Consumer Credit Bill

Public Bill Committee, 28 June 2005.

Consumer Credit Bill - Standing Committee D

Consumer Credit Bill

Charles Hendry (Conservative, Wealden)

On a point of order, Mr. Conway. I am sorry to raise a point of order so early in the proceedings. You were here when we were discussing the Bill last Thursday and it may have struck you at the time that we tabled many interesting amendments, which the Minister made clear from the outset that he was unlikely to accept. Indeed, he was true to his word on that. What was rather more disappointing was that we put many questions to the Minister, which we hoped he would answer and give further details on before we came to a decision on the amendments and some of the clauses.

As you may recall, Mr. Conway, the Minister was rather slippery, if that is a parliamentary term. He did not manage to answer many of the questions put to him. Indeed, I cannot recall him answering any of them. Is there anything that you can do on behalf of Back Benchers and other hon. Members to ensure that the Minister answers the questions that are put to him? Otherwise, we may have to have Divisions on clauses, not because we disagree with them but because we do not have enough information to hand to make a judgment as to whether the clause is right or not, which would be very bad news for the Government. They are facing a humiliating defeat later today on identity cards and to face defeat after defeat in the course of the day on consumer credit issues would be too much.

Derek Conway (Conservative, Old Bexley and Sidcup)

Fortunately, the Chair is not responsible for the contents of the Minister’s speech or the questions he replies to, but of course the Opposition can call a Division, as can any other member of the Committee, on any item before it. I am sure that we shall all look forward to that during our deliberations.

Clause 23 - Definitions of “consumer credit business” and “consumer hire business”

Gerry Sutcliffe (Labour, Bradford South)

Good morning, Mr. Conway. I am hurt and saddened by that vicious attack, which was made so early during our deliberations today. I hope to be able to answer the many questions that the hon. Member for Wealden (Charles Hendry) will put today. With your permission, Mr. Conway, it may be worth saying that many of the questions put so far related to general aspects of the Bill and the regulations that flow from it.

I do not want to teach the hon. Gentleman to suck eggs, but he will remember from his time serving on previous Committees that the legislation is there to set the framework, while the detail of the framework comes from secondary legislation that is subject to consultation with the industry and the stakeholders. I am sure that, when the secondary legislation comes forward, he will be able to get the answers to many of his questions. I undertook to meet him, if he remembers, to discuss a particular issue and I hope that any outstanding answers will be available by the time we have that meeting.

Charles Hendry (Conservative, Wealden)

It will be a long meeting.

Gerry Sutcliffe (Labour, Bradford South)

We will see how it goes.

The clause amends the definitions of consumer credit business and consumer hire business. These definitions are important, because under section 21 of the Consumer Credit Act 1974, anyone who wants to conduct a consumer credit or hire business needs a licence. Amending the definitions changes the activities for which a licence is required.

There is a problem with the existing coverage of the licensing regime. It is not clear that businesses that purchase a portfolio of existing loans require a licence. The Department of Trade and Industry, the Office of Fair Trading and advice bodies have received complaints about businesses that purchase existing debts. Consumers are often confused about who is responsible for the contract and what controls there are on those businesses.

That is important because consumer detriment can arise from the way in which agreements are administered. Administering agreements can include varying the interest rate or changing the terms of the agreement, and agreements regulated by the 1974 Act can continue for many years. It is appropriate that a licence should be required to administer agreements. The OFT can then check that the person is fit to do so and regulate that activity.

The clause also ensures that a consumer credit or hire business will not be able to enforce its agreements once its licence has been revoked. That will help to avoid the situation which arose in the recent case of Mr. and Mrs. Meadows. As the lender was only administering the agreements, the OFT was unable to intervene.

Hon. Members will see that the definition of consumer credit business now covers businesses relating to the provision of credit by a person, or otherwise being a creditor. A creditor is a person who provides credit under an agreement or a person to whom the rights and duties under the agreement have passed by assignment or operation of the law.

The new definition ensures that businesses will need a licence even if they are no longer making new agreements. They will need a licence if they only administer existing agreements by taking over the rights and duties of the creditor. The same logic applies for the new definition of consumer hire business. The clause means that creditors exercising rights under an agreement are now within the regulatory regime. It means the OFT can ensure appropriate standards and protect consumers throughout the whole life of their agreement.

Clause 24 - Debt administration etc.

Gerry Sutcliffe (Labour, Bradford South)

This clause inserts into the 1974 Act a new type of ancillary credit business—debt administration. Businesses that administer debts on behalf of others will need a licence. Debt administration means performing duties under a consumer credit or hire agreement on behalf of the creditor or owner; or exercising or enforcing rights on behalf of the creditor or owner, not including debt collection. The clause ensures that a licence is needed to administer agreements if the person administering is not the creditor or owner.

The way in which duties are performed or rights are exercised can have a significant effect upon the debtor. They include varying the interest rate or the terms of the agreement. Clearly, there is potential for detriment arising from that behaviour. The clause complements clause 23, which amends the definitions of consumer credit businesses and consumer hire businesses, to ensure that a licence is required for a creditor or an owner to administer agreements.

The Department of Trade and Industry, the OFT and citizens advice bureaux have received some complaints about debt purchasing companies. Debt purchasing of the kind we are concerned with in this clause is when businesses purchase portfolios of existing loans and administer them.

Consumers are sometimes confused about who their contract is with, and surprised to find debt purchasers are not treated in the same way as the licensed original lender. Consumers deal with whoever is administering their loan, and it is difficult to tell whether they are the creditor or someone acting on behalf of the creditor. It follows that, if creditors require a licence to administer their own agreements, someone administering agreements on their behalf should be subject to the same regulation and fitness requirements.

