a purchase or to be sold a pension plan are allowed to state that that is all they want. They do not have to accept the wider advice that those companies are deemed to have to provide.

This provision is slightly different, in that people in the insurance industry who take out a pension or a savings plan are not taking out an obligation as such: they are purchasing something of lasting benefit. If people decide, after six months or six years, that they do not want a pension, they can simply cease payments; that is not the case with a credit agreement. People who take out credit may get themselves into a difficult situation that is not as easy to get out of. I am not sure that that analogy is a direct one.

I am slightly concerned about people being declared of ''high net value'' and therefore not coming under the terms of the Bill. Amendment No. 9 seeks to clarify the clause. The Bill says that someone other than the debtor has to declare himself or herself as being of high net worth. The amendment attempts to make it clear who can make that declaration. I say that the person making that declaration

''shall not be connected through pecuniary interest to the lender''.

It is clear what I am trying to get at: a lender should not be able to provide a person to declare that the borrower is of high net worth when they have a direct pecuniary interest in doing so, because that would let the lender escape the terms of the Bill. That is a rather convoluted way of describing it, but it is probably clear what I mean.

Amendment No. 10 requires that such a declaration

''must be signed by the debtor in the presence of an independent witness, who shall not be connected through pecuniary interest to the lender and shall not be the person who has made''

the original statement. It is a little bit complicated, but I hope that the Committee understands what I am driving at. I do not seek to strike out the ability of somebody to be declared as being of high net worth and therefore escape the clutches of the Bill. I am simply trying to make it a little more certain that the lender does not manipulate the situation.

Gerry Sutcliffe (Labour, Bradford South)

I welcome the spirit in which the hon. Member for Tewkesbury has moved amendment No. 9 and spoken to amendment No. 10, though there may be drafting difficulties to overcome before he hits the target he is aiming at. It is important to explain what we are trying to achieve with the clause, and the amendments will help us to do that.

Amendment No. 9 seeks to prevent statements of high net worth from being made by any person who has a connection by way of pecuniary interest to the lender. The amendment prevents the statement from being given by anyone who is employed by the borrower or who otherwise works for him or her for financial reward. It prevents the statement from being given, for example, by a lawyer or an accountant retained as an adviser by the borrower.

I cannot imagine that that is what the hon. Gentleman intends. Such professional advisers operate within strict rules of conduct.

Laurence Robertson (Conservative, Tewkesbury)

Amendment No. 9 prevents someone who is connected to the lender from giving a statement. In other words, the lender cannot remove someone from the clutches of the Bill.

Gerry Sutcliffe (Labour, Bradford South)

If the hon. Gentleman will bear with me, matters will become clear to him. If they do not, I am sure that he will pursue them. I understand the intention behind the amendment, but we are dealing with a particular group of people and it is important that we understand how they operate under the circumstances in which they find themselves, given the industry's fears that business might be lost if we over-regulate.

The Secretary of State will have power by order to set out exactly who may make a statement of high net worth and what such a statement must contain. It is also our intention that the order will carefully prescribe the classes of person authorised to make a valid statement. They should be professionals whose status has been independently verified, such as solicitors, accountants and independent advisers who have been recognised by the Financial Services Authority.

I may be getting ahead a bit, but once the Bill has passed into law I plan to consult before laying a statutory instrument setting out exactly who will be permitted to give a statement. That may cover both amendments.

In amendment No. 10, the hon. Gentleman seeks to strengthen safeguards when someone is claiming high net worth exemption in clause 3. Again, the drafting may cause a problem. Subsection (1) would permit the Secretary of State, by order, to provide that a debtor or hirer who is a natural person may agree to forgo his or her protection and remedies under the Consumer Credit Act 1974 so long as two conditions are satisfied. The first is that the debtor should sign a declaration in the credit agreement making it clear that he or she agrees to forgo those protections. The second is that the lender should be in receipt of a statement of high net worth made in respect of the borrower. Subsection (3) makes it clear that such a statement may be made not by the borrower, but by a specified person. Subsection (4) grants to the Secretary of State the power, by order, to define who will constitute a specified person. It will also set out other rules about the form, content and signing of such statements.

At this stage we propose that statements of high net worth will be made by professionals whose status has been independently verified, such as solicitors, accountants and independent advisers who have been recognised by the Financial Services Authority. The statutory instrument will take care of the issues that the hon. Member for Tewkesbury has raised.

Informally, this is known as a helicopter clause, as those who wish to borrow large amounts of money can, at very short notice, with professsional advice, make a statement of high net worth. I understand the hon. Gentleman's point, but there are sufficient safeguards in the clause.

Laurence Robertson (Conservative, Tewkesbury)

One of the constant concerns expressed to me about the Bill, which I supported on Second Reading, so I do not want to be too damning, was that certain of its provisions are vague and that we will have to wait for further orders to come forward before we know the details. Does the Minister have any idea about what might be deemed ''high worth''? It may be a relative term, but it would help the Committee if he could say something about its meaning.

Gerry Sutcliffe (Labour, Bradford South)

As the hon. Gentleman would expect, I do not accept entirely the challenge that the Bill is wholly vague. The Bill is trying to engender the concept of responsible lending and borrowing to ensure that the whole process is transparent on both sides. It is important that we listen to the concerns of the industry. It was the industry that raised the issue of high net worth individuals and their ability to go elsewhere if this provision is not available in the United Kingdom.

In the short term, the answer to the hon. Gentleman's question about high worth is that we envisage it as encompassing a net annual income of £100,000 and net assets of £250,000, excluding non-liquid assets, such as the share in the principal home and pension funds. These figures reflect those used by the Financial Services Authority to define a sophisticated investor. I hope that helps the hon. Gentleman. I ask him to withdraw his amendment, and if he does not, I ask the Committee to vote against it.

Laurence Robertson (Conservative, Tewkesbury)

I thank the Minister for his detailed and very helpful response. I am still a bit concerned that somebody connected to the lender could make the declaration. To return to the analogy originally used, it would not be acceptable for a financial services company to dispense with the requirement to give best advice. That must be done by somebody other than the company, and, in that case, it would be the person taking out the pension plan, if that was what they were taking out. I am not entirely satisfied, but the Minister has gone into considerable detail in answering my question. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 ordered to stand part of the Bill.

Clause 4 - Exemption relating to businesses

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss the following amendments: No. 12, in clause 5, page 3, line 37, leave out 'or 16B'.

No. 15, in clause 5, page 4, line 25, leave out 'or 16B'.

This is a slightly unusual procedure.

Gerry Sutcliffe (Labour, Bradford South)

Like you, Sir John, I am slightly confused about the way in which we are dealing with this group of amendments.

Laurence Robertson (Conservative, Tewkesbury)

It may help if I say that these amendments are consequential on deleting clause 4.

Gerry Sutcliffe (Labour, Bradford South)

I thank the hon. Gentleman for trying to be helpful. He has given me a quick breathing space to check what was appropriate to the debate.

The amendments would extend regulation of the Consumer Credit Act to consider all consumer credit agreements, regardless of the value or purpose of the loan. Although it is true that the Bill will abolish the financial limit for regulation under the Act, it does not do so across the board. It seeks to limit the protection afforded to loans taken out for business purposes by redefining a consumer credit agreement as an agreement where a debtor is an individual, an unincorporated association or a partnership of three or fewer partners. All loans to other borrowers, such as large partnerships and companies, are incapable of being regulated under the Act. This constitutes a narrowing of the existing definition under which all partnerships, regardless of their size, are able to conclude regulated agreements.

Clause 4 also distinguishes between the purposes for which these groups take out loans. The Bill would regulate any other loan—for whatever purpose—up to, and including a value of £25,000, the current limit in the Act. However, loans to those groups of more than £25,000 will not be regulated if they are made wholly or predominately for business purposes. Whether a loan of more than £25,000 is made wholly or predominately for business purposes will be a matter of fact in each case. However, where there is some doubt as to the purpose of the loan—for example, if it is made to finance the purchase of goods that have both a business and a private use—the borrower may make a declaration that the loan is wholly or predominately for business purposes. When such a declaration is given, the lender may rely upon it to draw up an unregulated agreement unless he knows, or has reasonable cause to suspect, that it is untrue.

Subsection (4) gives the Secretary of State the power to prescribe by order the form, content and signing arrangements of such declarations. The Bill aims to maximise protections granted to consumer borrowing by abolishing the existing financial limits in the Consumer Credit Act 1974. It also seeks to make it clear that lending for business purposes above £25,000 will ordinarily be excluded from regulation, and it excludes all but the smallest partnerships from the category of borrowers who can take out regulated consumer credit agreements.

The effect of the amendment would be to blur the clear policy line, and to bring within regulations a large number of business loans that are properly outside the ambit of the Act. It is important to remember that no protection is being removed from sole traders, small partnerships and unincorporated associations. The existing financial limits restrict regulations to £25,000 across the board, regardless of the purpose of the loan, and that protection will continue for those borrowers. Above that level, we expect borrowers to take advice commensurate with business risk, and they should not be treated as ordinary consumers.

The general position under the Bill is that business lending should be excluded from regulation. Limited exemptions apply to borrowing by sole traders, small partnerships and unincorporated associations, and all borrowing by them up to £25,000 is to be regulated. Borrowing over £25,000 can be regulated, but only if it is not wholly or predominantly for business purposes. It is important to remember that no protection is being removed from those borrowers. The existing financial limits restrict regulation to £25,000 across the board, regardless of the purpose of the loan.

There is no requirement for a declaration where it is clear because of the identity of the borrower, the nature of the finance or the circumstances of the agreement that the loan is wholly or predominantly for business purposes. Lenders may lend on regulated business terms without the comfort of a declaration if they are content to do so. In many cases, the lender and borrower will have a long-standing relationship, and the intention of each will be clear to the other. The declaration mechanism has been provided for the avoidance of doubt. While the intention of the parties is clear, some element of the agreement might subsequently call that into question. We decided that a declaration for a business purpose would create a presumption that the borrowing is for a business purpose, but if the creditor knows, or has reasonable cause to suspect, that the business purpose declaration is false or wrong, the agreement will be treated as a regulated agreement. We believe that those requirements mean that consumers will be properly protected against abuse of the provisions.

Clause 4 deals with exemptions from regulation of business lending under the 1974 Act, and to that effect, it inserts new section 16B into the Act. Hon. Members should note that when I say ''lending'' or ''credit'' when talking about this clause, I also mean ''hire''. Clause 2 will have the effect of removing the financial limits below which credit is not regulated under the Act. That means that, in future, credit of any amount made available to consumers will be regulated, except where specifically exempted under the Act. The new subsection (1) provides one such exemption. It states that the Act does not regulate a consumer credit or consumer hire agreement worth more than £25,000 where that agreement is entered into wholly or predominantly for a business purpose. Agreements for business purposes for £25,000 or less will continue to be regulated under the Act, as I have explained. The effect of clause 1 is that, in future, that provision will apply only where the borrower is a sole trader, an unincorporated association or a partnership of three or fewer partners.

''Business purposes'' is not defined; we believe that to do so would be unhelpful. That would either exclude from regulation some consumer transactions or mean that many transactions that are for business purposes would continue to be regulated. The best people to determine the purpose of the credit are the parties to the agreement. The new subsection (2) provides that a person can make a declaration as part of the agreement that the credit is either wholly or predominantly for a business purpose. Such a declaration will give rise to a presumption that the borrowing is for a business purpose. Under the new subsection (3) the presumption will not apply if the lender or a person acting on his behalf knows or reasonably suspects that the credit is not wholly or predominantly for a business purpose.

The new subsection (6) provides that where an agreement involves more than one lender, such knowledge on the part of one of them will bind them all. The Secretary of State may, under the new subsection (4), make regulation setting out the form and content of the declaration as to a business purpose. New subsection (5) specifies who may make declarations about business purposes on behalf of partnerships and unincorporated associations. New subsection (7) states that business borrowers are not prevented from applying to reopen the agreement on the basis that it flows from an unfair relationship.

Laurence Robertson (Conservative, Tewkesbury)

I thank the Minister for explaining why clause 2 is valuable. I admit that I am slightly confused, because it seems that business agreements that are worth less than £25,000 will continue to be regulated, whereas those that are worth more than that will not. I do not follow that logic.

Having considered the clause long and hard, my main reason for wanting to strike it out is that, as I understand it, an incorporated company can borrow more than £25,000 and not be covered. In many cases there is little difference between an incorporated company and an unincorporated association, a partnership or an individual trader. When I was in business a few years ago, anyone could set up a company for around £100, often getting the protection that forming a company would give them, such as limited liability. However, in many other cases, the director of that company would have had to give a personal guarantee for many of the business transactions that were carried out. The director might have had to borrow money to keep the business going, would probably have had to give a director's guarantee for that loan, and quite often would have had to put his house up as surety.

That situation is not very different from that of the man next door who might carry on in business without the protection of that limited company. My point is that the protection of a limited company often does not exist. The sensible clauses of the Bill should therefore protect someone in that situation. For example, if a person were to take out credit with an unscrupulous lender or someone who fires off letters to him every time he misses a payment and charges him £30 or £40 for the privilege, his business would quickly get into serious difficulties. If that person has been given a director's guarantee, he could find himself in exactly the same situation as an individual who has borrowed money for a world cruise. I do not see a huge difference.

Will the Minister explain why those two situations are different? The fact that the borrowing is for business purposes does not change the matter. We are still talking about individuals, and if the Bill is worth passing, which in general terms it is, everyone should be protected by it. Otherwise, the suggestion is that the Bill is flawed. Before I am happy to accept the clause, the Minister will need to explain it in more detail and answer some of my points.

Gerry Sutcliffe (Labour, Bradford South)

Although I understand the concerns that the hon. Member for Tewkesbury raised, the Committee will forgive me for saying that my explanation for the way that things have developed may have been unclear. The aim is to separate those companies that are defined as small businesses that need to be protected or that need access to credit. All sectors were fully consulted on this Bill, and there was much concern about the £25,000 limit, which exists under the Consumer Credit Act 1974. We retained it so as not to remove any existing protection from sole traders, small partnerships or incorporated associations. However, we do not believe it appropriate to extend that protection in respect of business lending, which is covered by other Acts and processes. No protection is being removed; the existing financial limit restricts regulations to £25,000 under the Act.

The hon. Gentleman raised the issue of the difference between incorporated and unincorporated companies. That distinction was drawn in the 1974 Act, not in this Bill. Incorporated companies have never been protected under the Act, and to include them now would mean a fundamental change in what the Consumer Credit Act concerns. Incorporated companies are not currently regulated by the Act; we shall not change that position, and no protections have been lost. In fact, the protection for those companies will be there in the new definition.

I hope that the hon. Gentleman will accept that explanation as being in the spirit of what the Government intend and that he will support the clause.

Laurence Robertson (Conservative, Tewkesbury)

I thank the Minister for attempting to explain, but I still do not see clearly. Business lending is either protected or it is not, but that is not the case here.

Gerry Sutcliffe (Labour, Bradford South)

In clause 1, the definition of individual was changed to include sole traders and the ''under three'' provision, and that is protection.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to the Minister for his further attempt, but I am not sure of the philosophy behind the provision. Business lending should either be protected or not, but that is not the case here. It seems that a limited company is not protected, but a company which is not limited is protected. Have I got that right? Surely business lending should be protected or it should not? It concerns me that I, as a sole trader, can be protected, but if I were to form a limited company with £100, putting up my house and risking everything on that business, I suddenly would not be protected. I cannot see the logical leap, but the issue probably has been explored far enough.

Gerry Sutcliffe (Labour, Bradford South)

I hesitate to intervene because I might make matters worse, but I shall try not to. I understand the hon. Gentleman's dilemma, but he does not exactly appreciate the clarity with which I think I put forward the Government's case. There is, perhaps, an issue here to which he or I may wish to return in further discussions. The best way forward now would be for him to be kind enough to withdraw his amendments, with my assurance that the definition will be examined in more detail later in Committee or at Report. However, I am clear that business lending is defined in terms of the purpose, and not the form, of the borrower. Limited companies have a particular form of constitution; their liability is limited, and they have benefits that sole traders do not have, for example, access to wider forms of finance. In the spirit of what we are trying to achieve, I ask the hon. Gentleman to withdraw. I give my assurance that the matter will be further discussed, so that he will be much clearer about what the Government are trying to achieve.

The Chairman: It is not necessary for the hon. Member for Tewkesbury to withdraw his amendments because, although they have been debated, they have not been moved and could not be moved until we came to clause 5. Since they are consequential upon clause 4 standing part or not, there is no need for the hon. Member to do so.

Laurence Robertson (Conservative, Tewkesbury)

Thank you, Sir John. I should just remind the Committee that that was meant to be an intervention from the Minister rather than a speech, but it is not necessary for me to move the amendments; we have not yet reached that position.

I am not persuaded that we should not consider what I am saying simply because it is not in the 1974 Act and that it would change the 1974 Act. The Bill is about changing the 1974 Act, so I do not think that that is a valid reason; otherwise we would never change anything in this place. I do not accept that there is a huge leap from becoming a sole trader to becoming a single director or one of two or three directors of a limited company. I am not persuaded that we should go down this route; however, the Minister has said that he will look at it again. I do not think that it is just about definition. It is a little bit more than that; it is about practicalities. However, the Minister said that he would have look at it again, and my experience of working with the Minister tells me that he will look at it very seriously indeed.

Question put and agreed to.

Clause 4 ordered to stand part of the Bill.

Clause 5 - Consequential amendments relating to ss. 1 to 4

Clause 6 - Statements to be provided in relation tofixed-sum credit agreements

Jenny Tonge (Liberal Democrat, Richmond Park)

I beg to move amendment No. 29, in clause 6, page 4, line 32, after 'made', insert

'or the mid-point of the loan, whichever is sooner'.