Under clause 23, a debt purchaser who became a creditor or owner when he purchased the loan would require a licence. However, if the creditor or owner subcontracted the administration of his loan agreements to a third party, clause 24 means that the third party would require a debt administration licence. The combination of clauses 23 and 24 is important, as it will ensure that the OFT can protect consumers throughout the life of their agreement.

It has been suggested that the clause would impose a requirement to be licensed on retailers who do no more than hold on to a card at the point of sale when requested to do so by the card issuer. It is certainly not the Government’s intention to include that in the definition of debt administration. If on reflection the clause is wrong in that respect, the Government will table an amendment to clarify the position.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for that clarification. I am grateful to him also for showing flexibility over the issues relating to retailers. Will he tell the Committee what powers there are to strike people off if they have been acting improperly when granted a licence? Do they have a right of appeal? What guidelines will be issued about what makes a person suitable or unsuitable for debt administration? For example, if they have a criminal record, will that be enough to make them unsuitable, or will it be written off in time, as with all criminal records? Will he clarify the situation with regard to Criminal Records Bureau checks on individuals involved in debt administration, particularly given the contact that they may have with often vulnerable people?

Gerry Sutcliffe (Labour, Bradford South)

Again, the hon. Gentleman raises perfectly fair questions. They will be dealt with as we discuss the clauses and consider the powers and responsibilities of the OFT. The fitness test will certainly apply. The general principle that applies to most financial services applies in these circumstances. The detailed issues about the powers and the specific roles of the OFT and the Consumer Credit Appeals Tribunal will become clearer. The OFT has the power to revoke licences, and the procedures are the same for licence holders, including the right of appeal. We shall go through that in more detail as we discuss later clauses.

Clause 25 - Credit information services

Gerry Sutcliffe (Labour, Bradford South)

This clause introduces a new category of ancillary credit business—the provision of credit information services. Credit information service providers will require a licence. New subsections (7B) and (7C) describe what credit information services are. They cover businesses that help individuals to locate and to correct records about their financial standing. That help can be advising an individual or taking steps on their behalf.

New subsection (7D) describes a credit information agency, which is the body that might hold records about an individual’s financial standing. It may be a business that undertakes activity regulated under the legislation or undertakes related activities.

New subsection (7C) lists the steps that the credit information service provider takes that mean that it requires a licence. Those steps are ascertaining whether a credit information agency holds information relevant to the financial standing of their client; finding out what that information is; and correcting it or ensuring that it is deleted or not passed on. Subsections (3) to (5) make consequential amendments to include credit information services elsewhere in the 1974 Act.

Hon. Members may know that credit information services are more commonly provided by credit repair firms. Those firms investigate a person’s credit record. If they find incorrect entries on records, they can, on behalf of the borrower, ask for those entries to be corrected. There is nothing to stop consumers asking for entries to be corrected themselves. People can write to one of the credit reference agencies enclosing a cheque for £2 to receive a copy of their credit record. If there are mistakes, they can ask for them to be corrected. The Information Commissioner’s office publishes a useful leaflet entitled “No Credit?”, which explains clearly the steps that a consumer can take.

I recognise that some people may never be able to take such action themselves, or may prefer that someone else does it for them. That is fine when the service being provided is legitimate. The OFT would have no problem in licensing legitimate companies that can prove that they are fit.

The problem comes when credit repair companies promise more than they have the legal power to deliver, thus misleading consumers by suggesting that they are able to repair their credit record. They do not say that they can remove only the incorrect entries. Adverse entries on a person’s credit record cannot be removed if they are correct. Some credit repair companies do not make that clear to customers.

In some cases, consumers pay a large sum to the company and receive nothing in return. One company that was investigated by the radio programme “You and Yours” charges £80 to undertake credit repair. It told the reporter that they could clear the file of any record of bad debts, even if he had defaulted on those debts. All too often, those claims are targeted at consumers who already have financial problems and believe that a better credit rating would enable them to borrow more.

Credit repair companies that encourage customers to lie about entries on their credit record are, of course, committing fraud. Currently, the OFT has limited powers to target the rogues in the market, although it has issued consumer warnings about credit repair firms.

Bringing credit information services under the licensing regime ensures that fit businesses can get a licence. The OFT will be able to use its information-gathering powers and, if necessary, to impose requirements on licences. Those that are not fit to provide credit information services will not be given a licence. If they then trade without a licence, they will be committing a criminal offence. We are ensuring that rogues are kept out of the market and that the OFT can maintain appropriate standards among credit information services.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for such a detailed explanation of the clause and of the thinking behind it. I assure him of our support in this area. All of us have had distressing constituency cases in which people have come to us and said that they are unable to borrow because they have been told that they have a bad debt rating, when in fact that rating relates to someone who lived in the house a while before or to a student who happened to live there. To have the issue made clearer is something that we should welcome.

I welcome the fact that the Government announced yesterday that they are setting up a £45 million fund on debt advice. Will some of that fund be used specifically in this area? It seems that many people are simply not aware of credit repair firms, their right to obtain information for a fee and how they go about trying to correct incorrect information that is on file. Does the Minister envisage some of that funding being used to make sure that people are not put in this invidious situation?

Gerry Sutcliffe (Labour, Bradford South)

Even I can answer this question; it says yes. Clearly, I welcome the hon. Gentleman’s support for the clause. I am pleased to have given the explanation I did on the clause. It is clear that we are trying to make sure that the rogues that promise things that cannot be delivered are removed from the marketplace.