We accept that lack of information for borrowers about their credit agreement contributes to the scale of debt. People who have fallen into arrears are especially affected. Clause 6 calls for annual statements, and that is very welcome indeed. Some people get annual statements now; some do not. We are concerned about fixed sum loans that last less than a year. They often carry very high interest rates and are often rolled over. People often get into huge difficulties with such short-term loans. The amendment asks the Minister to consider a mid-term statement as well as an annual statement for those on short-term loans so that debtors are quite clear on how they stand half way through the term. I understand that the Citizens Advice Bureau supports the amendment.

Gerry Sutcliffe (Labour, Bradford South)

I thank the hon. Member for Richmond Park for the way in which she moved the amendment. Unfortunately, I must disappoint her and say that the Government will ask the Committee to resist it.

The amendment would require an annual statement to be issued for agreements that continue for more than one year. It is not confined to those with a contractual term of one year or more. Therefore, if an agreement runs for more than one year, despite originally being for a lesser period, a statement will be required. The Government have considered at great length the need to provide consumers with relevant and clear information for the reasons that the hon. Lady mentioned.

I believe that we have found a balance between her concerns and providing the required information. Agreements of less than one year are generally for small amounts of money and are unsecured. Consumers with such agreements often use credit products that are more transparent in the handling of information, such as home credit account books. However, we recognise, as the hon. Lady says, that some are not and that consumers are entitled to receive information about arrears and default sums.

The requirements will bind lenders in all circumstances. In addition, the debtor is entitled, at any time, to request a statement of his account from the creditor under section 77 of the 1974 Act. The proposal from the hon. Member for Richmond Park also gives rise to practical difficulties for lenders: an agreement with a one-month term would require a statement to be provided after two weeks; a 40-week term would require a statement after 20 weeks or about four months and three weeks. The permutations are endless and can only serve to decrease the flexibility of loan products for consumers who seek short-term credit and increase their price, and the Committee does not want that.

John Battle (Labour, Leeds West)

I have some sympathy with the intention of the amendment. Will the Minister give me some guidance? I get the impression that people find one lender but then other lenders come along, and their debts are compounded. Lenders seem to be unaware that some people already have loans from other lenders. The problem lies with the lenders; it is down to them rather than the lack of information on a borrower's statement. The affordability test may meet some of hon. Lady's intentions, because the real pressure should be on the lenders not to lend indiscriminately. If we could get the message through to the whole sector, people would not be in double the debt if lenders made each other aware of whom they are lending the money to.

Gerry Sutcliffe (Labour, Bradford South)

I fully agree with the direction in which my right hon. Friend the Member for Leeds, West (Mr. Battle) is heading. The whole purpose of the Bill is about responsible lending and borrowing. We are talking about a mature credit market with regard to the type of credit available to consumers. For many years, my hon. Friend has been concerned about people at the lower end of the market, who can be exploited. It is our intention to ensure that people are not exploited; the provisions are about balance. We do not want to remove products from the marketplace that people who want short-term credit at the lower end of the market should have.

Jenny Tonge (Liberal Democrat, Richmond Park)

Does the Minister agree that it is not an onerous request to expect the lending company to produce more frequent statements? Banks will provide statements every week if customers request them. I cannot understand why it should be so difficult to provide a mid-term statement.

Gerry Sutcliffe (Labour, Bradford South)

With respect to the hon. Lady, the provision is about the type of loan. As I said, in some cases there is a book that records the details of loans. We fully consulted with all sectors of the marketplace, including lenders and consumer groups. We could end up with the situation described by my hon. Friend the Member for Leeds, West whereby a tremendous amount of inappropriate information is given to the consumer, or information that the consumer does not fully understand and appreciate. We do not want to go down that route.

There are major issues about data sharing, which we will address later. That may offset some of the problems that the hon. Lady is pointing up. We have, I think, struck the right balance. Providing a mid-term statement would not really help a great deal. Making people fully aware of the products that they are using and where to go if they have difficulties will help matters. The Government have the balance right, and more protections will be in place, as the hon. Lady will discover as we go through the Bill.

Jenny Tonge (Liberal Democrat, Richmond Park)

The Minister says that people should be fully aware of the products that they are accessing, but that is the problem. He bases his comments on the assumption that people should be, and are, fully aware of what is on offer, but they are not. People are vulnerable. If someone is poor or lonely or does not have many friends to advise them, they will not know what products are on the market, and they will not understand what they are doing. That is the problem, and that is why we seek more frequent statements.

Gerry Sutcliffe (Labour, Bradford South)

We are not disagreeing over the objectives that we are trying to achieve. I do not want to stray from the Bill, Sir John, but, with your great knowledge and background in this area, you are aware that the Select Committee on Treasury is doing a great deal of work on financial exclusion. That has to be looked at as a whole. Although we are examining particular elements of the Bill, we shall consider all aspects of consumer education on the subject of handling money, such as debt or money advice. That is the direction we are going in.

The hon. Lady may not recognise this as a major point as regards her amendment, but the balance of relationships has taken time to develop. There is a strong home credit market of small businesses that lend money, and they regard having to provide more information as an onerous task. I accept her point that consumers may not be fully informed but section 77 of the 1974 Act provides the right to request a statement, regardless of the length of the agreement. Protections are in place. Using her logic, this amendment will not improve matters if people do not understand the situation. In the spirit of what we are trying to achieve, I hope that the hon. Lady will withdraw her amendment.

Jenny Tonge (Liberal Democrat, Richmond Park)

I thank the Minister for his patient explanation. As I seek to gather reinforcements, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jenny Tonge (Liberal Democrat, Richmond Park)

I beg to move amendment No. 30, in clause 6, page 4, line 36, at end insert—

'(c) shall clearly state within the agreement the amount borrowed and the total interest payable on the loan; and

(d) shall advise the debtor borrowing on credit cards that for long term balances other credit products such as loans or overdrafts may be available; and

(e) shall be obliged to give free and impartial advice to the debtor as to alternative products that may reduce the cost of borrowing.'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss amendment No. 16, in clause 6, page 4, line 38, at end insert

'but shall include—

(a) the amount paid by the debtor to the lender to date;

(b) the amount remaining to be paid by the debtor to the lender; and

(c) the remaining term of the agreement.'.

Jenny Tonge (Liberal Democrat, Richmond Park)

The amendments follow on from the previous discussion. There is huge concern that people do not know what they are doing, or are letting themselves in for, when they take out loans. They are subject to huge pressures from many companies. They must lose count of the amount of junk mail they receive from financial companies offering loans, credit cards or other enticements that can lead to debt.

One of the bees in my bonnet is the advertising industry; a great deal of blame can be laid at its door. The intensity with which the industry advertises to get people, particularly those who are lonely or elderly, into debt is horrifying. When my mother was old she did not get much post. Like many elderly people whose friends had died, she opened everything that came through her letterbox. Most people tear up much of their junk mail; my mother used to read even the pizza offers and keep them to discuss them with me when I visited. There are many people like that in my constituency and throughout the country. They see enticing offers for what looks like cheap money—a lump sum for which they pay a small amount each month—and they are seduced. We must protect those people. From the beginning, debtors must be clear about the amount borrowed and the total interest payable.

James Plaskitt (Labour, Warwick and Leamington)

I take the point about vulnerable people receiving this information. With regard to paragraph (c) of the amendment, can the hon. Lady explain how it would be possible for the creditor to include in the statement the total interest payable? Surely that would depend on the repayment profile chosen by the person carrying the debt?

Jenny Tonge (Liberal Democrat, Richmond Park)

If the debtor agrees on a certain interest rate and a certain number of payments, surely it is possible to work out the total to be paid at the end. When I did simple interest and compound interest at school, it was possible to work out how much a loan would cost overall—[Interruption.] I happily bow to the superior mathematical geniuses in the Room.

John Battle (Labour, Leeds West)

I am grateful, but I would not like to stand up as a superior mathematical genius. I simply want to speak about the experience of people in my neighbourhood. The problem is not so much the adverts on TV, but the people who knock on doors. If a person has £4.99, he or she can borrow £150 to buy a bed, but will end up paying back nearly £400. The problem is not only the interest, though. If a person cannot afford the weekly payment on a Friday because they have paid another bill, they miss a week's payment and there are extra charges for that. Often, rather than the interest rate, it is the compound interest on those charges that is the problem, and that fact is not recognised. As I said, the problem is caused not so much by the television adverts, but by the people who knock on doors, and by the collection process. The Bill might do something to tackle that. The hon. Lady mentioned interest rates, but that is only half the cost. The darker side is buried in the charges that add to the compound interest and cause the situation that the hon. Lady outlined.

Jenny Tonge (Liberal Democrat, Richmond Park)

The right hon. Gentleman is right, and it is that issue that I am so concerned about. It is not pointed out to people that if they default next Friday because they cannot pay their contribution, those charges will make their debt much bigger than they ever imagined. That should be pointed out, and it is very sharp practice if it is not. People must also be made aware of the alternatives. Many young people and students think that credit cards are the ideal way to borrow money. They do not shop around to find out the differences in credit card interest rates. There has been a huge debate in the press and in Parliament over recent weeks about the fact that those can vary hugely.

People are simply not aware of the facts. When people take out such loans or become overdrawn on their credit cards in that way, it should be made clear to them just what they are letting themselves in for. People should not be seduced into taking a loan that they are never going to be able to pay back. Is it not reasonable for a company to say that there may be other options? If someone wishes to take out a loan on a credit card, is it not the duty of that company to say that it might be better if they took out a bank loan or sought advice from a financial adviser or their bank? We give far too much leeway to companies to push what the debtor will see as cheap money, which turns out to be very expensive money and sometimes totally ruinous.

I have constituents who find themselves with huge, unexpected repayments to make, simply because it was never explained to them in the first place. I may be accused of being too kind and too lenient, but although we may—I hope—learn a certain amount at school, sometimes we do not pay enough attention to practical teaching on the practical problems that people may encounter in their lives, such as interest and compound interest. A few lessons on credit cards, banks and how credit companies and money lenders operate might be far better than learning about isosceles triangles. Perhaps we also need to address the education system.

I move the amendment in the interest of giving consumers much more information before they take out loans.

Laurence Robertson (Conservative, Tewkesbury)

I sympathise with the spirit in which the hon. Member for Richmond Park moved the amendment, but I see possible problems with the drafting. I entirely agree with the point that very busy and vulnerable people may fall foul of the agreements, but it can happen to those who do not fall into either category but who simply do not understand the legal technicalities of a contract. That is what we are talking about. People study contract law at university for many years, then may take articles and study for several more. They then become solicitors, but even they sometimes do not understand the intricacies of contract law, so it is a little much to expect anyone else to understand it fully.

There is, of course, the legal philosophy of caveat emptor—let the buyer beware. Ordinarily, in a free society, that is quite reasonable, but when we come to very complicated contracts, the relative strength of the parties is very different. I have many concerns not only about the way in which agreements are set up, but the way in which they are run. If I interpret it correctly, one of the reasons for the Government's introducing the Bill, apart from addressing how contracts are set up—I wish to turn to that important matter during the debate on amendment No. 16—is to deal with the way in which they are run. I certainly do not want extra burdens to be placed on businesses, which are, by and large, honourable and successful. I am part of the shadow Industry team, and we are attempting to devise deregulation in order to make businesses more competitive. There is far too much red tape in Europe and in Britain, and we wish to get rid of much of it, but we do not wish to do so to such an extent that it will create unnecessary problems. It is important that we do not lose sight of the fact that people are getting themselves into terrible amounts of debt in this country. We have record debt of more than £1 trillion. It is so large a figure, I am not sure that I understand how much it is.

Gerry Sutcliffe (Labour, Bradford South)

Will the hon. Gentleman give way?

Laurence Robertson (Conservative, Tewkesbury)

The Minister is about to intervene. I hope that he will tell us how many zeroes there are in a trillion.

Gerry Sutcliffe (Labour, Bradford South)

I shall not do that although I am grateful to the hon. Gentleman for giving way. I remind him that 80 per cent. of that £1 trillion of debt is composed of mortgage repayments, which, in the long term, will make people asset rich. I am sure that the hon. Gentleman will acknowledge that.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to the Minister for that very helpful intervention—I did not know that figure. Obviously, we support entirely people who buy their own houses. I remind the Minister that we introduced the ability to do so in many cases, so I entirely support that. I am glad to see that this week, the Prime Minister is adopting our policy.

Gregory Barker (Conservative, Bexhill and Battle)

May I point out to my hon. Friend that the Minister may be right to say that 80 per cent. of that figure is mortgage debt, but that is not all vanilla, sensible, saving and the buying of houses? A significant number of new mortgages these days are taken out by people who must consolidate high debts that they have accumulated on credit cards, store cards, or personal loans. Their only way out is to get a larger consolidation loan that is secured against their home. As we are always told, their homes are at risk if they do not keep up with repayments. Debt accumulated for a purpose other than for the purchase of a home is a very different matter.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to my hon. Friend for that telling intervention. It is absolutely true, and it is a modern phenomenon, that when people take out a mortgage—let us say for £100,000—they may get a capped rate for five years, but at the end of those five years, they rarely take out a mortgage for £100,000 again; it will be for £110,000, £120,000 or £130,000. Nevertheless, the Minister has a point. However, I do not think that the Minister was suggesting that there is no problem with the level of debt in this country.

I accept that incomes increase on an ongoing basis, and I accept that assets may also have increased. However, we cannot deny that many people get themselves into debt unnecessarily, and the problem is not just the amount that they borrow. The right hon. Member for Leeds, West made the point that the problem is the way in which agreements are run. They work on the basis of compound interest, which I could never understand at school. I could never work out compound interest, even though I passed my maths O-level, let alone remember what an isosceles triangle was. It is important that we teach people more about compound interest than isosceles triangles.

John Battle (Labour, Leeds West)

On a small point—and, in a sense, a trivial one—without isosceles triangles, our shelves would fall off the walls, so we must understand both compound interest and the practical problems of putting up shelving. Compound interest is important, but so is the matter of charges. Interest is incredibly difficult to work out, and calculating simple or compound interest is tricky when one is simply told that repayments will be £4.99 a week. However, break clauses are not always spelled out to the borrower, and those can build up as charges that bury people in debt much more than interest. I am campaigning for a cap in interest rates. However, if they were capped at 30 per cent.—that is an argument that I shall have with the Minister—the problem would not be solved because charges are even worse than interest rates, but we are not legislating for those.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to the hon. Gentleman, and we can probably return to those points when we debate amendment No. 17. He is right, and I am glad of his explanation of the isosceles triangle; I shall look for them the next time that I go into my local store.

I am unable to support amendment No. 30 because of the way in which it is worded. There are problems with subsection (e),which states that a lender

''shall be obliged to give free and impartial advice to the debtor as to alternative products''.

I am not sure that that would be legal under the Financial Services and Markets Act 2000, although the Minister will know more about that than I do. I think that it is correct to say that people are entitled to give advice only on the products that they are licensed to sell. However, I agree with the spirit of amendment No. 30, and I have tried to clarify the matter a little with amendment No. 16.

The Minister reacted slightly strongly to an earlier point that I made. Although I was not criticising the Bill. many people are concerned that it is vague in many ways and that it gives a lot of regulatory power to the Minister. I do not doubt that consumer credit will be regulated very well while the Minister is in office, but he may well not be in office after 5 May. Even if the unthinkable happened and the Labour Government were re-elected, he might not continue to be responsible for this matter. I am a little concerned about how much extra power the Bill will give to Ministers. In amendment No. 16, I have not tried to strike out what is already in the Bill, but I added that the statement

''shall include . . . the amount paid by the debtor to the lender to date; . . . the amount remaining to be paid by the debtor to the lender; and . . . the remaining term of the agreement.''

Those are very simple requirements. Like the hon. Member for Richmond Park, I do not see a problem in clarifying that part of the Bill.

Gerry Sutcliffe (Labour, Bradford South)

I wondered when we would get to the politics of the Bill, and it took us until clause 6. If you will forgive me, Sir John, I shall reply, I hope in proper order, to some of the points that were made, and you may make a ruling if I go wide of the mark.

We must set the context of the Bill, of which I am protective because it goes a long way in developing relationships in consumer credit. It is a long time since the Consumer Credit Act 1974 was enacted. Credit can be good; this morning we discussed the pitfalls of debt that result from improper lending and improper use of credit. However, on the whole, credit can be a useful tool for consumers. The diversity and complexity of the UK consumer credit market is important because people can gain access to products from which they benefit.

The Bill is concerned with responsible lending and borrowing. The hon. Member for Bexhill and Battle mentioned mortgages, and I said that 80 per cent. of the £1 trillion pound debt applied to those. It is true that the majority of other loans are taken out to improve people's asset base, by buying something that will improve the value of their house, or by buying a car, for example. Confidence in borrowing is to do with current strong economic conditions.

Gregory Barker (Conservative, Bexhill and Battle)

The Minister said that buying a car would improve people's asset base, but a car depreciates from the moment that it is bought, so how would buying a car improve a person's asset base, particularly when a loan increases from the moment that it is taken out?

Gerry Sutcliffe (Labour, Bradford South)

A car can help people in general terms. For instance, it can help them get to work. I accept the point about depreciation, but if people are economically able to buy a car, their personal situations can be developed as a result. We can have a greater debate about cars and issues that relate to motor vehicles if hon. Members want.

John Butterfill (Conservative, Bournemouth West)

Order.

Gerry Sutcliffe (Labour, Bradford South)

Perhaps that does go outside the context of the Bill, Sir John.

The UK's strong economic position, with low interest rates, low inflation and more people in work than ever before, increases confidence. Economic education goes to the heart of the problem, and the hon. Member for Richmond Park said that people should be taught from a very early age how to deal with money. I agree. I am having discussions with my hon. and right hon. Friends in the Department for Education and Skills about supporting the many programmes that are underpinned by industry and consumer groups in the field of financial capability. The Financial Services Authority is undertaking a national strategy consultation, and a great deal of work is being done on this area up and down the country, particularly with young people because the pressures of consumer issues affect them.

I agree that we must ensure that people understand how money is used, and I was pleased to see that in the pre-Budget report the Chancellor introduced £120 million for a financial inclusion fund. I am sure that that will benefit many people, and my Department is currently considering proposals for giving money and debt advice and for how best to educate consumers.

I am sure that it will come as no surprise to hon. Members that the Government want to resist both amendments. Amendment No. 30 does not, in our view, appear to be directly related to the requirement to provide annual statements to debtors who have fixed sum credit accounts. The requirement for an agreement to state the amount that has been borrowed and the total interest payable is already dealt with by the Consumer Credit Regulations 1983, which was made under section 60 of the 1974 Act. The second and third subsections in the amendment appears to have raised issues that are more significant than the provision of information about accounts. Indeed, both subsections seem to suggest the imposition on lenders of an obligation to advise consumers about how best to borrow.

The Government's position is that there must be a balance between responsible lending and responsible borrowing. A consumer should have all the information that he needs to make an informed decision, and that is one reason why the Government recently implemented new consumer credit regulations on agreements and advertising. It would be a very different matter, however, to require lenders to tell consumers how they should borrow, and the Government shall resist any such proposal. Consumers should be informed and empowered, but that does not mean that lenders ought to act as their financial advisers as well, which would place them in the same position as lawyers, accountants and financial advisers, with all the duties that such roles entail.

The Government will resist the amendment, but we will consider with all interested parties the form and content of annual statements and ensure that they reflect the balance between the need to inform and practical reality. Statements must also be able to change to account for development of the consumer credit market in the future.

The Government are committed to consulting with the industry and consumer groups to ensure that there is a balance between the provision of information and the practicalities involved, so we will resist amendment No. 16. We will consult with all interested parties on the content of the statements and ensure that they reflect a balance between the need to inform and the practical reality.

The hon. Member for Tewkesbury raised the issue of the imposition of obligation on lenders not being too onerous. In introducing the provision the Government recognise two things: many responsible lenders already provide regular detailed information to consumers, and this requirement is designed to ensure that lenders meet a minimum standard of information provision to consumers. All consumers who have agreements of more than a year's duration should, and are entitled to, receive the same minimum information on a regular basis.

The Government's intention is not to impose onerous compliance requirements on lenders; we want to ensure that all lenders provide consumers with a minimum level of information, and we want annual statements to contain relevant and useful information. The Department will consult widely with industry and consumer groups before preparing regulations specifying the form and content of annual statements. For those reasons, I ask the hon. Member for Richmond Park to withdraw the amendment, and, if she fails to do so, I ask the Committee to vote against it.

Jenny Tonge (Liberal Democrat, Richmond Park)

I thank the Minister for his explanation, and as with the previous amendment, I do not feel confident enough to put it to the vote, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Laurence Robertson (Conservative, Tewkesbury)

I beg to move amendment No. 17, in clause 6, page 5, line 37, at end insert—

'(7A) In addition to the statement referred to in subsection (1) above the lender shall also provide the debtor with a statement at the outset of the agreement.

(7B) Regulations may make provisions about the form and content of the statements under (7A), but the contents shall include a clear guide as to—

(a) the redress procedures available to the debtor if any dispute regarding the agreement shall arise, with particular respect to the Financial Services Ombudsman and the Financial Services Authority;

(b) sources of information and advice with regard to the debtor's rights under the terms of this Act and the 1974 Act; and

(c) any charges, other than interest payments, which the lender may legitimately make.'.

The amendment places a requirement on the lender to provide the debtor with a statement at the outset of the agreement. That is frequently done, but this would be a little more prescriptive. It allows the Minister to set regulations about the form and content of the statement but it also specifies what should be in that statement, including among other things the redress procedures available to the debtor should any dispute regarding the agreement arise. I refer particularly to the financial services ombudsman, who will be discussed later in the Bill, and the Financial Services Authority.

The amendment also requires them to be told of sources of information and advice with regard to the debtor's rights under the terms of this Bill and the 1974 Act. It also requires—this is probably the most important part—that

''any charges, other than interest payments, which the lender may legitimately make''

must be put on this statement, which must be given to debtors at the beginning of the contract.

I was persuaded to table this amendment because financial institutions all too often seem to make the rules up as they go along. Charges are levied that I am sure are not necessarily part of the contract. What particularly annoys people is that organisations write to individuals and then, as I said, charge them £30 or £40 for the privilege of having been written to. Some years ago I had a loan, towards the end of which I had a dispute with the company. I had to instruct a solicitor to sort it out. I was successful in doing so—I was right, and they were wrong—but they insisted on writing to me and charging me £30 for every letter they sent. I wrote back saying: ''That is very good, I charge £50 for every letter I send you, so you owe me £x.''

Not everyone would have my nerve or confidence, and vulnerable people certainly would not. They would lose out, perhaps in a legal sense, but also simply because of the relative strength of the parties involved, as I described earlier. Therefore, for the agreement to be legal, and this would be consistent with every other area of law in the country, the lender should have to state very clearly not only the terms of the agreement but what will happen if x, y or z happens. The debtor would then have a much clearer idea about the agreement into which he is entering, and much bad faith and bad feeling would be avoided.

The redress procedures available are important, and it would benefit consumers to be aware of them. I do not see why it should be against the interests of decent and honourable lenders to have to give information and sources of information that relate to the debtor's right under the terms of the Bill and the 1974 Act. I raised a point about such agreements on Second Reading, which requires clarification. I shall attempt to put it more articulately than I did then. If an advertisement or contract carries a term or attractive inducement in large writing, but the complete opposite appears in tiny writing, it is my understanding of the law that that tiny writing does not supersede what appears in large writing. In other words, if something in an advertisement or an agreement could be said to be misleading, that agreement is struck out. Most people, however, are not aware of that, and would assume that if something was buried in minute writing on page 25 of a contact, a company has a right to rely on that when, in fact, it cannot.

I shall give one example of why people must be made more aware of their rights and their rights of redress. It returns to what the hon. Member for Richmond Park said about education. I accept that it is impossible to teach 14, 15 or 16-year-olds the intricacies of contract law. However, in general terms, we could do more. Amendment No. 17 seeks to do that by putting the agreement on a legal basis whereby companies can charge if those charges were agreed to at the outset of the contract, but they cannot impose charges simply because they are the much stronger party and because they can persuade people that they are entitled to do so when, in fact, they may not be able to do so.

Gerry Sutcliffe (Labour, Bradford South)

I again acknowledge the intention and the spirit with which the hon. Gentleman has introduced the amendment. However, I want to convince him that it is unnecessary because wide provisions exist outside the Bill. We have the balance about right on what information must be provided to consumers and on the practicalities of providing that information.

I am not sure how a statement at the outset of the agreement would help consumers, particularly as they would just have received their contractual documentation and might not have made any repayments. The information contained in a statement at that time would not add any value.

I understand the hon. Gentleman's desire to inform consumers about their options for redress; it is important that consumers receive information when it can be of use to them. The Bill will require creditors to provide information about advice options and alternative dispute resolution, along with arrears and default statements. The annual statements will also include more general information. We want not to overburden consumers with information but to provide them with information that is relevant and helpful.

In respect of the third item on the hon. Gentleman's list, the Government have recently amended regulations relating to pre-contractual information. The Consumer Credit (Agreements) (Amendment) Regulations 2004 also require lenders to specify in agreements any charge that may be imposed on default.

John Battle (Labour, Leeds West)

On that point, I have a great deal of sympathy with the hon. Gentleman's amendment. The reason is that the interest is often in the small print. It may be written in Carolingian miniscule, so that one can hardly see it if one has bad eyesight. Apart from that, when charges are put on, not all of them have been agreed and are clear at the beginning. The problem is that companies change the terms of the contract half way through. We must get to grips with that; we must put pressure on companies. I suspect that companies make enormous amounts of money out of the poor, who pay the most. Companies know how much profit they will make before the end of the year; they anticipate what they will pick up in interest and in charges. Will the Minister reassure me that we can either give more support to borrowers or put more pressure on companies to be more open about what money they expect to get from people?

Gerry Sutcliffe (Labour, Bradford South)

I fully agree with my right hon. Friend's intentions. We changed the rules on newspaper advertising to make the cost of a product clear in bold print. We worked with the industry on the form and content of an agreement to decide on measures that were to everyone's benefit. The driving factor is transparency. If I use the term ''rogue'' I do so not to attack those who lend, the majority of whom do so responsibly.

There will be an unfairness test, which we shall discuss later. There will be an alternative dispute resolution and there will be other redress and safety mechanisms to point out those who act improperly. I do not think that the amendment will take us much further. I think we have the balance right on the information required for consumers' benefit and so that lenders will not be unduly burdened.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I, too, have some sympathy with the gist of the amendment and with the Minister's argument against overburdening people with information. However, as the Minister and my right hon. Friend the Member for Leeds, West pointed out, it is not merely a question of information, but of enforcement. Many big, reputable credit card companies routinely make high and changing charges, which have been held in certain forums to be unenforceable penalty notices. However, they still implement them.

I hope that, on the enforcer of this legislation, the Office of Fair Trading, we shall see a step change in the enforcer's regime. The practices I have referred to are well known and they could be covered by blanket enforcement, but that is simply not done at the moment.

Gerry Sutcliffe (Labour, Bradford South)

I have great sympathy with my hon. Friend's remarks. From those who watch and listen to our deliberations there is a clear message to politicians on all sides on the need for openness, transparency and responsible lending. The onus is on those who have the maximum resources to ensure that their products are transparent and do not hinder consumers. The other side of the balance is that consumers borrow responsibly by having as much access as possible to information about products.

The small print is always a difficult issue. The new agreement regulations that will take effect in May will require changes to be specified clearly and concisely, and not in small print. If that does not happen, they will come under the redress mechanisms that we shall discuss later.

I understand the spirit and the intention behind the amendment, but I do not think it is necessary. We have the balance about right, and we shall have further opportunities to offer redress where necessary. I therefore ask the hon. Member for Tewkesbury to withdraw his amendment.

Laurence Robertson (Conservative, Tewkesbury)

May I pick up on the Minister's point that the provision would be too late once the agreement had been set up? I do not see it that way. The amendment calls for a statement at the outset of the agreement; by implication, that is when the agreement is made. I understand that there is a two-week cooling-off period for agreements. Those two weeks could be used to read the statement to see whether, in the cold light of day, the debtor actually agreed to what was written down and that it was, in fact, what he intended to agree to.

The problem is that the system is not working. People are getting into terrible debt and some companies—I stress that it is only some—are changing the terms of agreements as they go along. It may or may not be legal to do that, and I suspect that it probably is not, but it is still happening and we must address it. I intend to do that with the amendment. Amendments Nos. 18, 19 and 21, which are the next group, also deal with the way agreements should be run in respect of default payments, and we will come to that.

The Bill should address the relative strength of the parties, and, in spite of the Minister's eloquence and detailed information, I must insist on this amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 4, Noes 9.

Gerry Sutcliffe (Labour, Bradford South)

Although we have given some time to the amendments and have had a full debate, it is important to put on record the Government's position on clause 6.

Consumers are entitled to be informed about their credit situation. The clause ensures that debtors receive clear and concise information about their fixed sum credit agreements on a regular basis. Clause 6 inserts a new section 77A into the Act. It will require creditors to provide debtors with annual statements in respect of fixed sum credit agreements that have a duration of more than one year. A fixed sum credit agreement provides a facility to a debtor who is entitled to receive a credit, whether in one amount or by instalments. Subsection (1) states that a creditor must provide a debtor with annual statements. The first statement must be provided within one year after the day on which the agreement was made. Subsequent statements must be provided at intervals of no more than one year after the previous statement was issued.

The form and content of annual statements will be specified by the Secretary of State in regulations which will be made under the new subsection (2). New subsection (3) states that a creditor cannot impose a charge on the debtor of costs of producing an annual statement. New subsection (4) states that the creditor is not obliged to provide any statements after the debtor has made his final payment. Subsections (5) and (6) state that while a creditor does not give the debtor an annual statement when required, the creditor is not entitled to enforce the agreement until a statement has been provided. The creditor cannot charge interest during the time when no statement has been provided, and the debtor is not liable to pay any default sum that would have been payable during the period when the statement should have been provided. The default sum is defined by clause 18 and includes sums, except interest, that will become payable by the debtor in connection with a breach of the agreement.

New subsection (7) defines ''the period of non-compliance''. That is the period from the day after the last day on which a statement is required until the day when a creditor provides a statement. New subsection (8) makes it clear that the requirement for annual statements does not apply to non-commercial agreements. Non-commercial agreements are agreements that are not made by the creditor in the course of his business or for small agreements of less than £50. Debtors should be regularly informed of their financial situation. This clause ensures that they are.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Clause 7 - Further provisions relating to statements

Gerry Sutcliffe (Labour, Bradford South)

Hon. Members will be aware of recent concerns that some consumers make only the minimum payment on their credit cards. Clause 7 ensures that debtors are made aware of the potential hazards of such behaviour. Section 78(4) of the 1974 Act requires creditors to provide periodic statements in the prescribed form. Those should be given automatically to debtors and describe the state of their running account credit agreements, such as credit cards and store cards. The maximum limit for those periodic statements is currently 12 months.

Clause 7(1) allows the Secretary of State to make regulations requiring additional information to be included in those statements given to debtors—for example, that additional information will set out the consequences of making only part payment, failing to make any payments, or making only minimum repayments. The Department will consult about the form of those warnings with interested stakeholders before the Secretary of State makes any regulation.

Subsection (2) ensures that changes do not apply to small agreements for less than £50. Subsection (3) amends section 185(2) of the 1974 Act where the agreement is with more than one debtor. Anything required by the Act must be done to all debtors, but one of the debtors can sign a dispensing notice authorising the creditor not to comply with the obligation on his behalf for a fixed sum annual statement. That avoids the need to send duplicate statements, and the notice is effective only if at least one of the debtors is still receiving statements.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8 - OFT to prepare information sheets on arrears and default

Laurence Robertson (Conservative, Tewkesbury)

I beg to move amendment No. 18, in clause 8, page 6, line 35, at end insert

', but shall include—

(a) details of the rights of consumers under this Act and the 1974 Act with regard to defaults; and

(b) details of redress procedures available to debtors, with particular respect to the Financial Services Ombudsman and the Financial Services Authority.'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss the following amendments:

No. 19, in clause 9, page 8, line 2, at end insert

', but shall include—

(a) details of the rights of consumers under this Act and the 1974 Act with regard to arrears; and

(b) details of redress procedures available to debtors, with particular respect to the Financial Services Ombudsman and the Financial Services Authority.'.

No. 21, in clause 10, page 8, line 37, at end insert

', but shall include—

(a) details of the rights of consumers under this Act and the 1974 Act with regard to arrears;

(b) details of redress procedures available to debtors, with particular respect to the Financial Services Ombudsman and the Financial Services Authority.'.

Laurence Robertson (Conservative, Tewkesbury)

The amendments follow on from amendment No. 17 and address the same problem. Amendment No.18 asks that the rights of redress procedures available to debtors be clearly laid out and that the rights of consumers under this Bill and the 1974 Act with regard to defaults be carried out. It seeks to reinforce the point that the company should be allowed only to do what it originally stated it would do. It should be set out very clearly to debtors what their position is under this Bill and under the 1974 Act, what their rights of redress are, and what they are legally liable to pay. I spoke comprehensively on those matters in the discussion of amendment No. 17, so I shall allow the Minister to put forward his line of thinking.

Gerry Sutcliffe (Labour, Bradford South)

By now it should come as no surprise to the hon. Member for Tewkesbury that we shall be resisting his amendments. That is not a personal attack on him, rather on the content of the amendments.

The requirement for the Office of Fair Trading to prepare and publish information sheets on arrears and default will be supported by regulation to be made by the Secretary of State. Those regulations will specify the types of information to be included, and the form of the sheets will be left to the OFT. The Government have left those decisions to be made in regulations to enable the OFT to decide the detail and to make further changes as and when necessary. It also enables the Government to develop that detail through consultation with consumers and the industry, and it ensures future-proofing. The matters mentioned in the amendments are able to be required in those statements. We are committed to consulting the industry and consumer groups on that detail and to ensuring that there is a balance between the types of information specified and the practical limitations of preparing useful information sheets. We will, therefore, resist the amendment. We will consult all interested parties on the types of information to be included in the OFT information sheets and ensure that they reflect a balance between the need to inform and the practicalities.

We resist amendment No. 19. The requirement for notices of sums in arrears in relation to fixed sum credit agreements is to be supported by regulations to be made by the Secretary of State. As I have said, the regulations will contain the content of the notices and their forms. Those matters are best left to regulations, which ensure detailed provisions for the form and content of the notices and which can be changed if necessary.

As I said in relation to the previous amendment, the Government will be able to consult with consumers and industry. The important point is that since the White Paper, and since the regulations that flowed from it came into force, the journey we have made is one that we have tried to undertake with stakeholders who represent all sides. That is beneficial, and we have set out the most appropriate way forward. We will consult further, and the issues raised by the hon. Member for Tewkesbury and the assurances for which he asked can be dealt with through those regulations. That is a better route.