I am delighted that the £45 million is being made available for financial inclusion. It will consider the range of education support. That £45 million will come to the Department for Trade and Industry. We must work out the detail, but a broad range of programmes will come in bids from a variety of agencies, including Citizens Advice, and other debt counselling and money advice services, to offer a range of support to people throughout the levels. A key element of the Bill in the context of financial inclusion and education is to give people as much information as possible.

I welcome the hon. Gentleman’s support for the clause and for the funding. The measure is apolitical in that we all agree that the work is necessary and must be done. I am happy to talk to him about how to develop the fund as we go along.

Clause 27 - Charge on applicants for licences etc.

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 25, in clause 27, page 21, line 22, at end insert—

‘()In section 189 of that Act (definitions) after subsection (1) insert—

“(1A)In sections 36E(3), 70(4), 73(4) and 75(2) and paragraphs 14 and 15 of Schedule 1A ‘costs’, in relation to proceedings in Scotland, means expenses.”.’.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to discuss amendment No. 30, in schedule 4, page 69, line 38, at end insert—

‘(aa)the definition of “costs”;’.

Gerry Sutcliffe (Labour, Bradford South)

This is a technical amendment to make it clear that the definition of costs applies only to those of legal proceedings in Scotland. When costs apply to other things, such as those involved in collecting money to set up the FOS, the amendment makes it clear that the definition in section 189 of the 1974 Act is not relevant. That also applies to amendment No. 30.

Gerry Sutcliffe (Labour, Bradford South)

We move on to issues relating to the Office of Fair Trading. Licence applicants will be required to pay a charge towards the OFT’s costs of carrying out its functions. That is the same as under the current system. Payment will be required on application and periodically after that, probably every five years.

The OFT will issue a general notice setting out the level of the charges and it is likely that the licence charge will increase from its current level. Approval of the Secretary of State and the Treasury will be required before charges are set. The OFT may set licence charges according to the category or sub-category of activity entered into. That will reflect the cost of monitoring. Narrow licences may attract a reduced charge, but licences in high risk sectors may attract a higher charge and some types of licensees will not have to pay an application or maintenance charge.

The increased charge will fund more effective monitoring of licensees. That will ensure that they remain fit to hold a licence, including visits to premises when appropriate, and will enable the OFT to use the additional powers in the Bill to investigate applicants and licensees.

Charles Hendry (Conservative, Wealden)

I am grateful for the chance to ask some questions. The Minister said that the OFT will consult widely, but who will be consulted once the charges are set? Will there be a right of appeal if firms believe that the charges are too high? Can the Minister give a clearer idea of what the level of the licence charges may be? He said in ministerial-speak that they will increase from the current level. Everything increases under this Government and goes up. Can he give us a ball park figure? Will the increase be £500, £5,000 or £50,000? At the moment, we do not have a feel for what the figure will be, other than that it will be rather more than at present.

Will the Minister also comment on the need to fund the activities of trading standards services? The guidance from the OFT says that the new work for trading standards services will require new money. Paragraph 12 of the guidance states:

“It is therefore envisaged that costs related to these new powers and functions will represent additional costs to the system.”

Does the Minister expect that some of the licence funding through the OFT will also fund the trading standards services? If not, where will that funding come from? Can he indicate what costs will be on trading standards offices? We are all aware that local authorities are consistently anxious about additional responsibilities being put on them without funding being provided to pay for those services. It seems that this may be another of those responsibilities and that they will be expected to take on new staff, which will involve training and additional running costs. Where will the money come from to pay for the extra activities of the trading standards offices?

Gerry Sutcliffe (Labour, Bradford South)

Again, those are legitimate questions, but they were not asked in a friendly way. Attacking the Government’s record on rising costs is unfair. All the costs are proportionate to the requirements and in keeping with our better regulation approach.

Charles Hendry (Conservative, Wealden)

Can the Minister tell me one charge that has gone down in the past eight years?

Gerry Sutcliffe (Labour, Bradford South)

Not immediately, but I am sure that I can find one for the hon. Gentleman. I undertake to write to the hon. Gentleman about that.

The clause explains how the charges would work and the OFT’s responsibilities. We are not talking about a repetitive licensing regime, in the sense that once a license is issued the OFT has the opportunity to look at the people who are not operating appropriately. To return to the earlier point of order, I set out lots of information for members of the Committee because I knew that they would be interested in many of the issues that have been raised. There is a note in the material that we sent out on the charges that the OFT is likely to charge. I refer the hon. Gentleman to that note.Even if charges doubled, that would only take the cost for limited companies to £550 for five years. The charge compares favourably with those set under other licensing regimes, and will help consumers and fair-dealing businesses to reap financial benefits.

I am pleased that the hon. Gentleman raised the role of trading standards, as there are lots of issues concerning the future of trading standards. It is worthwhile saying how much the Government appreciate the work of trading standards. That is why the Hampton review is considering a consumer and trading standards agency, which will highlight further the work of trading standards. There will have to be discussions with local government about the funding of trading standards work, and the costs of the licensing regime should reflect the ability to fund such work. There will be more detailed discussions once the consultation document on the proposed consumer and trading standards agency goes out, and that will include discussions with local government about how to take things forward. Again, like the hon. Gentleman, I am very appreciative of the work that trading standards does.

Charles Hendry (Conservative, Wealden)

May I push the Minister a little further? Is he saying that new money will be provided to local authorities for the extended role for trading standards? Without a guarantee of new money, local authorities will have to cut services elsewhere or consider raising council tax. That will be a great concern to councils that are already hard pressed.

Gerry Sutcliffe (Labour, Bradford South)

Clearly, we do not want to do that. The licensing charges will reflect the costs to the organisations involved, which will include trading standards. I am making a more general point about the future of trading standards, which the proposed CTSA, through Hampton, will affect.

Mike Penning (Conservative, Hemel Hempstead)

Can the Minister clarify further how the mechanism will work? Will money be taken through one licence and given to trading standards officers in our local authorities, which, as my hon. Friend the Member for Wealden said, are stretched to the limit already?

Gerry Sutcliffe (Labour, Bradford South)

Do not become upset and confused that we are going to transfer the powers across. The money will go to the OFT, which will then look at the requirements and the resources that are needed. The money will come through the OFT, through the licensing charges. The OFT will pay the full cost to the trading standards authorities involved.

Mike Penning (Conservative, Hemel Hempstead)

Just to clarify the point, will the OFT fund local authorities in that respect?

Gerry Sutcliffe (Labour, Bradford South)

Certainly not. The OFT will fund that element of the requirements.

Mike Penning (Conservative, Hemel Hempstead)

That is what I am saying.

Gerry Sutcliffe (Labour, Bradford South)

I thought the hon. Gentleman was saying that the role of trading standards would be funded. The OFT will fund the aspect that I described, through the licensing fee. The OFT will pass on the money to trading standards.

However, there is a more general point about the future. The hon. Member for Wealden raised the issue of where trading standards fits, although not in specific detail. I was trying to help by pointing out that we acknowledge and recognise the work of trading standards. We acknowledge that local authorities have a keen interest in the future of trading standards. In the general debate that we shall have over the coming months about the future of the proposed CTSA, which came from the Hampton review, the issue of local authority funding relating to trading standards will be high on the agenda.

Michael Fabricant (Conservative, Lichfield)

To follow on from the points that my hon. Friend the Member for Wealden made, and for the avoidance of any doubt, is the Minister saying that there will be no further financial burden on trading standards, following resolutions passed in the Bill?

Gerry Sutcliffe (Labour, Bradford South)

Yes.

Charles Hendry (Conservative, Wealden)

I am fascinated by that because the advice that the Minister referred us to a little while ago from the Office of Fair Trading and which I read, as he suggested, states:

“It is also expected that the OFT will work closely with Trading Standards Services to implement the Bill. Additional work which may be carried out by trading standards services under new information gathering powers...will require new money in order not to adversely impact other obligations at local level (such as food safety inspections)”.

So, although he said to my hon. Friend the Member for Lichfield (Michael Fabricant) that there will be no additional work, it appears to me that there are new obligations on trading standards services, but they will not now be guaranteed the money from the Minister to ensure that they do not have to cut back in other areas to carry out those responsibilities.

Gerry Sutcliffe (Labour, Bradford South)

That is very wide of the mark. We are referring to the clause relating to the licensing fee. All that affects the clause under the licensing fee will be funded by the additional fees. I will regret that I did this, but turning to the wider issue of trading standards, there is a discussion to be had in the future relating to the Hampton review—I am sure that the hon. Gentleman will quiz me on that over the summer and into the autumn—on trading standards. That will have an effect on local government. I want to reassure local government that the Government are keen to have discussions about the future in terms of where the CTSA and local government fit in. There will be no further burden on local government in relation to this clause.

Clause 28 - Applications for standard licences

Gerry Sutcliffe (Labour, Bradford South)

The clause gives the OFT the power to manage the application process more efficiently. It requires people to specify what businesses they want the licence to cover in the application for licences. That means that the OFT will be more easily able to identify and scrutinise higher risk sectors and monitor them more closely while reducing the burden on low risk sectors.

The clause will also enable the OFT to specify sub-categories, which is what is meant in the clause by “descriptions of business”. The clause also divides up the current licence categories of consumer credit, consumer hire, and ancillary credit business. Applicants can apply for a whole category licence, or one or more sub-categories. A whole category licence might cover consumer credit businesses. Within that, a sub-category licence might cover issuing secured loans of up to £10,000. The type of licence depends on the range of activity that the applicant is planning to carry out.

Licensees will be required to demonstrate fitness only for the sub-categories for which they have applied, rather than whole categories as now. Someone who undertakes only a very limited type of credit activity will in future only have to apply and be assessed for fitness within that limited category.

Charles Hendry (Conservative, Wealden)

Why is this matter being included in the Bill and not being dealt with through regulation? It is constantly evolving. One of the aspects relates to debt adjusting, an issue that was not known about 30 years ago. In 30 years’ time, new types of business will have been set up, but we simply do not know what they are at this stage. It appears that they will not be covered by this area of the Bill. Subsection (5), on the OFT powers, states that the OFT

“shall by general notice specify the descriptions of business which can be set out in an application”

and implies that the OFT may be able to bring forward new definitions. However, that appears to relate to descriptions of businesses rather than types of business. The Bill lists a number of types of business, which appear to be set in stone. Would it not be more sensible to deal with this through regulation instead?

Gerry Sutcliffe (Labour, Bradford South)

I understand where the hon. Gentleman is coming from, but I do not think so. We must be clear about the change in the licensing regime from the Consumer Credit Act 1974 to what we are trying to achieve. There will be the whole licence and then the sub-categories, as set out clearly in the clause. We arrived at that through consultation and discussion with the stakeholders to ensure that we were very clear. I do not think that the scenario that he mentioned will happen. The descriptions that we have given are clear. He is starting to confuse me now because he keeps saying that the Bill is too general, but when we are very descriptive about what we mean, he picks me up on that. I hope that the confusion will clear up as the day goes on.

Charles Hendry (Conservative, Wealden)

I shall try to assist the Minister immediately. We are calling for greater clarification of all parts of the Bill, but we have asked for that to be done in regulation in most cases so that there can also be flexibility. We have been trying to get a better understanding of what he wants to achieve so that there is no doubt about what the Bill aims to do.