On amendment No. 21, if we leave matters to regulation, we will move forward on important issues. The hon. Gentleman mentioned advice and redress options. Those will be required in the notices and are to be provided as part of the Office of Fair Trading information sheets, which will be required to be provided with a notice of sums in arrears and default notices. We will consult all interested parties. The notices need to be able to be changed to take account of future developments in the consumer credit market. That will not add the burden of excess paperwork to consumers or lenders, and it is appropriate to follow our suggested route. To follow the hon. Gentleman's route would create further burdens and would not be in the spirit of what we are trying to achieve. We ask him to withdraw his amendment.

Laurence Robertson (Conservative, Tewkesbury)

Let me pick up on the Minister's closing comments. The amendments would not put a further burden on the industry. They are simple requirements. The details of the rights of consumers under the Bill and under the 1974 Act would be set out in a standard document. It would not place any extra burdens on businesses. I note that the Minister will consult with the industry yet again. I wish him well in those consultations, and on the strength of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe (Labour, Bradford South)

To remove any doubts that the Committee may have, I will set out the Government's position on clause 8. The Government are committed to ensuring that all consumers receive clear, concise, independent information on debt management options, including debt advice. The best times to do that are when telling consumers about being in arrears and when they receive the court notice.

Clause 8 requires the Office of Fair Trading to prepare and publish information sheets to be included with notices about arrears and default notices. The sheets will be published by means of a general notice. The arrears information sheet will include information to help debtors and hirers who receive arrears notices under clauses 9 and 10. The default information sheet will include information to help debtors and hirers who receive default notices under the 1974 Act. The type of information included on each sheet will be, as I outlined in the discussion on the amendments, specified in regulations made by the Secretary of State. It is important that the Department consults with interested parties before any regulations are made in order to give creditors and owners time to obtain the new information sheets.

New subsection (5) states that a new information sheet will take effect three months after it is published by the Office of Fair Trading in a general notice. New subsections (6) and (7) state that the OFT may revise the information sheets, and a revised information sheet will take effect three months after the OFT has published it in a general notice.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clause 9 - Notice of sums in arrears under fixed-sum credit agreements etc.

Laurence Robertson (Conservative, Tewkesbury)

I beg to move amendment No. 20, in clause 9, page 8, line 6, leave out 'four' and insert 'six'.

The amendment relates to the notice of sums in arrears on fixed sum credit agreements. By and large, I support the requirements of clause 9. My only slight problem, which I have discussed with the industry, relates to subsection (8), which refers to weekly payments. Normally payments are made monthly, but there are occasions, particularly among lower income groups, where repayments are made weekly. My simple amendment seeks to address that.

The current requirement is that if two payments are missed, notices must be sent. That is to be increased to four payments, but four payments may not cover a tremendously long time. Several very small loan agreements may be repaid at the rate of £5 a week or so, and I am persuaded that the industry that operates in that market is often flexible. Money is collected on the doorstep; it is not sent by direct debit. A relationship can build up between the collector and the debtor, and it may be seen as heavy-handed if notices of missed payments and suggestions to seek advice on debt are sent too quickly, when arrears are only approximately £20. I want to do my bit to improve the Bill in that respect, by preventing it from being too heavy-handed in those circumstances.

Sally Keeble (Labour, Northampton North)

I wonder whether the hon. Gentleman will address this point. His comments seem to run counter to his previous points that all the received wisdom is that early intervention and early reminders are best. I do not understand why, having argued very much in favour of the borrower, he now argues in favour of the lender and against received wisdom.

Laurence Robertson (Conservative, Tewkesbury)

The hon. Lady makes a fair point, but I am concerned. The industry itself is pressing for eight weeks, but I have suggested six, which I think is a reasonable compromise. As I have said, I am arguing for two points of view. I am arguing for the protection of the borrower, but also that we should not have too much administration, bureaucracy and regulation heaped on top of what is a successful credit industry. The mischief that the Bill seeks to deal with does not exist too much in the small loans sector. That is why I have compromised by suggesting six weeks rather than eight. It would be a little heavy-handed for somebody who is perhaps only £20 behind in payment under the terms of their agreement to start to receive letters that suggest taking debt advice and counselling on debt. It is too heavy-handed; I cannot put it any clearer than that.

I wish to pick up on another point. I am straying slightly from my amendment, so you can rule me out of order, Sir John, if I stray too far. In subsection (9)(b), reference is made to a ''small agreement''. It is my understanding that a small agreement is now £50, which is a very low sum indeed. Has the Minister any intention to increase that? I am straying way beyond the thrust of the amendment, so I will stop there.

John Butterfill (Conservative, Bournemouth West)

It would be perfectly in order to raise that matter in the clause stand part debate.

Laurence Robertson (Conservative, Tewkesbury)

Thank you, Sir John.

Gerry Sutcliffe (Labour, Bradford South)

I have a slight problem understanding the way in which the hon. Gentleman has moved the amendment, for the reasons that my hon. Friend the Member for Northampton, North (Ms Keeble) has put forward. The Opposition parties have so far consistently supported the position of the borrowers, but I accept that the hon. Gentleman wants to look at matters in the round.

We have looked at this matter in great detail. People taking smaller loans are especially in peril, because they tend to be the most vulnerable. Hon. Friends in other arenas have stated that those who borrow the least can end up paying the most and can be in the most vulnerable of situations. I cannot therefore agree with the hon. Gentleman's amendment; there is just a complete disagreement between us.

Laurence Robertson (Conservative, Tewkesbury)

I am seeking to protect consumers, but also to avoid unnecessary bureaucracy being piled on top of lenders. The companies that deal with small loans often have a far more flexible approach to business, and while debtors with small loans may end up paying a higher interest rate, the fact that there is flexibility within the agreement can change its nature. However, there may not be the same charges, such as those incurred when writing to people as part of the terms of agreements. That is one reason why I shall resist interest rate ceilings, because the interest rate, as the hon. Member for Leeds, West said, is not the entire story.

I accept that the interest rate may be a little bit higher on those loans, but all I am saying is that the period before the big machine goes into action, writing letters to people, should be six weeks rather than four. That is not a revolutionary proposal.

Gerry Sutcliffe (Labour, Bradford South)

It may not seem so to the hon. Gentleman, but from the Government's perspective, in our attempt to apply consistency, it is revolutionary. The hon. Gentleman this morning mentioned consistency in regulation and making sure that we did not overburden people. In developing our proposals, we have looked at the issue in great detail, and it has been decided to use a similar approach to that which the Financial Services Authority uses for mortgages, which is a monthly repayments regime.

Although that rationale applies to longer-term mortgages that have monthly repayments, we recognise that small short-term loans are different for the reasons that both the hon. Gentleman and I have given. Simply using the same formula is not appropriate, and for that reason we have made specific provision for those sorts of agreements. In agreements that will probably be short term with weekly instalments, such as home credit loans, missing four repayments is likely to be a significant issue for consumers who rely on those sorts of products. The proposals in the Bill require notice of sums in arrears to be provided 14 days after the fourth missed repayment. That means that for an agreement with weekly repayments, the creditor will need to send a statement six weeks after the first missed repayment. Such agreements are shorter in duration, only a few months at most, and are for small amounts. We do not intend to change the £50 definition of small amounts.

The customers that use those products are generally the most vulnerable for the reasons that I have given, and they have limited means. For that reason, we do not believe that the customer should be treated in the same way as in other credit agreements, as the hon. Member for Tewkesbury proposes. Reluctantly, we must disagree on the nature of the issue between us. We believe that, following our deliberations and consultation with the various stakeholders, we have got it right. I ask the hon. Gentleman to withdraw his amendment.

Laurence Robertson (Conservative, Tewkesbury)

I do not accept that I am proposing that people be treated any differently. Our only point of disagreement is the interval between failing to make a payment and when the letters start to arrive. I do not seek a different rule or a different law. The Government are increasing the period from two weeks to four, so they have recognised that they do not want the whole machinery of bureaucracy to begin too early. All I am saying is that they should have relaxed that bureaucracy slightly more.

The other point about small agreements is relevant. I suppose that if that were a little higher, my amendment would be taken care of, but I shall not stretch the Committee's patience. We have had a bit of a debate on the point, and I do not want to press the amendment to a vote. I am happy to have got on the record my concern about there being a little bit too much bureaucracy, and, that said, I understand the Minister's position. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.

Clause 10 - Notice of sums in arrears underrunning-account credit agreements

Gerry Sutcliffe (Labour, Bradford South)

Let me put on the record the Government's views about the important issues relating to arrears. As hon. Members will appreciate, getting behind in making regular payments is often the first step towards major debt management problems. The Government believe that consumers should be informed about the situation as soon as possible. Clause 10 will require creditors to provide debtors with a notice when their running-account credit agreement such as a credit card or store card falls into arrears.

The following are the conditions set out when arrears notices must be sent. The debtor under an applicable agreement is required to have made at least two payments under the agreement before that time. The last two payments which he is required to have made before that time have not been made. The creditor has not already been required to give a notice under this section in relation to either of those payments. Finally, if a judgment has been given in relation to the agreement before that time, no sum is payable under the judgment by the debtor.

If all those conditions are met, new subsection (2) requires that:

''The creditor shall, no later than the end of the period within which he is next required to give a statement under section 78(4) in relation to the agreement, give the debtor a notice under this section.''

New subsection (3) requires that:

''The notice shall include a copy of the current arrears information sheet under section 86A.''

New subsection (6) states:

''Regulations may make provision about the form and content of notices under this section.''

The Department will consult on those matters before the regulations are made.

New subsection (4) states:

''The notice may be incorporated in a statement or other notice which the creditor gives the debtor in relation to the agreement by virtue of another provision of this Act.''

New subsection (5) states:

''The debtor shall have no liability to pay any sum in connection with the preparation or the giving to him of the notice.''

The clause is important to ensure that consumers are made aware of the problems with their account as soon as they fall into arrears.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.

Clause 11 - Failure to give notice of sums in arrears

Gerry Sutcliffe (Labour, Bradford South)

I should read out the detail on clause 11, which covers particularly important areas that we should put on the record. The clause sets out the consequences for the creditor or owner offering to give an arrears notice. The Government have carefully considered appropriate sanctions where there has been a failure to provide notices, and the best way to make creditors or owners give arrears notices is to penalise them for non-compliance in a way that hurts them most.

Subsections (1) and (2) set out the periods in which a creditor or owner will not have complied with the requirement to send an arrears notice. For fixed-term credit agreements that will be either after the 14-day period when the conditions in clause 9(1) have been met or for further notices after the six-month period. For running-account credit agreements, it will be after the time when the next statement was due. The creditor or owner will comply with the relevant requirements when they have sent a notice to the debtor or hirer.

Subsection (3) and (4) establish the consequences for the creditor or owner during the period when they should have provided an arrears notice to the debtor or hirer. They will not be entitled to enforce the agreement, charge any interest and impose any default sum for a breach by the debtor or hirer that occurs during that period. Clause 11 ensures that creditors or owners cannot profit from an agreement when they have failed to comply with the arrears notice requirements.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.

Clause 12 - Notice of default sums

Laurence Robertson (Conservative, Tewkesbury)

I beg to move amendment No. 22, in clause 12, page 10, line 23, at end insert—

'(6A) The debtor shall not be required to pay a default sum unless the liability to do so is clearly set out in the statement as required under subsection (7) of section 6 of this Act.'.

The amendment takes us back to what I was saying about statements setting out exactly what a lender is entitled to charge. It basically refers to debtors who will not be required to pay a default sum unless the liability to do so is clearly set out in the statement. I made the case for the statement under an earlier set of amendments, and there is no need to do so again, but I really do think that that would form a very important part of the original statement, were there to be an original statement—

It being twenty-five minutes past Eleven o'clock The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned accordingly till this day at half-past Two o'clock.

Standing Committee E

Clause 12 - Notice of default sums

Gerry Sutcliffe (Labour, Bradford South)

The hon. Member for Tewkesbury (Mr. Robertson) moved amendment No. 22, which is based on arguments similar to those he raised in amendment No. 17. Since we did not support amendment No. 17, it will come as no surprise to him that we will not support amendment No. 22 either. I understand the spirit and intention of what he is trying to achieve, but the Government have identified a better process for ensuring that people are informed fully about the default sums incurred when they incur them. For those reasons I do not need to go into any great detail. It is important that people understand fully their default situations, but it would not be helpful to follow the route that the hon. Member for Tewkesbury suggests. Therefore I respectfully ask him to withdraw his amendment in the same spirit as he did so previously.

Laurence Robertson (Conservative, Tewkesbury)

I did not withdraw amendment No. 17; I pressed it to a vote, as acceptance of the amendment would—

Gerry Sutcliffe (Labour, Bradford South)

I apologise. I have just had lunch with the British Retail Consortium, so my memory is slightly clouded. I remember now, and acknowledge that the hon. Member for Tewkesbury did push amendment No. 17 to a vote.

Laurence Robertson (Conservative, Tewkesbury)

I hope that the Minister enjoyed his lunch. I am sure that it was rather better than my lunch in the Tea Room.

Chris Bryant (Labour, Rhondda)

Such is opposition.

Laurence Robertson (Conservative, Tewkesbury)

Such indeed. I did not withdraw amendment No. 17 because its acceptance would have improved the world of consumer credit, in the sense that it would have required the lender to set out clearly the terms of the agreement into which the borrower was entering. However, it was lost. Amendment No. 22 is consequential on that, so I do not intend to press it to the vote. It is important that the lender set out clearly the detailed terms of the agreement so that the borrower has no illusions about what he is entering into or the consequences of any default. Given that I did not win that vote, I do not suppose that I shall win this one, so I shall not trouble the Committee any further with it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

John Butterfill (Conservative, Bournemouth West)

It will not be necessary, or even desirable, for all hon. Members to preface their remarks by stating their luncheon arrangements. [Laughter.] For the convenience of hon. Members a new selection list is available.

Clause 12 ordered to stand part of the Bill.

Clause 13 - Interest on default sums

Gerry Sutcliffe (Labour, Bradford South)

Hon. Members will be aware of high-profile cases in the press in which compound interest on default sums has resulted in massive escalations of the original debt. That is of considerable concern, and it is addressed in clause 13. Creditors or owners are entitled to the cost of recovering the debt, but that should not unduly penalise debtors or hirers. The clause will prohibit the compounding of interest on default sums and allow the charging only of simple interest. A default sum will be defined in a new section 187A of the Consumer Credit Act 1974 as an amount payable, other than interest, by the debtor or hirer for any breach of their agreement. For example, this could include a late payment fee, a mispayment fee or legal fees. Any current agreements that permit compound interest will have to be amended to allow simple interest only.

Laurence Robertson (Conservative, Tewkesbury)

Will the Minister consider extending the restriction to arrears generally, or has that been ruled unnecessary or undesirable? People get into trouble on arrears generally, not only on defaults. If a lender attracts simple interest on the arrears or the default, the money will be repaid with interest. Did the Minister consider extending the restriction to that extent? Arrears are potentially more dangerous for borrowers than defaults.

Gerry Sutcliffe (Labour, Bradford South)

The hon. Gentleman has raised a difficult issue. To my recollection, we considered how to re-examine other agreements, but decided that the most appropriate route was the one that we had chosen. If that recollection is incorrect, I shall come back to the hon. Gentleman with precise details from the consultation.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clauses 14 and 15 ordered to stand part of the Bill.

John Butterfill (Conservative, Bournemouth West)

I am happy for hon. Members to take off their jackets, but it is customary to ask the Chair for permission.

Gerry Sutcliffe (Labour, Bradford South)

I am suitably chastened, Sir John, and I apologise for removing my jacket without first asking your permission. I shall have to stop going to luncheons, because they are clearly not doing me any good.

Clause 16 - Time Orders

Gerry Sutcliffe (Labour, Bradford South)

It is usual to spend some time on time orders, which are dealt with in clause 16. This morning, I mentioned the situation in Scotland with regard to time order applications. A debtor or hirer can ask the court for a time order in any action brought by a creditor or loaner to enforce a regulated agreement, or when they receive a default or non-default notice. Time orders may enable the debtor or hirer to have more time to repay the sums owed under the agreement and to remedy any breach of the agreement other than non-payment.

The time-order provisions of the 1974 Act are seldom used. Few are applied for and fewer are granted. Lack of information is part of the problem. Debtors and hirers are not aware of the time order provisions. We are working on ways to inform them about time orders, which will involve the inclusion of information on arrears and on default information sheets that will be produced by the Office of Fair Trading. The fact that debtors or hirers cannot apply for time orders at the appropriate times is part of the problem.

The clause amends section 129(1) of the 1974 Act to allow debtors or hirers to apply for a time order after they have received an arrears notice. That ensures that the debtor or hirer has the opportunity to apply for a time order when the problem is still developing, not when it is too late.

There is concern that people may use the time order simply to delay the inevitable, or that they will apply because they can. We will require people who want to seek a time order to go through certain steps. Debtors or hirers can make an application in the following circumstances: when they have notified the creditor or owner of their intention to apply for a time order and, in so doing, give details of their proposals; and that at least 14 days have passed since the notification was given to the creditor or owner. In practice, requirements should not be onerous. It is important to have simple criteria that can be met by debtors and hirers; compliance should also be simple.

The clause encourages creditors and owners to seek and resolve payment problems early. That was the basis for some of this morning's discussion.

Jenny Tonge (Liberal Democrat, Richmond Park)

Does it cost a debtor anything to apply for a time order?

Gerry Sutcliffe (Labour, Bradford South)

That depends on the negotiations that take place on the plan that the debtor proposes to the lender. The arrangement would have to be in the best interests of both parties, but a time order provides time and opportunity to resolve difficulties at a very early stage. It is a useful tool for resolving problems, and we wish to see its use spread throughout the UK. We will be talking to the Scottish Executive and others in order to achieve a consistent approach across the UK.