Let me be clear: will the OFT have the power to deal with a new types of business? Subsections (4)(a) to (i) list several types of business. If a new type of business were to develop, would the OFT have the ability simply to change the list and add to it; would it have to try to fit the business into the list, even if that was inappropriate; or could we end up with a situation in which a new type of business would not be regulated because it could not be added to the list?

Gerry Sutcliffe (Labour, Bradford South)

No, the OFT could not add to the list. That is why the Bill is drafted as it is. It has been set against consideration of the fact that there have been only two new categories in 30 years. The list will protect consumers and what we are trying to achieve will be clear to the industry. I therefore hope that the Committee supports the clause.

Charles Hendry (Conservative, Wealden)

That is quite disturbing. It means that we expect the Bill to be on the statute book for 30 years because it is not a natural area of business for Governments to come tumbling back to for reconsideration. The Minister says that two types of business have developed in the past 30 years, which means that it is quite possible that two significant areas of business to emerge in the next 30 years will be unregulated. Surely it is better to allow for that possibility in regulation or to give the OFT the power to add to that list of businesses so that we ensure that all new types of business are regulated as we want.

Gerry Sutcliffe (Labour, Bradford South)

My confusion is growing. We have consulted the industry and stakeholders, and only two new types of business have emerged in 30 years. The hon. Gentleman is right, although we intend to review the workings of the Act regularly because of the maturity of the market and the effects of it on the sector and our constituents. I believe that 30 years is too long, but the rate of change and what has appeared in the sector are important to the economy. In addition, the types of business are broad. We believe that we have provided the opportunity for new businesses to fit into the types of business defined in the Bill. I hope that that satisfies the hon. Gentleman and that he is able to support the clause.

Charles Hendry (Conservative, Wealden)

I shall have one more go. Will the Minister reconsider that and determine whether it is appropriate to table an amendment on Report which says that the list of types of business should be reviewed, say, every five years? I know that he has tremendous foresight and vision, but even he might not understand all the ramifications of new types of business that might develop in the next 30 years. So will he reconsider the clause and see whether it would be appropriate to build in such a review?

Gerry Sutcliffe (Labour, Bradford South)

I am prepared to do that because the hon. Gentleman obviously has something in mind that I clearly have not thought about. What types of business does he think should be covered that are not covered, given the broad range of definitions that we have included? If he can answer that, I might do as he asks.

Mr. Edward Vaizey (Wantage) (Con) rose—

Gerry Sutcliffe (Labour, Bradford South)

It looks as if someone else might be able to give me an answer.

Ed Vaizey (Conservative, Wantage)

In our debate on clause 19 in the previous sitting, the Minister said:

“we are not operating in a vacuum, and things can change dramatically.”—[Official Report, Standing Committee C, 23 June 2005; c. 50.]

That is the point that my hon. Friend the Member for Wealden is making. To quote the Secretary of State for Defence in the United States Administration, there are things that we know and there are things that we do not know, and there are things that we do not know that we do not know. My hon. Friend’s whole point is that we do not know what businesses might emerge in the next 30 years, which is why it is better to list them in regulations rather than in the Bill.

Gerry Sutcliffe (Labour, Bradford South)

I congratulate the hon. Gentleman on trying to support his Front-Bench spokesman so admirably because he was starting to confuse most of us. The point is that the definition clarifies the types of business that will be in place because we have the standard licence and the sub-categories. The guidance on clause 30 sets out a further definition that may help the hon. Member for Wealden.

Michael Fabricant (Conservative, Lichfield)

In a spirit of helpfulness, I wonder whether subsection (6), which states:

“The power of the OFT under subsection (5) includes power to make different provision for different cases or classes of case”,

answers the question asked by my hon. Friend the Member for Wealden, or whether it is meaningless.

Gerry Sutcliffe (Labour, Bradford South)

It is certainly not meaningless—what an outrage to declare any part of the Bill meaningless. Before the hon. Gentleman so helpfully intervened—if, indeed, that is what he did—I was going to say to the hon. Member for Wealden that in the spirit of consensus, as we try to move the Bill forward—

John Battle (Labour, Leeds West)

Will my hon. Friend give way?

Gerry Sutcliffe (Labour, Bradford South)

I will.

John Battle (Labour, Leeds West)

I am amused that Opposition Members have moved from the mysticism of Donald Rumsfeld to the Bill. They should look at the explanatory notes. Helpfully provided under a clause that we have yet to come to—clause 30—they state:

“OFT may revise any guidance on fitness”

in the future. If the fitness test is open, it allows changing market circumstances and businesses, and assessment of the problem, to be taken account of. I do not think that there is a difficulty, although Opposition Members may have just woken up.

Gerry Sutcliffe (Labour, Bradford South)

It is a bit unkind to say that Opposition Members are not awake. I hope they know that I will chastise my hon. Friends if they attack their awareness.

Charles Hendry (Conservative, Wealden)

If the Minister had said five minutes ago what the right hon. Member for Leeds, West (John Battle) just said, we would not have had to have this discussion. I am grateful to the right hon. Gentleman for clearing up the problem, and on that basis we are happy to accept the clause.

Clause 29 - Issue of standard licences

Gerry Sutcliffe (Labour, Bradford South)

The clause introduces a broader fitness test that the OFT will use to decide whether someone is fit to hold a consumer credit licence. The current fitness test puts the emphasis on past behaviour. Under the new test, the OFT will assess skills, experience and expertise in relation to consumer credit. Applicants must have in place the practices and procedures to ensure that they remain fit.

The clause builds on the current fitness test. The OFT will continue to consider an applicant’s past behaviour, which might include evidence showing that a licence applicant or an associate has committed an offence involving fraud or violence. It may consider evidence that an applicant or associate has contravened any consumer credit law, including the Consumer Credit Act 1974, part XVI of the Financial Services and Markets Act 2000, or any equivalent consumer credit law in another European economic area state. Evidence that an applicant has practised discrimination or engaged in unfair business practices will also be considered. All that evidence demonstrates fitness from past behaviour, which is an important element of the current test. The Bill will not prevent the OFT from taking such things into consideration.

The new broader fitness test gives the OFT explicit power to require evidence of future competence to provide credit. For example, it may require an applicant to give evidence to show how he would ensure that his employees understood what was required of them. Evidence might also show that the employees understand their credit products and can explain them to consumers. The OFT will not require evidence of expertise to demonstrate fitness. Applicants will be required to demonstrate a base line of competence.

The OFT will be required under clause 30 to produce guidance on how it will assess fitness. That will be done as soon as possible after the clause commences. Hon. Members will have seen the draft guidance and information packs. The guidance will be subject to full consultation after Royal Assent and will be available to applicants and licensees in good time.

The ability to require evidence on future competence to provide credit will better enable the OFT to regulate licensed businesses. It will drive the rogues out of the market and enable more effective and fairer competition.

Charles Hendry (Conservative, Wealden)

May I push the Minister for clarification on the clause, and particularly on its retrospective nature? On page 18 of the explanatory notes, there is a list of practices deemed to be inappropriate. One of them is “has practised discrimination”. That is clearly in the past tense. Some forms of discrimination that are now illegal were not illegal a while ago. For example, we would have found discrimination on grounds of sexual orientation or of gender morally reprehensible, but if they were not illegal at the time when they occurred, could they be taken into account by the OFT? There are also continuing acts of discrimination—for example, in relation to the sale of goods and services, and on sexual orientation. If an organisation were to practise that sort of discrimination now, would that also be grounds for refusing it a licence?

Gerry Sutcliffe (Labour, Bradford South)

Again, the powers of the OFT are in line with the Cabinet Office concordat. It has to act in a reasonable and proportionate way. That is already in the 1974 Act and will not change. There is nothing to concern the hon. Gentleman in the parameters that he mentions. The 1974 Act and all the discrimination issues, plus the updated position, are covered, as well as the powers relating to proportionality and the need to operate within the concordat.

Clause 30 - Guidance on fitness test

John Battle (Labour, Leeds West)

I beg to move amendment No. 38, in clause 30, page 24, line 7, at end insert—

‘and that guidance shall include a duty on licence holders to lend responsibly.’.

As in any Bill, it is necessary to refer to previous clauses. This clause comes in a cluster of clauses that deal with the fitness of a business to hold a licence in the first place. It inserts proposed new section 25A after section 25 of the 1974 Act. That requires the OFT to prepare and publish guidance on how it determines the fitness of a person to hold a licence. In light of the previous debate, I would add that the OFT may revise the guidance on fitness at any time. That opens up the question of who is fit to hold a licence. That will be an evolving process, and it will keep pace with market developments.

However, I want to turn the telescope around and suggest that the reference to fitness concerns the person holding the licence. There is an ambiguity because on first reading

“whether persons are fit persons as mentioned in section 25”,

one could be forgiven, having glanced through the Bill, for thinking that it refers to the poor lender, but it is the person who receives the money who has to be in a fit position to survive the loan that he has received. It seems that we are more concerned about the fitness of the coach than we are about that of the athlete to keep up, or the team member to play. If all the emphasis is on the fitness of the coach, there could be a case in which the team is of no use, but the coach is perfectly fit and all the athletes are flogged to death. That is what worries me, and that is why I drive the analogy. The lender could lend to people who are not able to pay back, and who might well know that and carry on regardless.

Lenders are eager to assert that they are responsible. We have had briefings from banks and lenders who say that they are good people. Most are. Their purpose is not—to coin a euphemism and to use language that I am sure is not parliamentary—to screw people for the sake of it. Yes, they want to make a fair income, but the majority believe that they are doing it in a fair way. However, how do they go about their business and how do they check repayments?

To give a practical example, there is plenty of evidence that it is easy to gain credit. We had this debate in Committee in the previous Parliament, and there were plenty of examples across the board. I have made it clear that my primary concern is with doorstep lending, but credit is easy even in the credit card market. Cards in an envelope fall through one’s letter box and a PIN is supplied; just sign and go. We all know about that, but what checks are made? Most lenders now use an automatic process to score credit applications. They use sophisticated computer modelling but do not check whether the person can afford the credit repayments.

Lenders do not carry out a full income test, as they do for mortgages. One can borrow more than the amount of their mortgage through credit companies without even a fraction of the checks that are done when papers are filled in for a mortgage. That is irresponsible lending. Lenders do not examine the borrower’s income and expenditure to check whether they can afford the credit repayments but tend to rely on information held in credit reference files, which usually involve the payment records of past credits and loans. If someone pays back loans and keeps up with payments, they are a good creditor and can borrow more. Lenders do not ask whether borrowing more will push the payments out of the reach of the borrower but simply ask whether they will keep up the payments. They do not ask whether that will mean not being able to live or keep one’s family. If they simply repay the money, they will have a good record.

Someone with no past record of default will be regarded as a good credit risk whether or not their outstanding credit commitments are beyond their income. They might have to find the money in other ways. As long as they are paying back the loans, they will be a good credit risk.

Unfair sales techniques are often used. We could go into that in more detail. I am sure that all hon. Members are aware of such techniques from their ordinary constituency casework, from the press and so on. Sometimes people are pushed to take further credit without any checks at all on their ability to repay.