Question put and agreed to.

Clause 16 ordered to stand part of the Bill.

Clause 17 - Interest payable on judgment debts etc.

Gerry Sutcliffe (Labour, Bradford South)

The next few clauses deal with the issue of interest payable on judgment debts. In England and Wales, money creditors' agreements include a term that allows them to continue to charge interest after they have obtained a judgment for a debt owed. That continues until the debt has been paid in full by the debtor. The term is included because the courts are prevented by law from awarding statutory interest on consumer credit debts.

Most creditors never make use of those terms, but some do. The problem is that debtors and hirers are often unaware of such terms, and do not appreciate that further interest may be accruing even though they are dutifully paying off the judgment debt. This is not an issue in Scotland and Northern Ireland. In those jurisdictions the court is empowered to order interest on judgment sums at rates specified in legislation. We are not banning the practice of seeking interest—creditors should be entitled to charge interest on an amount that is owed—but debtors and hirers should also be told what they might have to pay.

We are not introducing a requirement for statutory interest in England and Wales. Few lenders seek post-judgment interest, and a statutory interest regime would mean that many people who are not required to pay interest now might have to in future.

Clause 17 requires creditors or owners to notify debtors or hirers about the interest that continues to apply after the judgment has been made. Once the judgment has been made by the court, if the creditor or owner wishes to claim interest on the amount to be paid, they must notify the debtor or hirer and continue to do so at least every six months. The notice may be incorporated into any other required statements or notices under the 1974 Act. The debtor or hirer does not have to pay the interest if the creditor or owner has not complied with this proposed new section. This provision does not apply where a court has the power to order interest to be payable on a judgment sum.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

Clause 18 - Definition of ''default sum''

Gerry Sutcliffe (Labour, Bradford South)

It may help the Committee to look at the definition in clause 18 of the default sum. Clause 18 defines the term ''default sum''. The term is used in clause 6, relating to annual statements; clauses 9 and 10, which deal with notices of sums of arrears; clause 11, which deals with the failure to give a notice of a sum in arrears; clause 12, which deals with notice of default sums; and clause 13, which deals with interest on default sums.

The term ''default sum'' means the amount payable, other than the interest, by a debtor or hirer in connection with a breach of the agreement, such as a charge imposed for late payment. In such cases, the terms and conditions of the agreement may require that a debtor or hirer should pay all or part of the outstanding credit before it would normally be due. This is often called an accelerated payment clause. Such payments are not default sums.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 19 - Unfair relationships between

Chris Bryant (Labour, Rhondda)

I beg to move amendment No. 8, in clause 19, page 13, line 13, at end insert—

'(bb) the debtor entered into the credit agreement as a result of the creditor sending him an unsolicited pre-approved application form;'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss new clause 2—51A Prohibition of unsolicited credit-token applications.

'(1) It is an offence to give a person an application form for a credit-token unless he has specifically requested it.

(2) To comply with subsection (1), a request must be made by the person making the request either by way of—

(a) a document signed by that person; or

(b) a recorded telephone call by that person to the person or company offering the credit-token.''.'.

Chris Bryant (Labour, Rhondda)

It is a pleasure, Sir John, to sit under your chairmanship, not least because you are a senior member of the all-party Spain group, and I know that we are dealing with some Spanish practices this afternoon [Hon. Members: ''Oh!'']. Sorry, it was a very bad joke.

I confess to the Committee that there are several versions of how to remedy the same mischief. I suspect that the Minister will want to throw the words of the three very similar amendments into a pot and return with a version of his own.

When we deal with any consumer issue, the primary consideration is that, in the first instance, it is up to the buyer to beware: caveat emptor. However, it is evident from the spirit of the Bill as written that consumer credit is a rather more complex matter. That is for many reasons, not least those highlighted by the appalling tragedy of the widow who this morning on the ''Today'' programme recounted the terrible situation of her husband getting into debt and his eventual suicide. I am sure that all members of the Committee will know the issues only too well from remarkably similar constituency cases. That is not an isolated case.

Unfortunately, according to the statistics, 80 per cent. of people do not understand percentages, let alone the statistic of 80 per cent. The fact that people have so little financial literacy makes it very difficult for them to make their finances add up. More importantly, it makes it very easy for others to market products to them that they possibly do not understand, and almost certainly cannot afford.

In the run-up to Christmas, which is the time of year when many family budgets are at their most precarious, the industry sends out 140 million unsolicited, pre-approved credit card application forms. Last year, 13 million credit cards were taken out, increasing the number of credit cards in this country to 160 million. People are constantly being offered an increase in the credit that they are allowed on their credit card, even if they do not want it. The Bill attempts to deal with that process of offering easy credit.

Alistair Burt (Conservative, North East Bedfordshire)

I am grateful to the hon. Gentleman for the opportunity to support his argument. Yesterday, I had to phone my credit card company because I had lost one of my cards. In addition to issuing a replacement card, which was kind, the credit card company immediately offered me another card, notwithstanding the fact that I was ringing only to admit that I was so incompetent that I had already lost one. Almost any contact with the credit card company allows the opportunity for customers to create yet more debt. That is the type of problem that the hon. Gentleman described.

Chris Bryant (Labour, Rhondda)

I cannot comment on the hon. Gentleman's incompetence, but I give him credit—I have just been urged to say that—for bringing the issue further to our attention. On a serious point, my experience last week of phoning to have my new credit card authorised for use involved the company trying to sell me another five products, none of which I wanted. I said very early on that I did not want any other products, and that I was simply ringing to get my credit card started again. The industry should examine how they train people to deal with customers, particularly over the telephone.

In my constituency, where there are many families whose financial situations are complex or finely balanced, it is all too easy for the process of acquiring further debt—which they could not afford in the first place—to lead to financial ruin. The Government's regulatory impact assessment in the run-up to the Bill's publication cited irresponsible marketing—and irresponsible lending based on irresponsible marketing—as one of the major mischiefs that the Bill aimed to tackle. In some measure, the Government dealt with the issue of marketing techniques through the Consumer Credit (Advertisement) Regulations 2004, which emerged late last year and which laid out the wordings that must be used when someone wants to consolidate a series of loans into a single loan that is then secured on their home.

Ian Liddell-Grainger (Conservative, Bridgwater)

It may help the hon. Gentleman to know that some work has been done on the problem of people getting unsolicited mail through their front door. The most vulnerable, those who feel cut off from society, are among those most likely to reply because it gives them a point of contact with people outside their home. Does the hon. Gentleman agree that the Government should perhaps examine that area?

Chris Bryant (Labour, Rhondda)

Absolutely; that is one reason why I tabled amendments. My amendments sit alongside the one that my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) tabled, which we shall debate later. Changes in the banking code nod in that direction. Many banks and lenders have already decided that they will not send mailings and marketing products to people who are, for instance, aged under 25. However, Which? magazine's excellent report on the matter outlined significant details which remain to be considered. That report points to credit card checks, which we will debate when we come to new clause 1 and to the subject of mailings.

I had not expected to have much concrete evidence on this issue, until yesterday, when I received two letters. One was from Hfs Loans and announced:

''Congratulations Your debt busting Hfs loan could be just days away. Pay off your existing debts! Save over £288 a month''.

It is difficult to work out how that company arrived at a figure of over £288 a month.

At the bottom of the letter it stated:

''I would like a cheque for:''

and one can fill in the amount that one wants. That is perfectly legitimate under the banking code. Under last year's regulations, such letters should state that potential customers must think carefully before securing other debts against their homes, as their homes may be repossessed if they do not keep up repayments on a mortgage or any other debt secured on it. There should be a clear statement of the annual percentage rate, and so on. I note that such letters cite a typical repayment of £100.39 a month over 300 months for £10,000 borrowed. That is not what most people would term a mortgage, although it is paid back over 25 years. Getting such a loan requires writing out a cheque for oneself with which one is then able to start the loan process. Such marketing is irresponsible, and I know that many of my constituents get dozens of those letters, week after week. If such a letter lies on someone's doorstep when he has financial problems, that is the day he will take it up. Those loans do not pay off people's existing debts; they roll them up, possibly into something that is more expensive than the debt they already have.

That Hfs Loans letter was entirely unsolicited. At the same time, I got another letter from Capital One that asked: ''What's in your wallet?'' Remarkably little actually, but that is a minor detail. The letter stated that if the reader answered yes to certain questions, he or she would be guaranteed a card. One would think that those questions would be difficult—for instance, ''How much do you earn?'' or ''What is your state of credit?''—but in fact they ask whether the customer is aged 18 or over; a UK resident and able to prove their identity and address; whether they are bankrupt or listed on fraud databases; and whether they are able to provide a deposit of between £49 and £200 if required. I should like to tell the Committee that all those would be possible for me—

Paul Farrelly (Labour, Newcastle-under-Lyme)

My son, who receives umpteen of those application forms, finds it difficult to answer that question honestly as he will be only six next week.

Chris Bryant (Labour, Rhondda)

The company sent me that letter and asked for proof that I am aged 18 or over, which frighteningly betrays the fact that it has no idea how old I am. That shows the irresponsibility of the unsolicited pre-approved process that mostly takes information from other organisations without getting full information from a series of other creditors.

John Battle (Labour, Leeds West)

It would be more honest if the information asked one question: ''May we have your house later, please?'' The hon. Member for Bexhill and Battle (Gregory Barker), whose constituents I do not know, referred to the impact of the mortgage market, and I suspect that home owners are being targeted to get them to increase their debts on the basis of the increasing value of their property. It is a scam to say to people that they should pay back the loan over 25 years, because interestingly that is likely to be the lifespan of their mortgage as well.

Chris Bryant (Labour, Rhondda)

My hon. Friend has made an extremely important point, and I know that he was considering this problem before he entered the House. He took up such issues with some vigour in his previous line of work. Some may think that many people in Rhondda live in social housing, because it is one of the poorest constituencies in the land. However, 86 per cent. of people there own their homes, so they have assets that they may well lose. That is why areas such as mine receive a large number of unsolicited mailings.

The three exciting features that the Capital One credit card offers are: no annual fee; a typical APR of 29.9 per cent.; and—and this seems bizarre to me—the free choice of card design. Customers may pick one of about 20 credit card designs on the application form. It seems bizarre that more time and energy should be spent on the design of a credit card than on establishing whether someone has the financial resources to afford one.

Interestingly, when studying the small print—I still have reasonably decent eyesight—I noticed that people can apply for the priority service option for faster processing of applications. A charge of £10 is added to the account for the service, but opting for this increases the APR from 29.9 per cent. to 34.2 per cent. Most people applying for such a card would never bother to look at that detail. What the leaflet does not state is the point at which people would start to pay interest on purchases, balance transfers or cash withdrawals. Such information makes a significant difference to whether someone can really afford a credit card.

We heard on the ''Today'' programme this morning that one lady's husband had 22 credit cards. The amount of debt that can be racked up—which can then be moved on to one of these debt-busting Hfs loans—is so significant that people can lose not only their homes, but their sense of personal well-being, and that often leads to significant health problems.

I have tabled two amendments. The first is an amendment to clause 19, which states that if a debtor had entered into a credit agreement as a result of such an unsolicited and pre-approved mailing, that would in itself render the agreement into which the two parties had entered an unfair relationship, under the terms in the amendments to section 140 of the 1974 Act. I suspect that this amendment to the Act would stop these mailings immediately. There would be no point sending out unsolicited mailings, because no one would be able to enforce the terms in them. The Minister may feel that that process would be slightly too draconian. For that reason I have also proposed new clause 2, which would simply prohibit unsolicited credit-token applications.

I hope that we manage to stop this process, because I know the mischief and damage that it does to too many homes and families. We should try to rectify the level of irresponsibility shown in some—but by no means all—parts of the market.

James Plaskitt (Labour, Warwick and Leamington)

I support the principle that my hon. Friend the Member for Rhondda (Chris Bryant) has raised, although I suspect that he might not have the right vehicle or means of proceeding, as he intimated.

As the Minister will know, my colleagues and I on the Select Committee on Treasury have been working on those matters for a couple of years and endeavouring to push the credit card industry in particular towards greater transparency. My hon. Friend is absolutely right to place emphasis on the industry's unsolicited promotions. We have steadily pursued that matter over the past two years, and the industry has made only grudging movement. The Bill gives us an important opportunity to take some measures that the industry should be prepared to take itself, but—by and large—has not been keen so to do.

When there are so many providers in the field and so many different products, and when the business itself is so intensely competitive, it is entirely reasonable that the industry should promote its products as much as it wishes in order to compete. However, there is a distinction between promoting products in general and promoting extensions of credit lines. When the industry crosses into that area, we begin to encounter some of the horrific problems that my hon. Friend mentioned, and which were mentioned on the radio this morning. Other such instances were brought to the attention of the Committee during its inquiry. The industry does many things of an unsolicited nature. I am particularly concerned about the unsolicited issuance of credit card cheques, and I have tabled an amendment on that matter, which I shall address later.

We also unearthed examples of the unsolicited promotion of credit extensions. That is of particular concern because it is often aimed at those who are already nearing their credit limits and are, therefore, financially vulnerable. It can be very tempting, if an offer is made, to extend that credit line still further.

The industry is not doing enough to run checks on the extent to which people make multiple applications or respond to many of the inducements to take up additional lines of credit. A key to making progress is to address the sharing of information among providers. The Treasury Committee unearthed evidence that there is simply not enough sharing of information, and I hope that the Minister can assure us that there are measures in the Bill—if not in this clause—to help us to secure better sharing of information among providers. If we can achieve that, we will minimize the chances of financially vulnerable people piling up multiple ownership of cards and building up debt, which leads to the horrific consequences such as we have seen.

Ian Liddell-Grainger (Conservative, Bridgwater)

The hon. Gentleman has made some good points. It is a particular problem that credit card companies try to push people to take on as many cards as possible, because they want them to repay only the minimum amount and create more debt. The hon. Gentleman is absolutely right, one of the biggest problems is that the industry is determined to push those cards for that reason, and I am afraid that it will probably take legislation to stop that. Does the hon. Gentleman agree?

James Plaskitt (Labour, Warwick and Leamington)

The hon. Gentleman is right. The Treasury Committee has raised that issue with the industry many times, and has moved it considerably on that point and has got it to put clearly on statements what will be the consequences of making only minimum repayments. It was interesting that when we asked the chief executives of the banks, when they were giving evidence to the Committee, how long it would take to pay a debt if minimum repayments were being made in a given scenario, they could not work it out. If they could not work it out, and the henchmen behind them in the second row could not work it out either, why should they expect a customer with far fewer resources to work it out? We have encouraged them and, to their credit, many now include statements about the consequences of making only minimum repayments, which gives the customer some indication of how long it would take to pay off the debt and how much the debt would rack up if they were tempted to do that.

In the context of my hon. Friend's amendment on unsolicited promotion, I put another example to the Minister on risk-based pricing. We all understand why the industry needs to engage in risk-based pricing and, as an approach in itself, there is nothing inherently wrong with it.

However, if a credit extension is promoted to a customer in an unsolicited way and is advertised at one given APR, the customer may respond positively only to find that, when the card is used, with the credit having been extended, the APR is much higher because of the risk attached to the customer. That further example of the unsolicited nature of so much of the industry's promotion is an unacceptable marketing practice.

Finally, the industry keeps telling us that unfair relationships can be dealt with through improvements to the banking code or to its own code of practice. I acknowledge that it has made some welcome improvements to the code. Crucially, however, in many areas that relate to unsolicited marketing and promotion, the industry has not made sufficient moves with regard to its code. I hope that the Minister can reassure us that, if the amendment is not deemed to be totally suitable, measures can nevertheless be taken that will help us to plug the gaps that the industry should have plugged by now.

Gerry Sutcliffe (Labour, Bradford South)

I congratulate my hon. Friend the Member for Rhondda on the way in which he moved the amendment and my hon. Friend the Member for Warwick and Leamington on speaking to it. Although we may disagree on the detail, there is no disagreement about the principle of what we are trying to achieve.

I have seen the recent press coverage about Mr. Cullen; I am sure that the entire Committee wishes to record its sincere condolences to the Cullen family for the circumstances in which they find themselves. It is not unreasonable that Mrs. Cullen should ask why her husband, as a result of having so many credit cards, found himself in such a difficult position. My hon. Friend the Member for Warwick and Leamington is right: sharing information is vital to what we are trying to achieve. It is also what the Select Committees on Trade and Industry and on Treasury are trying to achieve. My hon. Friend the Member for Bassetlaw (John Mann) brought to my attention a case similar to Mr. Cullen's. There are too many such incidents.

Although I said this morning that credit is a good tool if people use it wisely, we must, through legislation, make the industry understand that such a price is not worth paying, given the misery it causes people. I acknowledge what my hon. Friends have said about the industry's attempts to improve the situation through the banking code, but we must go further.

Unfair relationships go to the heart of what we are trying to achieve on many issues. Hon. Members raised concerns, not only on Second Reading, but in various Committee hearings and in the House. The test of unfair relationships in clause 19 is a new one that replaces the existing extortionate credit test. We feel that the hurdles on that test are too high. It allows for the re-opening of credit agreements where a court finds the transaction as a whole to be unfair. That will be determined by references to all the relevant circumstances, including the terms of the agreement and the parties' conduct. The hon. Member for Tewkesbury chided me earlier, saying that many people say that some parts of the Bill are vague. On the unfair credit test, I am sure that the challenge will come forward from my hon. Friends and from the Opposition that it remains too vague.

I passionately believe that it is right and proper that the definition should be as wide as possible. We should not try to restrict the conditions of the test, which we might do were we to accept the routes towards which some amendments have pointed us.