The key question should be whether a person has the ability to pay back without going deeper and deeper into debt. I make this point again; those on doorstep loans are not likely to go to court because, at any hint that they cannot repay, the companies offer them another deal or an extension. They will even advise other companies that can give another loan. The borrower is pushed further and further out without any checks as to whether they are able to repay the loan.

In the previous Parliament, I referred to the Lord Chancellor’s advice to the magistrates courts. They are under an obligation to check whether a person who has been fined for non-payment has the ability to pay the fine. It is not only illogical but a ludicrous economic situation to fine people on top of money that they owe but cannot possibly pay back. People are driven into debt that is totally unsustainable and that they cannot get out of, and it must be dealt with in a different way. There is guidance to the courts to ask whether people have the ability to repay.

We need to tackle what I would describe as irresponsible lending that drives people who borrow into deeper and deeper debt and desperation. It is not enough for the companies to say that they have checked the credit rating, that the person has paid their instalments and that therefore they are okay. All that that means is that the company is okay because it is getting interest. The person’s ability to manage their budget at the other end is not taken into consideration.

I simply suggest to the Minister that he ask the OFT to include in its guidance a duty on licence holders to lend responsibly. We must get that phrase into the legislation. It is fairly bland and vague. Like the unfairness test itself, it is open-ended, but it would give the OFT a handle on changing marketplaces and new kinds of companies. I recommend it to the Minister and look forward to a positive response.

Charles Hendry (Conservative, Wealden)

I congratulate the right hon. Gentleman on introducing the amendment. He raised the matter on Second Reading and asked us to consider it sympathetically. He has made a powerful case for it so far.

It is also a particularly appropriate time to discuss the issue, in the light of yesterday’s headlines on consumer debt. For example, The Independent carried a story about the level of unsecured debt having doubled in the past eight years. The average unsecured debt per head is 42 per cent. of average earnings now compared with 29 per cent. in 1997. The rise in unsecured lending was 16 per cent.; the largest annual rise in eight years.

We are considering a matter of great concern, and indeed the Bank of England issued a warning yesterday about the risk to the UK’s financial system from the surge in consumer borrowing and from people defaulting on debt when those who have borrowed money simply cannot afford to repay. We have also tabled two new clauses, one dealing with credit card checks and one with credit limits, that try to deal with some of the abuses that we feel are apparent. I hope that the Minister will be able to respond in due course.

There are too many examples of lending that has not been carried out responsibly. One of my colleagues has written to me with a letter from a mother in her constituency, in which she writes:

“My son...aged 45 suffers from schizophrenia and is in receipt of anti-psychotic medication for this illness. He has built up a credit card debt of over £30,000 for which he pays interest of about £500 per month. I do not know the exact amount because he will not show me the credit card statements. The incapacity benefit he receives can just about service the interest on the credit card debt. He does not want to go bankrupt and he threatens suicide. In view of his illness it is very difficult to reason with him and he is very reluctant to give up the cards. I would be most grateful if you would contribute to this Bill now before Parliament to help him and people in similar circumstances to overcome and prevent this serious and tragic problem.”

That is not a unique issue; all of us have seen constituency cases like that. On Second Reading I referred to Stephen Lewis, a person with an income of £22,000 who ran up debts of £70,000 on 19 different cards and ultimately took his own life when he could not afford to repay those debts.

Those issues link into data sharing, and we are tabling a new clause on that as well. There should be a case for lenders to lend in a way that would be seen to be evidently responsible. We have described cases that do not involve responsible lending because in part the financial institutions did not know from where else the people were borrowing. More needs to be done to address the problem, and I will be interested to hear how the Minister responds to the amendment.

Michael Jabez Foster (Labour, Hastings and Rye)

I very much support the principle behind the amendment tabled by my right hon. Friend the Member for Leeds, West. I seek the Minister’s view about how he could, if not accept the amendment, provide for the balance of responsibility that must form the basis of any credit agreement. As we discussed during our debate about clause 19, some of us believe that that clause may be the place for a definition of an unfair agreement or relationship in a form that we understand, without having to leave matters to the judges. That debate has passed, so if we could deliver something at this stage, it would provide guidance about what is an unfair deal. If a creditor lends irresponsibly, that in itself is an unfair relationship and should be taken into account.

I want to press further the point that my right hon. Friend made about the inability of the courts to mitigate situations in which over-lending has occurred. Cases that finish up in the county court frequently mitigate the repayments and, indeed, the very small repayments often made after taking full account of the debtor’s means. However, the nature of those debts is that often they do not reach the courts and for that reason, it is important to provide some sort of fairness for people at that stage.

If the amendment is not acceptable to the Government, I hope that an alternative will be in place to introduce to the legislation the principle of responsibility on the part of the lender.

Gordon Banks (Labour, Ochil and South Perthshire)

I should like to pick up on the point made by the hon. Member for Wealden, who said that extended data sharing was absolutely vital to the delivery of responsible lending. The extension of data sharing must be the way forward to deliver the amendment tabled by my right hon. Friend the Member for Leeds, West.

Gerry Sutcliffe (Labour, Bradford South)

I congratulate my right hon. Friend the Member for Leeds, West on the amendment. I hope to be able to prove that it may not be necessary, but we will see how we go. I say to the hon. Member for Wealden and my hon. Friends the Member for Hastings and Rye (Michael Jabez Foster) and for Ochil and South Perthshire (Gordon Banks) that I know this was the core element on Second Reading for all hon. Members in relation to our concern that lending was not responsible.