Clause 19 permits the courts to consider anything done or not done by or on behalf of the creditor either before or after making the agreement or any related agreement. Clause 19(2) makes it clear that the courts may have regard to any relevant matter in making a determination.

The drafting of clause 19 is wide enough to allow the courts to take into account the factors that the hon. Gentlemen list in their amendments: whether the creditor has entered into the agreement as a consequence of approved unsolicited application form; whether the creditor has lent responsibly; whether the terms of the agreement have been set out clearly in a pre-agreement statement; whether the lenders comply with all the requirements of the Act; whether the initial terms of the agreement may be considered unfavourable when compared to similar agreements; and whether the running of the agreement might be considered unfair to the debtor. It can also consider any other relevant matter.

I hope that the Committee will accept our reasons for following this course of action to ensure that anything can be considered in the test through the court and in the redress mechanisms that we have put in place later in the Bill.

Chris Bryant (Labour, Rhondda)

Does that mean that the Minister would advise people who send unsolicited pre-approved credit card application forms and loans of the kind that we have been discussing to desist because the courts might find that they had entered into an unfair relationship?

Gerry Sutcliffe (Labour, Bradford South)

My hon. Friend will understand, and I forget the judgment—I am sure that I shall be reminded of it by way of information that will come quickly—

James Plaskitt (Labour, Warwick and Leamington)

Pepper v. Hart.

Gerry Sutcliffe (Labour, Bradford South)

Thank you.

If a Minister goes down the route, along which my hon. Friend the Member for Rhondda has tried to entice me, and comments on a matter in Committee, the comment may be used as evidence in court. That is why I do not wish to do that: the courts will have an opportunity to look at all the issues before they make judgments on them. I will not be tempted into saying what is or is not unfair; what I say is that lenders should lend responsibly.

The hon. Member for Bridgwater (Mr. Liddell-Grainger) mentioned the minimum payment, and we have tried to ensure that the consequences of making only a minimum payment are there for the borrower to see.

John Battle (Labour, Leeds West)

What concerns me is that the unfair relationship will be tested in court. In court will be the person who has borrowed and the lender; the power of the lender to make a case will, I suspect, be much greater than that of the borrower. I press the Minister to say whether he thinks the balance is yet right. We welcome the Bill, but can we redress the balance a little to ensure that the borrower can challenge the lender, and can we say that the relationship is unfair? The borrower may say: ''I cannot prove unfairness absolutely in minute detail, because your lawyers will argue against me while I cannot even get legal aid to make my case.'' How can we ensure that the borrower is properly backed up in court?

Gerry Sutcliffe (Labour, Bradford South)

There is a process for reducing the test from what it is now. It is very difficult to get to court at present on the basis of the extortionate credit test. That is why we favour the unfairness test. There are redress mechanisms: if a borrower is not happy with a lender's method of dealing with matters, he can make use of the alternative dispute resolution; if he is unhappy with that, he can go to court. We have struck a balance in outlining responsible lending and have tried to make matters clear and fair for the consumer. There is balance.

At present, the balance of disproving the extortion is in favour of the lender. The consumer need only make an allegation that the transaction is extortionate, and he will succeed if he can satisfy the court, on the balance of probabilities, that it is unfair. That is where the balance lies for the consumer.

We should give the unfair credit test a fair wind, and I ask hon. Members to trust our judgment. If we lay down restrictions we may miss some of the cases that we are trying to prevent.

Ian Liddell-Grainger (Conservative, Bridgwater)

The Minister is making an interesting case. However, I have just been reading that debt in this country will pass £1.1 trillion in the middle of this year, and it is rising by 15 per cent. a year. Are we to trust the Minister to sort things out? His right hon. Friend the Member for Leeds, West (Mr. Battle) made a valid point that the Bill will not work because debt will continue to increase. There are 1,300 credit cards on the market now and presumably there will be more to come.

Gerry Sutcliffe (Labour, Bradford South)

I will resist the temptation to make a detailed response. We had a discussion this morning about the £1 trillion debt when I exchanged words with the hon. Member for Tewkesbury about its make-up.

I am concerned to get the Committee to understand the nature of the unfairness test and its possibilities. I am happy to say to my right hon. Friend the Member for Leeds, West that I am confident that the balance is more in favour of the borrower now as a result of our proposals.

John Battle (Labour, Leeds West)

I meant that it should be more in favour of the borrower than it was under the 1974 Act.

Gerry Sutcliffe (Labour, Bradford South)

I shall not split hairs too finely. We must ensure that we do not go for 30 years without reviewing the consequences of the new legislation. We must see how the legislation is working, and if it does not work as hon. Members suggest it should, we shall have to look at it again. If we restrict the definition we may miss some cases, and borrowers' positions will not improve as we had hoped.

Gregory Barker (Conservative, Bexhill and Battle)

Is the Minister comfortable that the legislation, framed as it is, gives sufficiently robust guidance to the courts? Is there a danger of our asking the courts to make decisions on cases in which we ought to be more robust ourselves about the judgment we expect?

Gerry Sutcliffe (Labour, Bradford South)

Let me set out the areas that we expect the courts to consider: the start of an agreement, its conditions and lifetime, and what happens if it goes wrong. We want the courts to have enough guidance to understand the intention behind the Bill. I do not believe that we have been vague in saying how the relationship should be regarded.

A difficulty could arise if hon. Members asked me to list the circumstances required when applying for the description. That might make it difficult for the courts to consider circumstances not covered by a list. We are very clear in setting the issues—[Interruption.] The hon. Member for Bexhill and Battle may not think so, but we are very clear that we want the courts to look at existing relationships. Remember, we are replacing a very high test of extortionate credit with a balance very much in favour of the lender. The unfairness test, together with the redress mechanisms we have in place, will shift the balance towards the borrower. It ensures that the borrower has the ability to prove that the test is unfair; the lender has to prove that it is not.

Laurence Robertson (Conservative, Tewkesbury)

May I ask the Minister for a point of clarification? I am not trying to trip him up—I know he will have the answer. Under which clause or subsection will the Minister or the Secretary of State be able to issue guidance to the courts?

Gerry Sutcliffe (Labour, Bradford South)

In normal circumstances, we will set out the parameters within which we want the courts to operate. I believe that I have already set out what the relationship should be. We shall examine the Office of Fair Trading guidelines and our code of practice. There will also be the evidence that developed from the alternative dispute resolution process. The courts will have powers based on the information developed as the Bill progressed. The hon. Gentleman asked how we will do that: we will do it through secondary legislation, if that is required.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to the Minister for that. However, I am not sure—I am not a lawyer—that the Bill provides that opportunity. The Minister is getting advice. I would like to hear what that advice is because I would like the matter cleared up. I would be very pleased to be proved wrong.

Gerry Sutcliffe (Labour, Bradford South)

I can help the Committee by looking at the Bill's requirements on the unfair relationships test. Section 140A of the 1974 Act sets out what the court can do:

''The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—''.

The section then sets out the terms on which a judgment would be made. I hope that helps.

Laurence Robertson (Conservative, Tewkesbury)

I may be getting into water deeper than I can cope with, not being a lawyer, but, with respect, that is not what I asked. I asked what opportunity there is for the Minister to introduce a statutory instrument to guide the courts. The Minister said that the Office of Fair Trading may be able to offer guidance, but I am not sure to what extent the Minister can guide the OFT. He knows that we have had that dispute on a separate matter, which we will return to later in the Bill. Nowhere on the face of the Bill is there an opportunity for the Minister to issue guidelines to the court about the meaning of ''unfairness'' that would be sufficiently close enough for interpretation by the court.

Gerry Sutcliffe (Labour, Bradford South)

We are entering dangerous ground. Let me be very clear about what the unfair relationships test says: the circumstances are outlined on the face of the Bill.

Laurence Robertson (Conservative, Tewkesbury)

They are not.

Gerry Sutcliffe (Labour, Bradford South)

The hon. Gentleman says they are not, but they are. The Secretary of State will not issue guidance. The Office of Fair Trading will issue guidance as to how it will enforce the test under part 8 of the Enterprise Act 2002; it has to be in the collective interest of the consumer.

Chris Bryant (Labour, Rhondda)

The Minister may be interested to know that section 44 of the 1974 Act gives him the powers that he needs.

Gerry Sutcliffe (Labour, Bradford South)

I am ever grateful to my hon. Friend for saving my face by pointing to the right regulation.

James Plaskitt (Labour, Warwick and Leamington)

Will the Minister comment on clause 19, new section 140A(2)? It states:

''In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant''.

Will the Minister indicate the type of things that he thinks will qualify as relevant?

Gerry Sutcliffe (Labour, Bradford South)

I do not want to do that, for the reasons that I outlined to my hon. Friend the Member for Rhondda. If I become prescriptive about the issues relating to the detail of individual tests, that will restrict the ability of the courts to look at all elements of the relationships between the lender and the borrower when trying to discern whether a test or agreement is unfair. That is why I have resisted the temptation.

Mark Lazarowicz (Labour/Co-operative, Edinburgh North and Leith)

I understand why the Minister is resisting countless temptations to go along the road of setting out his views on what an unfair test might consist of, and why he does not wish to that, and I will not ask him to do so. Perhaps, though, he will be prepared to go as far as to say that it is certainly the intention that those clauses should be interpreted as broadly as possible. They are intended to be a broadening of the situation as regards the debtor vis-à-vis the creditor compared with extortionate tests. If he is prepared to say that, it would be helpful, and I hope within the limits to which he is prepared to go today.

John Butterfill (Conservative, Bournemouth West)

Order. We are straying extremely far from amendment No. 8 and new clause 2. I appreciate that the debate is fascinating, but it may be more appropriate to raise those points under clause 19 stand part. If hon. Members wish to pursue the line they have, I shall probably rule a clause 19 stand part debate inappropriate.

Gerry Sutcliffe (Labour, Bradford South)

Thank you, Sir John, for that excellent guidance. The difficulty with the situation that we are in is the relationship contained in clause 19, the unfairness test and issues that flow from that. To help the Committee and to follow your ruling, we wish to resist amendment No. 8 and new clause 2, not because of how my hon. Friend the Member for Rhondda has moved those, but because they are not the appropriate avenues via which to reach where he wants to be. We want to do that through clause 19.

My hon. Friend the Member for Warwick and Leamington mentioned new clause 1, which we will discuss later, and that may be a more sensible route for unsolicited credit card checks. My hon. Friend the Member for Rhondda has expertly got us to go round the houses, and he nearly got me to say something that I did not want to say. In the spirit of what he has said, I will reflect on the issues that he raised, although the unfair credit test is the right way forward. I understand how strongly he feels about his amendments, but I ask him to withdraw.

Chris Bryant (Labour, Rhondda)

I think what the Minister meant to say, as outlined by my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz), was that broadly speaking he hopes that those practices will not continue and that anything that might look like irresponsible lending or irresponsible marketing will come to an end. That is because, the clause having been drawn so widely, the courts will almost certainly feel able to deal robustly with anybody who has engaged in something that, prima facie, is unfair, in the most general sense of the term, because, for instance, there has been unsolicited pre-approved credit or irresponsible marketing of any kind.

My only problem with that—I still urge the Minister to look again before we come to Report to see whether there is a way to can put some element of this point more clearly into the Bill—is that it will lead to a period of uncertainty both for the industry, which is important, and for lenders, who will have to be involved in at least one court case to prove their situation. The simple reason that that still matters relates to the line in Richard II when John of Gaunt makes his wonderful speech describing this England—it does not apply to Wales of course—as

''This other Eden, demi-paradise.''

Of course, everybody remembers that glorious bit, but the last words are that this England, ''is now leased out''. If we are to put a proper stop on the degree to which this England, and the rest of the United Kingdom, are being leased out, the Bill will have to be more specific.

Having listened to everything the Minister said, and although still encouraging him to consider inserting some other wording on Report, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jenny Tonge (Liberal Democrat, Richmond Park)

I beg to move amendment No. 31, in clause 19, page 13, line 19, leave out

'matters relating to the creditor'

and insert

'whether the creditor lent responsibly'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss amendment No. 23, in clause 19, page 13, line 19, at end insert—

'(2A) In particular, when determining whether an agreement is unfair, the court should consider—

(a) whether the terms of the agreement, which the lender is seeking to enforce, were clearly set out in the pre-agreement statement provided by the lender to the debtor as set out in subsection 7B of section 6 of this Act;

(b) whether the lender has complied with all other requirements of this Act and the 1974 Act;

(c) whether the initial terms of the agreement might be considered to be significantly unfavourable to the debtor when compared with other similar agreements, when there are no compensating factors within the said agreement available to the debtor; and

(d) whether the running of the agreement might be considered to be significantly unfair to the debtor when taking into account the relative financial strength of the parties to the agreement.'.

Jenny Tonge (Liberal Democrat, Richmond Park)

To continue John of Gaunt's speech, he said that England was:

''This precious stone set in the silver sea''.

If that is so, it indicates that there is a long way to go before we run out of credit. I began by thinking that this Bill was a good thing. It will control loan sharks: let us call them by that name because that is how we think of them. We must get to grips with loan sharks, and that is what we shall do.

Chris Bryant (Labour, Rhondda)

I am sorry, but it is not. Loan sharks are a particular version of what some of us have become used to and, in the Bill, we have been careful to ensure that more people move to the responsible end of the market. It is tempting to use terms such as ''loan sharks'', but they are unhelpful.

Jenny Tonge (Liberal Democrat, Richmond Park)

Such terms may be unhelpful, but the way in which many of the credit card companies behave is irresponsible. I am more and more sceptical as to whether this Bill will tackle that. We hear that the main control will be the unfair relationship test, but we do not know what unfair relationships are and will have no guidance on them. It will, therefore, be difficult for a debtor to take a creditor to court, because the creditor will have many more resources at his disposal.

Gerry Sutcliffe (Labour, Bradford South)

The hon. Lady and the Committee must be careful not to throw the baby out with the bathwater. In the context of the whole Bill, and in relation to the regulations resulting from the consumer credit White Paper, we seek to ensure that there is responsible lending and borrowing, that there is education for the consumer and that the redress mechanisms, which at present do not exist, are in place. The extortionate credit test is too high a hurdle; the unfair credit test is better. It is right and proper that we discuss unfair credit, but it is wrong to say that the Bill will not help the situation. It has been welcomed by the industry, by consumer groups and, as I understand, by all political parties at Second Reading.

Jenny Tonge (Liberal Democrat, Richmond Park)

I did not say that the Bill would not help at all. I said only that I was a little depressed that it would not help as much as I thought.

It was interesting that the Minister, in summing up the last two amendments, over and over again used the phrase ''whether the creditor lent responsibly''. The amendment would insert those words into clause 19. It is simple: the clause would say that the creditor should be responsible.

We have heard a great deal about credit cards. The hon. Member for Rhondda told us—and I mentioned it this morning—about what comes through people's letterboxes. However, I wonder whether anyone realises how much housewives are preyed upon. I am not the sort of housewife who shops every week in a particular store; when I run out of something, I go to the place nearest to wherever I happen to be. I am not, therefore, someone who gives into store loyalty cards, but nowadays it is impossible to pass a checkout in any store without a conversation that goes: '' Do you have a loyalty card?'' ''No.'' ''Would you like a loyalty card?'' ''No.'' ''Well, if you have a loyalty card you can build up points and that means you can get your goods much cheaper.'' ''I do not believe that, and I am not interested.'' If people manage to run the gauntlet of the checkpoint and get away without signing up for a loyalty card, that is okay. If not, within days their post will bring offers of credit on loans for holidays or cars. That is another section of the market that puts pressure on people.

Why is it that the person whom we heard about on ''Today'' this morning can get another loan on his 22nd credit card when he is already in debt on 21 cards? That issue has not yet been mentioned in Committee. Why is there no cross-referencing? A student son of a friend of mine got himself into great difficulties and took out credit card after credit card. How can that happen? The Government talk a lot about means-testing for pension credit. Why can people not be means-tested before they take out loans on credit cards? I do not understand. We hope that the Minister will accept this modest amendment.

James Plaskitt (Labour, Warwick and Leamington)

The hon. Lady's amendment seeks to introduce the concept of whether the creditor lent ''responsibly''. If it were to be accepted, what mechanism would there be to determine what constituted ''responsibility''?

Jenny Tonge (Liberal Democrat, Richmond Park)

People will be told, ''Don't worry, dear, if you get into debt, there's the 'unfair relationship' test in the courts.'' However, we do not know what the guidelines are for an ''unfair relationship''. I am in a total fog about this. We seem to be going around in circles. Nobody can tell us anything about the limits or what is expected of a credit card company. Is it an unfair relationship if someone is allowed to take out a loan on a credit card when the company knows that the borrower already has loans on 21 other credit cards? I would say that that is an unfair relationship, but we do not know.

Chris Bryant (Labour, Rhondda)

I completely agree about responsible lending, and that has been the tenor of my amendments. In the light of what the Minister has said, the difficulty is that two broad concepts would be introduced into the Bill, neither of which is tightly laid down. In court, the two concepts might conflict. Therefore, it might be more sensible not to insert a provision into the Bill. However, it is entirely sensible to have had this debate.

Jenny Tonge (Liberal Democrat, Richmond Park)

I accept what the hon. Gentleman says. However, in that scenario, there is no way to prevent people accruing horrendous debt. I am a medic; I am thinking of prevention rather than cure. The courts may be the cure-all to wrap up everything at the end, but that is no good to someone who is already in terrible debt.

Gerry Sutcliffe (Labour, Bradford South)

I will take your guidance, Sir John, because I do not want to stray into the clauses that deal with licensing. However, that area is also protected, in that a lender's performance will be examined before a licence is issued. Lenders will have to comply with criteria tests. That might help the hon. Lady to understand why we are where we are in relation to being fair to borrowers.

Jenny Tonge (Liberal Democrat, Richmond Park)

I have come to the Bill late in the day, and I have not read its text in detail. Is the Minister suggesting that it will be the lender's responsibility to cross-check that people are not already in debt or to carry out a means test to ensure that they can make their payments?

Gerry Sutcliffe (Labour, Bradford South)

We have asked the industry to share information. We have said that hiding behind the Data Protection Act 1998 is not appropriate. The industry is examining ways to improve the sharing of information, because we do not want people to accumulate the number of cards to which the hon. Lady referred in relation to the incident that was reported in the press.

John Butterfill (Conservative, Bournemouth West)

Order. We shall not debate now the issues that will be debated under clauses 28 to 31.

Jenny Tonge (Liberal Democrat, Richmond Park)

I thank the Minister once again for his patience. I am somewhat more reassured.

Laurence Robertson (Conservative, Tewkesbury)

We have had a very good discussion on this and, indeed, the previous amendment, and that makes it unnecessary for me to repeat many of the arguments that have been made. However, the Committee would be disappointed if I did not refer to my own amendment, No. 23 in some detail. I admit that its drafting may not be perfect. The Opposition do not have the benefit of officials or parliamentary draftsmen. I do not say that maliciously; it is true, but it may not have captured exactly what I was thinking. However, I have tried to help to define ''unfair''.

Section 138 of the 1974 Act goes into some detail about what extortion is, whereas the Bill does not go into any detail on what is meant by ''unfair''. I am a bit surprised that the Bill does not go into the same degree of detail. For example, section 138 (2A) mentions interest rates prevailing at the time. Regardless of whether we wish to compare what lender A offers and lender B offers, my point is that the Act goes into far more detail about what is meant by ''extortion'' than the Bill goes into about what is meant by ''unfair''.

When introducing a new concept into English law—and the test of unfairness is a new concept—we need to be a bit more prescriptive. The most important word in the English legal system is probably the word ''reasonable''. I do not suppose that that word is defined anywhere, but the assumption is that what is reasonable is what the man on the Clapham omnibus thinks is reasonable. What test do we have for the meaning of the word 'unfair'? I suspect that it will be a matter of several court judgments before we establish precedent and are able to operate in the industry with any degree of certainty.

There will be a time—from now until those court judgements have been made—in which there will be a great deal of uncertainty, not only in the minds of consumers, but also in the mind of the industry. I said this morning that one of the biggest concerns about the Bill is that it is so uncertain and vague in so many areas. This clause, in particular, has excited the industry more than any other in the Bill, because people simply do not know what ''unfair' means. People also do not know how the definition will be determined. The exchange that we had a few moments ago with the Minister did not satisfy me that we have made any progress on that.

Mark Lazarowicz (Labour/Co-operative, Edinburgh North and Leith)

When I first considered this issue, I had some sympathy for the notion that it would be right to try to set out the test for unfairness in more detail. I do not want to stray into a stand part debate, but does the hon. Gentleman not agree that his proposed new subsection (2A)(c), in which one of the tests that a court should consider would be

''whether the initial terms of the agreement might be considered to be significantly unfavourable to the debtor when compared with other similar agreements, when there are no compensating factors within the said agreement available to the debtor'',

is itself a vague definition that would require the same sort of tests to be applied to it by the courts in due course? The difficulty of his approach is the danger that it becomes too restrictive to rule out any new devices that are dreamt up by the rogues that unfortunately exist in the financial services industry and elsewhere.

John Butterfill (Conservative, Bournemouth West)

Order. I have already said that the debate on these clauses is becoming so wide that there will be no room for a stand part debate on this clause.

Paul Farrelly (Labour, Newcastle-under-Lyme)

On a point of order, Sir John. Are you ruling that there will there be no stand part debate?

John Butterfill (Conservative, Bournemouth West)

There will be no stand part debate.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I was reserving my remarks for that debate.

John Butterfill (Conservative, Bournemouth West)

Then I think it would be better if the hon. Gentleman sought to catch my eye.

Laurence Robertson (Conservative, Tewkesbury)

I do not agree with the point made by the hon. Member for Edinburgh, North and Leith, because clause 19(2A) states:

''In particular, when determining whether an agreement is unfair, the court should consider—''.

However, that does not mean that nothing else could be considered.

On the hon. Gentleman's other point about whether the initial terms of the agreement might be considered unfavourable, I accept that that may be considered a little prescriptive, but section 138 of the Consumer Credit Act 1974 is even more prescriptive. Section 138(3)(a) and (b) mention age, experience, business capacity, state of health, and the degree to which a person was under financial pressure at the time of making the credit bargain. I do not claim that that is the right approach, but it is our approach for tackling the meaning of the word ''extortion''. However, we have absolutely no guidance for tackling the meaning of the word ''unfair''.

Before the hon. Gentleman made his helpful intervention, we were having an exchange with the Minister about his ability to introduce a statutory instrument to give guidance to the courts. I am not satisfied that he has that ability under the Bill, and I cannot see that he has it under the 1974 Act because it does not address unfairness. I am not a lawyer, and I would gladly be corrected on that matter. However, I am concerned that he would not have the opportunity to introduce those statutory instruments.

Chris Bryant (Labour, Rhondda)

We were not talking about unfairness, but the matter of advertising in section 44 of the 1974 Act. Section 189(1) is so widely drawn in its definition of advertising that it would give the Minister the powers that he used last year to provide guidance on unfair advertising. However, I accept that the hon. Gentleman is correct because the Minister would not have any power to define an unfair relationship.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to the hon. Gentleman for clarifying that matter. How do we give that guidance to the courts?

Gerry Sutcliffe (Labour, Bradford South)

The hon. Gentleman is not trying to be difficult; he is trying to get to the core of the issue, and I respect that. However, he said—or implied—that the term ''unfair'' was a new legal precedent; it is not. He will be aware of the principle of unfair dismissal in employment legislation and the FSA's principle of fair treatment of customers. There is a principle of fairness, but this is about unfairness tests. I will try to reassure him, but I understand the difficulties.

Laurence Robertson (Conservative, Tewkesbury)

I accept those comparisons. However, a mass of employment law comes into play alongside the term ''unfair''. While I accept that I have been corrected to some extent, my point may also have been proven because the mass of employment law makes it easier to define unfairness, whereas it is not easy to determine that in this matter.

Alistair Burt (Conservative, North East Bedfordshire)

There is no disagreement between respective Front Benchers on the concept of unfairness as it is a matter with which we are all familiar. The issue is the evidence upon which a decision on fairness or unfairness is based. At the heart of my hon. Friend's argument is an attempt to establish—in the absence of a body of case law—the building blocks upon which a decision on fairness or unfairness will be based. Notwithstanding the perfectly correct point made by the Minister about the concept of unfairness, we, like borrowers, are still in the dark about those building blocks unless the matter is settled in the way that has been suggested by my hon. Friend.

Laurence Robertson (Conservative, Tewkesbury)

I am grateful to my hon. Friend who is a lawyer and knows more about these issues than I do. We have probably exhausted that point, but it will be important to gain a degree of certainty not only for the industry, but for the debtor because on the matter of establishing unfairness, a case could be brought by the creditor—or indeed the debtor—if I have read the clause correctly. There needs to be more certainty. However, I fear that several court cases will be heard before we achieve that certainty.

My amendment refers to amendment No. 17, which fell after I pressed it to the vote. My amendment asks the court to consider whether the lender has set out the exact terms of the agreement. The court should then ask whether the lender has complied with all the requirements of the Bill and the 1974 Act when determining whether an agreement is unfair. It should also ask whether the initial terms of the agreement might be considered to be unfavourable to the debtor when compared to other similar agreements. That is not a new concept; it was part of section 138 of the original Consumer Credit Act 1974. No Government considered it so unreasonable that they hastened to change it—it has taken 30 years to get to that point.

Proposed new section 140A(2A)(d) refers to

''whether the running of the agreement might be considered to be significantly unfair to the debtor when taking into account the relative financial strength of the parties to the agreement.''

That concept is already in the legislation that we are seeking to amend. The amendment seeks to cover the establishment and the operation of the agreement, and there is scope to discuss its terms. There is also scope for arguing whether something is unfair or asking how far one has to vary from what is normal before it becomes unfair. I accept that that is a difficulty, and I sympathise with the Minister. Obtaining certainty of advice is difficult.

I reiterate the comments of the hon. Member for Richmond Park (Dr. Tonge) in that the longer that I work on the Bill, the less certain I become that we will be able to protect vulnerable people from debt, extortionate charges, interests rates, compound interest and default fees, all of which lead to problems such as those that we heard about on the radio this morning. Citizens Advice has published an interesting briefing that details horrendous stories about how people borrow £1,000 and end up owing £30,000. Members are aware of those situations. Unless the Bill is clearer, such cases will continue to exist.

It is too easy to borrow money. After Christmas I went into Marks and Spencer, which is a reputable company, where I paid around £200 for several items, mainly clothes. I was not really paying attention; I was hot since I had my coat on, I was carrying many messages, and I wanted to get out of the store. I was informed that if I subscribed to a store card, which I imagined to be similar to a petrol card on which one can amass points, I could get 10 per cent. off my purchases. That would have saved £20 pounds. I filled in the form and did not think any more of it until a card appeared in the post about a week later. On the accompanying piece of paper, bigger than any other writing, was the £7,500 credit limit. That occurred without me really thinking about what I was doing, so it serves me right. I do not seek to blow my own trumpet. I am not particularly financially literate. I suppose that the company did a credit check, but they certainly did not know much about me. I was later informed that the card was not a store card but a MasterCard that could be used anywhere. That was a double-whammy, to coin an old phrase.

Alistair Burt (Conservative, North East Bedfordshire)

That is a good phrase.

Laurence Robertson (Conservative, Tewkesbury)

It certainly is a good phrase; however, I digress, Sir John. I was alarmed. Presumably, I could have gone out and spent that money that same day. I did not, and I will not spend it, because I do not believe that debt for debt's sake is a good thing. That is one recent example.

Gerry Sutcliffe (Labour, Bradford South)

I am sorry to pursue the hon. Gentleman, but this issue is at the heart of the Bill. Is it the Government's responsibility to determine what products are available in the credit card market or to determine how consumers seek redress? I have some sympathy, given the circumstances in which he obtained that credit card, and that would be a good example for the unfair credit test. Is it the Conservative party's view that the Government should determine what products the industry should offer?

Laurence Robertson (Conservative, Tewkesbury)

I gave the example to support the remarks of the hon. Member for Richmond Park about it being too easy to obtain credit and money. I wonder how it was possible for the gentleman of the poor widow who was on the radio this morning to obtain 22 credit cards.

It is certainly not for the Government to determine whether I should get a Marks and Spencer store card. It is none of the Government's business, and I did not come into politics to encourage the Government to interfere more in people's daily lives—quite the reverse. However, there is a massive amount of personal debt in this country, which is not entirely due to house prices and not entirely asset backed. It is a big problem for some people—I do not know how many. Not everybody who has borrowed money is in trouble. I borrowed money for my house and my car. I am not in trouble with that, but many people are.

I am concerned about people's inability to ensure that they are treated fairly because they are not lawyers and do not necessarily understand what constitutes a contract. I do not think that many people understand what the essential ingredients of a contract are. People seem to think that if a big company states that it can charge X for a letter or for a default on a payment, it is entitled to do so. Many people are not financially literate; most certainly have no legal training or, indeed, legal knowledge. I am concerned that the Government help those people and prevent them from being ripped off. No one is concerned about honest agreements that involve, for example, people taking out loans that they can pay off at an interest rate of 5 per cent. I am not suggesting that the Government should restrict the number of products available. I do not think that they could if they wanted to. However, I am concerned that protection is afforded to people who are not financially literate or legally educated. I am not sure that the Bill goes far enough in doing that.

Chris Bryant (Labour, Rhondda)

The hon. Gentleman said earlier that the company had no idea who he was when he got the card. The hon. Member for Richmond Park said that perhaps there should be some sort of means test. For clarification, would the hon. Gentleman put his opinion on that on the record? Even if the Minister is not able to make such comments, I am sure that the fact that this has been said by all parties will be significant in how the industry views the likely outcome of today's debate. The issue is clearly the sharing of information between companies. If someone tries to sell a card or loan to a person without having any information about him—not even whether he is under 18—that must, prima facie, be an example of irresponsible lending.

Laurence Robertson (Conservative, Tewkesbury)

I think, not for the first time, that the hon. Gentleman makes a very good point. My amendment No. 25 deals with credit reference agencies and although my intention was slightly different, it may just cover his point. It is probably largely up to the industry, but if companies were not so able to rip some people off as they are, they might not be so quick to lend money without taking into account people's circumstances. There is probably a logical thread in that.

If we apply to borrow money for a house, our income is checked. If we try to top that up more than our income allows, we will not be lent the money. That is because it is not as easy for those companies to rip others off to compensate for bad loans that they may have made. In the credit card and in the loan shark industry—if I may put it so crudely—that is not the case. It is a bit like third-world debt. Some organisations have lent money at extortionate rates of interest to compensate for the possibility that country B may not repay them. We have a similar situation, and I am not sure how effectively the Government can deal with it. They can act by reducing the burden of the test from extortion to unfairness. I welcome that, but let us clarify the matter so that we can squeeze out those who simply lend money to anyone.

I do not know how on earth that poor gentleman got 22 credit cards. I do not think that many of us would be able to do that, but it is obvious that some people can. I hope that I have made the case for defining the word ''unfairness''. I accept that my amendment is not perfectly worded and that parts of it are better than others; but it is a genuine attempt to help the Government with the Bill rather than to get in the way.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I am grateful to have caught your eye, Sir John.

Sitting suspended for a Division in the House.

On resuming—

Paul Farrelly (Labour, Newcastle-under-Lyme)

Clauses 19 and 20 introduce the concept of unfair relationships in credit agreements. They replace the old concept of extortionate credit bargains, which is contained in the 1974 Act. We have already heard that such unfair relationships manifest themselves in many questionable practices by some lenders, and not just those who might be referred to as loan sharks.

One such practice is the imposition of late-payment charges of £20, £25 or £30 by credit card companies, many of them household names. People might be regular payers, be busy or have momentary cash flow issues; none the less, they get hit by late charges that are relative to the size of their minimum payments. Many people, particularly those who are already on lower incomes, make only the minimum payment. They may already be finding it difficult to pay off their charges, and penalty charges can make it nearly impossible to pay the principal amount.

All the major banks and credit card companies indulge in such practices—including Lloyds TSB, Barclays, HSBC and NatWest, which is now part of the Royal Bank of Scotland Group. I name those companies deliberately, Sir John, so that their public relations officers and top executives will read about this debate in tomorrow's clippings. Late payment charges often bear no relation to any risk of default, or indeed to the administrative costs of sending out a computerised reminder letter. They are simply onerous, money-spinning penalty clauses that exist because the balance of power between the lender and the borrower is so unfair.

There are other manifestations such as penalty charges or referral fees—call them what we like—for temporary breaches of overdraft limits. It is often hard not to breach an overdraft limit and avoid such a charge. Have hon. Members noticed that if, in this computer age, they ring up their bank, the computer always says ''no'', because using an overdraft limit is de facto evidence that an increase should not be given. It is impossible for people reasonably to avoid many of those charges.

The key legal provision of the 1974 Act is section 138, which sets out when credit bargains are extortionate. Although it is clear, it needs to be interpreted by the courts. In individual cases, the courts have found that many such practices are extortionate and that there unenforceable penalty clauses. In other cases, banks, when challenged, will settle quietly out of court because they do not want to create precedents that would otherwise prejudice their existing practices.

As my right hon. Friend the Member for Leeds, West points out, individuals are required to take a challenge to court in relation to unfair relationships. That highlights the time and cost implications for people who take on large corporations and multinationals. In practice, even if the big corporations lose cases to one or two determined individuals, they know that the authorities—in this case the Office of Fair Trading—have not shown evidence that they have run with the issue and enforced decisions to stop those practices. The authorities have a very poor record of tackling financial companies for these practices following court decisions.

I do not want my remarks to be too lengthy, so I will ask the Minister for a few reassurances. First, these clauses are not going to hamper the ability of people to go to court in the first place if they want to, though I have some sympathy with the point made by the hon. Member for Tewkesbury but late charges such as those that I have been discussing might now be considered extortionate under the previous Act but may not be thought unfair under the future Act if they are advertised clearly and things stated up front. Will the Minister assure us that the ability of individuals to challenge practices of that sort will at least be matched, if not enhanced, by the new concept of unfair agreements.

Secondly, with respect to enforcement in practice, I seek reassurance that the Office of Fair Trading will improve its record, not just when the new Act comes in, but right now under its existing powers, so that people do not have to go to court in the first place. We will deal later with provisions to do with the OFT, but I mention it here because of the reality that unfair practices do exist. I would like some reassurance that the tiger will grow some teeth, because otherwise the balance of power will remain unchanged, and unfair relationships between lenders and borrowers will persist.

John Battle (Labour, Leeds West)

I was interested in the debate just before the lunch break, because what is most encouraging is that we are all regulators now. When the hon. Member for Tewkesbury spoke about credit cards, he was actually pressing for more regulation, and he was absolutely right. We have had some 50 years during which the market was not properly regulated even by the 1974 Act, and he himself put it well when he said that we really have a duty to make sure that we protect the poorest from paying the most, which is what happens in the borrowing market: those at the bottom of the pile pay most. So I welcome the fact that we are all regulators now.

Laurence Robertson (Conservative, Tewkesbury)

The right hon. Gentleman mentioned the term ''better regulation'', and that is what I wanted to press for.

John Battle (Labour, Leeds West)

I am delighted that the Conservative Party is in favour of better regulation. We will go all the way with it, and we can have meetings and Committees like this from now to eternity. That is the point.

The problem with this Bill is not the intention. Our intention is to have better regulation and to make this a better Bill. But we have a difficulty, because we are caught between two words that could be incredibly vague—unfair and reasonable. At the same time, we want an open policy, so vague words help. Philosophers refer to the huge vague being incredibly helpful, because it is a loose holdall. We need to be specific to ensure that we actually catch people with the language that we use, as it were, and to make sure that the law is effective. It is that tension between the vague and the specific that we have to address, and I want to make a helpful suggestion, if I may.

I have not moved an amendment, but I want to introduce a concept that is not so broad that it will not do anything but which has quite particular links to other legislation and might enable us to sharpen up the Bill. We do at least have consensus in this Committee: we all agree that unfair relationships between creditors and debtors are wrong. I have never heard anybody arguing that those lending the money are being unfairly treated by those borrowing it. I do not get the impression that the banks are saying: ''The people borrowing our money are screwing us terribly.'' Quite, honestly, that is not the tone of the debate. So I welcome the fact that in the Bill we have moved away from the extortionate credit bargains. That phrase itself did not work.

I sought the list of the number of times that poor people, who pay the most through doorstep lending, were able to bring a case to court. The answer is none. Therefore, I welcome the Bill.

The fact that the Bill contains the words ''Unfair relationships'' in the heading and

''Unfair relationships between creditors and debtors''

in the sub-heading is real progress. It goes even further, and refers to the court determining whether

''the relationship between the creditor and the debtor arising out of the agreement . . . is unfair to the debtor''.

It does not say ''unfair to the creditor''; it says ''unfair to the debtor''. My argument is that we must shift the law in favour of those who are hit hardest by credit card borrowing and doorstep lending.

We must be careful in the complex market not to dismiss the whole lot in grandiose terms that oversimplify the debate. There is a big difference between the high street banks and credit cards, between store cards and what is called the ''sub-prime lending'' market, in which people go round knocking on doors, practically lending money on the doorstep, just with a handout or an advert—the hon. Member for Richmond Park referred to adverts. We need to segregate the market, and know what the problems are that we are trying to address.

Jenny Tonge (Liberal Democrat, Richmond Park)

Whether it is extortionate or whether it is an unfair relationship, the point has been made over and again that the person still has to go to court to get redress. As the hon. Gentleman said, the hardest hit debtors are the least likely to go to court. If they did not do so under the previous legislation, they will not do so under this Bill. Surely prevention is better: make sure people know what they are letting themselves in for in the first place.

John Battle (Labour, Leeds West)

The Minister accepted—he can speak eloquently for himself—the hon. Lady's point about education right through the system. I am neither a mathematician nor a lawyer, but the court issue is important. Some Members suggested that getting a case to court will act as a test and help to define ''unfair''. It will not. Every case will have to stand on its own. No precedent will be set, because cases will not be heard in the criminal court but in the ordinary county courts.

The hon. Member for Tewkesbury has a point; we must look at the definition to some extent. What do we mean by ''unfairness''? We are going in the right direction—it is the unfairness of the relationship, where the lender can crush the borrower, particularly if that borrower is poor, through interest rates and extra charges, by changing the conditions without properly informing people.

I would suggest the rather narrow concept of ''proportionate to the means''. What do I mean by that? I want to stop going round in the circles that the hon. Member for Richmond Park referred to and put that proposal to the Minister. Take the example of a lone parent who has had to borrow some money. The man may come round with his dog to collect the debt payment, and the lone parent may not be able to keep up with payments on other bills. Not everyone pays by direct debit, so the person might be in trouble with housing or council tax payments.

When people default on bills they get taken to court. When they go to court they have to fill in a form—a statement of income and outgoings—on which it states:

''The information on this form may be used by a magistrates' court, or any other authorised agency acting under the court's instructions, to enforce collection of any court-ordered penalty imposed against the person named on the form in the event of non-payment of that penalty.''

If they go court because they defaulted on their rent and the court says, ''Okay, you owe £500 rent and we will fine you £2,000 on top of that for the court costs'', how will they pay that fine if they have no money? Therefore, the fine imposed by the court must be proportionate to people's ability to pay it back.

Why can we not invert the idea and make sure that before creditors lend money to people they check whether those people are capable of paying it back. Unlike a Capital One application—which asks about three questions, the main one being, ''Do you have a house that we can have a claim on later?''—a court statement is very clear. It asks for personal details: date of birth; national insurance number; occupation; and employer. It asks for details on income: if the person is employed, it wants to know about pay and any other income; and if he or she is unemployed, it wants to know about income support, pension credit or any other benefits. It asks for details on weekly outgoings: rent, mortgage or board; council tax; food; county court orders or fines that must be paid; travel expenses; clothing; telephone, including a mobile; gas; electricity; water; insurance; fuel; loans; television, including cable or video; lottery; entertainment; drinking; smoking; car insurance; catalogues; hire purchase; credit cards; and any other outgoings. That is an incredible list to ascertain whether people can pay a court fine. I simply suggest to the Minister that we ask that that proportionality be part of the process when dealing with the relationship between creditor and debtor. The ''unfair'' relationship between creditor and debtor is a great concept, but it pushes it into the court.

I take note of some of the comments made by the hon. Member for Tewkesbury, but if individual cases are left to the Court without guidance, every case will be judged on its own merits. We could do a bit more to weight the balance in favour of the person who borrows and gets into debt.

Gregory Barker (Conservative, Bexhill and Battle)

I have listened very carefully and strongly agree with much of what the hon. Gentleman has said. On the issue of unfairness and the weight in favour of the creditor or the debtor, would he not agree that many people, particularly the most vulnerable, who often find themselves at the grubbier end of the loan market, are by necessity in very difficult circumstances? They will not look into those issues thoroughly. They will not be thinking straight. They may not make a rational decision. Through force majeure—perhaps through their own fault or perhaps not—they will be put in a very difficult and trying situation, and they will be desperate. Some companies take advantage of that desperation, and the measures the hon. Gentleman proposes seem a very sensible antidote to that problem.

John Battle (Labour, Leeds West)

I make cheap political comments about whether Conservative Members are now in favour of regulation. In all fairness, I deeply appreciate the comments that the hon. Member for Bexhill and Battle has made, and the empathy and understanding that he and his colleagues have shown in these matters. Sometimes we find it hard to imagine the circumstances of the people who are lent money. A relationship may have broken up, another house must be set up and money may be needed pretty quickly, perhaps for a bed or a cooker, in extreme circumstances. If a child arrives, money may be needed to buy a cot, or to send a child to school. That money must be raised when people are under incredible pressure and with other demands on them. People are living on incredibly low incomes at the bottom end, and when a loan has been taken out, it is not surprising that people become absolutely desperate. I am saddened by such tragic cases. We do not know the scale of the problem because sometimes families, friends and relatives help out. However, we could do more in law to back those people up, and that is precisely the purpose of the Bill.

The Minister made a good point early on, and he has made it consistently throughout the Bill, that we could take a total line—I doubt Conservatives would even go this far—and propose to ban all lending. We do not ask for that and no one suggests it. We must strike a fairer balance between good lending so that people can borrow—because they need to borrow; and we do not want to stop lending—and making sure it is fair, so the person borrowing knows what they are getting and is able to make the repayments rather than be driven down into more debt. Having that sense of proportion could be important, because the unfair relationship between the creditor and debtor may be built into the agreement—the amount of money plus interest and charges that are written in may be disproportionate.

That is why the problem must be considered at the early stage. The hon. Member for Richmond Park asked at what stage we should deal with these matters. It should be right at the signing of the agreement. Caveat vendor should apply, because at that point the lender can check out properly the borrower and use the statement of income and outgoings that the court might use.

I am grateful to Zaccheus 2000 Trust, the body that has campaigned unstintingly and with some energy on poverty in Britain, and that has pushed the idea that more should be done. In 2002, it had a letter from the then Lord Chancellor, in which it was spelled out that Parliament could take notice of the enforcement of fines regulations. The Lord Chancellor wrote:

''For fines to be effective they must be proportionate to means. To enable this it is vital that magistrates have accurate and up to date information about an offender's means at the time of sentencing, and throughout the enforcement process.''

I am not for one minute suggesting that everyone at the poorest end who borrows money is an offender. I am merely arguing that there ought to be proportionality before these companies push money at people who will never be able to pay it back. I am convinced that companies know that they will be unable to pay it back. That is what we must challenge, as they are driving people into debt. I am not asking the Minister to put the word ''proportionality'' in the Bill, and I will not be supporting the amendment as the necessary words, however vague, are already in the Bill.

On the Floor of the House and in the Committee, the Minister referred to the process of our deliberations. It is significant that there is almost unanimity of intention and spirit on what we want from the Bill. We believe that we are going some way to rebalancing the relationship between creditor and lender. We would like it to be tighter to ensure that it is effective; that is the spirit and intention of the Committee.

A Minister's word is law if said on the Floor of the House or in Committee, and the lawyers must work with that. Perhaps the courts should be encouraged to say that proportionality should be a factor. That would provide a narrow definition of unfairness for the benefit of the borrower. Guidance could be issued under section 44 of the 1974 Act, to which my hon. Friend the Member for Rhondda referred.

It is important that we make clear our intentions in the Bill. It is obvious that the intention is not to say that the unfairness is in favour of the lender. The intention is to deal with the unfairness against those who borrow because they simply cannot pay the money back.

Gerry Sutcliffe (Labour, Bradford South)

This has been a worthwhile debate on an issue that unites the Committee on a common objective. There is no difference between us on what we believe the end result should be. We have, necessarily, focused on the vulnerable who are most likely to be exploited. We must remember the context of the Bill: the UK has the most mature credit market in Europe. The principles that we are trying to adopt reflect the wide range in the market.

As my right hon. Friend the Member for Leeds, West pointed out, my word is law; therefore I shall keep my remarks short and I shall be very careful about what I say. The context of the debate is something on which we have all agreed: the extortionate credit test does not work, and it does not work because it is too prescriptive. Hon. Members mentioned several cases arising from the extortionate credit test. It was not working; there was a need for something else.

However, the something else—the unfairness test—is not without parameters. There is a spirit of fairness all the way through the various legislation and practices that affect the credit industry. The Financial Services Authority values highly the principle of treating customers fairly. The provisions of the Consumer Credit Act 1974 stipulate that a licensee must be fit to hold a licence, and the priority is that customers be treated fairly. The industry has its own code of practice on fairness. Therefore the parameters are very clear on how the test could be applied.

The failure of the extortionate credit test to meet all the requirements is a reason for not being too prescriptive about the unfair credit test. The extortionate credit test does not work.

Laurence Robertson (Conservative, Tewkesbury)

I agree that the extortionate credit test does not work. Nevertheless, elements of it are quite prescriptive. We are repealing those; it is not just a matter of adding the clause on unfairness. We are actually repealing some of the details of section 138 of the 1974 Act; we are removing 138(2)(a):

''the comparison of interest rates prevailing at the time it was made''.

In a sense, we are moving backwards.

Gerry Sutcliffe (Labour, Bradford South)

I understand why the hon. Gentleman says that, but we are moving forwards, not backwards. Despite those provisions, that test was not delivering what was required. That is why we must have an unfairness test that can examine any of the terms of an agreement, the way in which a creditor has exercised or enforced his rights, and anything the creditor does—or fails to do—in relation to that agreement. The court can take into account all matters that it deems relevant when determining whether a relationship is unfair.

We have an excellent opportunity to get this right: through the spirit and framework of the meaning of unfairness and responsible lending; through informing consumers; through the licensing regime that we shall introduce; and through better powers for the Office of Fair Trading so that it can tackle bad practice.

We must consider the range of issues under discussion. The hon. Member for Richmond Park referred to loan sharks. The Government are addressing that issue with two pilot programmes that were introduced in Birmingham and Glasgow. Those programmes specifically tackle those people mentioned by my hon. Friend the Member for Leeds West who threaten physical violence and use the most unacceptable practices to extort money. We are also working with credit unions and the financial inclusion fund to see how those matters can be dealt with. The unfairness test relates to all consumers, and they will have the opportunity to allege unfairness in the courts—an option that they do not presently have.

Hon. Members raise those issues because of their frustration that the industry is not acting responsibly across the board. My hon. Friends the Members for Warwick and Leamington, for Rhondda, and for Newcastle-under-Lyme cited incidences that they found unacceptable. As my right hon. Friend the Member for Leeds, West said—although I am not saying it—the spirit and intention of what the Committee as a whole wants is clear.

I hope that the unfair relationship test is appropriate. The two amendments would represent a step backwards. I echo the question of my hon. Friend the Member for Warwick and Leamington to the hon. Member for Richmond Park: what is the definition of responsible lending? There is a danger of becoming prescriptive and missing something. The majority of lenders are responsible practitioners who operate within codes of practice and within the framework of the law. They may be competitive in their marketing of products, but on the whole most operate fairly. However, we are talking about those who do not operate fairly, and who will try to find loopholes in the law so that they can get their products across to the most vulnerable.

We could become too prescriptive. The matter is not open-ended, because the industry finds certainty within the codes of practice and the financial services authority. The industry, through its own codes—the banking code, for example—operates within fair parameters. Someone described unfairness as rather like the proverbial elephant: you know it when you see it, but it is not difficult for a lender to know when it is a priority. Unfairness is like that elephant in that it is clear what we mean by unfairness, and it is clear what the Committee means by unfairness. Through the spirit and intention of what we are trying to achieve, the industry knows what we mean by unfairness.

The two amendments do not take us forward; in fact, they take us backwards and are too prescriptive. I ask the hon. Member for Richmond Park not to press the amendments. We shall discuss later the points raised by my hon. Friends about the powers of the OFT and the banking code. The British Banking Association and others will take on board many of the issues that my hon. Friend for Leeds, West has raised. The Treasury Select Committee and others will monitor the success of the regulations that are already in place. The Bill will get across the fundamental principle of responsible lending and borrowing and deal with unfairness, where it exists.

Jenny Tonge (Liberal Democrat, Richmond Park)

If the Minister looks at Hansard tomorrow, he will find that he used the phrase ''whether the creditor lent responsibly'' several times, so I want to see him vote against the amendment and eat his words.

Question put, That the amendment be made:—

The Committee divided: Ayes 3, Noes 10.

Clause 22 - Further provision relating

Laurence Robertson (Conservative, Tewkesbury)

I beg to move amendment No. 24, in clause 22, page 16, line 6, leave out 'alleges' and insert 'demonstrates'.

I was concerned by the word ''alleges'', because it is easy to allege without substantiation. In discussing on the previous clause, I spoke at great length about being clear as to what was an unfair agreement. The subsection that I seek to amend states:

''If, in proceedings referred to in section 140B(2), the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.''

The question is whether that shifts the burden of proof. I understand that the Minister will respond by saying that it does not, but it depends: if a creditor takes the matter to court, that is one thing, but for a debtor to take the matter to court is quite another with regard to the burden of proof. However, if the debtor only has to ''allege'' that it is unfair in order to require the creditor to prove to the contrary, that is not a strong enough word. There must be some demonstration from the person who has taken the matter to court that it is unfair. Otherwise, there could be frivolous claims.

The Bill seeks not necessarily to achieve anything for consumers or for lenders, but to achieve fairness in dealings. To ''allege'' something is a bit weak, and I would rather replace that with ''demonstrate''.

Gerry Sutcliffe (Labour, Bradford South)

Clause 22 (4) provides that debtors must allege unfairness on the part of the creditor before the creditor has to prove that no unfairness has taken place. Under the existing extortionate credit bargain test, the burden of disproving extortion is on the lender. The consumer must only make an allegation that the transaction is extortionate, and the consumer will succeed in his case unless the creditor can satisfy the court on the balance of probabilities that it is not.

There is, therefore, no change from the current law in the way that the existing onus on proof provisions works. That is essential to ensure that consumers do not find it prohibitively difficult to bring a case under the unfairness test. We are concerned that the unfairness test should remain accessible to consumers. There should be effective redress, too, against unfairness. The hon. Gentleman's amendment would place a higher burden on debtors to demonstrate unfairness before being able to bring a case.

Chris Bryant (Labour, Rhondda)

I am grateful to the Minister, but I understand that we are still keeping subsection (7), which refers to ''extortionate''.

Gerry Sutcliffe (Labour, Bradford South)

Extortionate will be in the framework of the unfairness test.

Chris Bryant (Labour, Rhondda)

It would be better if the Bill was replacing subsection (8) with what was subsection (7) in the 1974 Act, because they are virtually the same, except that the 1974 Act refers to ''extortionate'' whereas in this case it refers to ''unfair''. However, there is no provision in the Bill to effect the replacement, so the two would stand next to each other.

Gerry Sutcliffe (Labour, Bradford South)

That is not the intention. It that is the case, we need to put it right. If we need to make a consequential amendment, we will. I will write to my hon. Friend to ensure that what he has said is correct and then put it right.

Returning to the amendment of the hon. Member for Tewkesbury, it is not clear what is meant by ''demonstrate'' that a debtor will, in essence, have to prove his case. That raises the barrier when we are trying to lower it to make the unfairness test more effective. Lenders will be better able to confirm that their practices are not unfair.

Furthermore, consumers face problems such as access to relevant market information and documentation.

To raise the barrier is to head in the wrong direction. Unless the hon. Gentleman is clearer about what he means by ''demonstrate'' he will fail to achieve his objective.

The rest of the debate is in Hansard.