The whole purpose of the White Paper, the Bill and the wider Government strategies is to try to create greater transparency to ensure that people who lend money do so responsibly and appropriately and have everything in place to ensure that there is transparency. The consumer has to know what he is letting himself in for in any agreement and that is why we brought into play the regulations relating to adverts for loans, the greater transparency and the calculation. I agree that the issue of data sharing is important and I shall return to that later on in the debate.

We have seen tragic cases, and it was my experience to meet Mrs. Lewis and go through with her the issues affecting her husband with regard to how he was able to borrow so much money given his income. I did not find it a very pleasurable experience. There are too many of those cases. I note what the hon. Member for Wealden has said about the figures and the announcements yesterday. We are all concerned about the level of debt. The only qualification I would make—I do not intend to score any particular points—is that when the economy is doing well, people feel more able to borrow.

In most circumstances, people can handle credit well. I do not think that the Committee is trying to say to anyone that credit is not a good thing if handled and used in an appropriate way. However, when it is not and people are put into a very difficult position, that is not acceptable. All of us, in our constituency casework, have examples of where things have gone horrendously wrong. Suicide is tragic, but many other people’s lives are affected for a period of time by the debt they get themselves into.

To turn specifically to the amendment that my right hon. Friend has tabled, we all agree that lenders have to be responsible when lending to consumers. It will come as no surprise to my right hon. Friend that I have tried to resist definitions throughout our deliberations, which was the reason for the principal argument on clause 19 regarding the unfairness test. If we are very specific about an issue, we could undo what we are trying to achieve. For many, responsible lending imposes a requirement that lenders do certain things before extending credit. However, the things that a lender may take into account in the case of one debtor may be very different to those of another. It will depend on a debtor’s circumstances.

Any duty to lend responsibly would mean defining what is, and what is not, responsible lending. That is the point I made earlier about defining the position, and I explained that point when we discussed the unfairness test. I do not think that a list of things that lenders must do is enough. It would encourage them to think that as long as they have complied with a list, they have lent responsibly, but that cannot be so in all cases. The OFT guidance cannot impose a duty: it is guidance.

However, the draft OFT guidance on fitness, which I provided to hon. Members before the Committee, makes clear the sort of issues the OFT will look at when considering the fitness of an applicant for a licence. Page 4 of the draft guidance says:

“Fitness takes into consideration any matter which may have a bearing on your ability to deal with consumers, including credit competence and evidence of trading practices”

Page 9 of the draft guidance lists examples of specific unfair practices that I am sure hon. Members would agree go to the heart of responsible lending, as do the practices in relation to non-status lending listed in the annex to the draft guidance. The OFT will, of course, consult on its draft guidance and will update it from time to time so that account can be taken of other examples of irresponsible lending that may come to light.

James Brokenshire (Conservative, Hornchurch)

The interesting thing here is the lack of willingness to embrace the concept of responsibility, which is what lies at the heart of the amendment that has been put forward by the right hon. Member for Leeds, West. The Minister talks about subsequent amendments to the OFT guidance if it is felt that things are not being conducted in a reasonable fashion. In many ways, one of the weaknesses of the structure that is set out in clause 30 is the lack of influence from any outside body. It is interesting that this provision differs from certain other provisions later in the Bill, such as clause 54, subsection (3) of which states:

“No statement of policy shall be published without the approval of the Secretary of State.”

There is no such measure in clause 30, but if there were it would introduce some sort of check or balance in terms of the guidance or direction that will be given. It is interesting that there is reluctance about introducing that element of reasonableness, despite what the Minister may say about the guidance.

Gerry Sutcliffe (Labour, Bradford South)

I am grateful to the hon. Gentleman. I understand what both he and my right hon. Friend the Member for Leeds, West are trying to achieve. I argue that the OFT guidance may be of assistance, but if I do not satisfy the Committee of that, I am prepared to reconsider the issue.

It might assist the Committee if I first talk about some related OFT issues. As we have discussed, the OFT will from time to time take into account examples of irresponsible lending that come to light. It also has guidelines on non-status secured lending, which involves the sector of the market that lends to people with poor credit histories or limited means. The OFT encourages lenders who offer unsecured products in that sector to comply with the guidelines, which set out a series of principles to which lenders should adhere when lending to non-status consumers.

If I may, Mr. Conway, I shall go through the guidelines. They state that

“there should be transparency in all dealings with potential and actual borrowers, with full and early disclosure and explanation of all contract terms and conditions and all fees and charges payable

there should be no high-pressure selling, and adequate time should be allowed for the borrower to reflect on the terms and conditions of the loan and to obtain independent advice before signing

advertising and other promotional material should not mislead, and there should be no cold-calling or canvassing off trade premises without the borrower’s prior consent

brokers should disclose at the outset their status with regard to the borrower and the lender, and the extent of the service offered to the borrower, together with any brokerage fee or commission payable by the borrower or the lender

lenders should take all reasonable steps to ensure that brokers and other intermediaries regularly marketing their products do not engage in unfair business practices, or act unlawfully, and that they serve the best interests of the borrower

contract terms and conditions should be fair, and should be written in plain English to ensure as far as possible that borrowers understand the nature of the loan agreement and their rights and responsibilities under it

there should be responsible lending, with all underwriting decisions subject to a proper assessment of the borrower’s ability to repay and taking full account of all relevant circumstances

any ancillary charges (for example, on default or early settlement) should be brought to the attention of the borrower before the agreement is entered into and should reflect as closely as possible the costs reasonably incurred by the lender and not already recovered at the time when the charges are made.”

The guidelines make it clear that:

“Lenders should comply at all times with the principle of responsible lending”,

and that all underwriting decisions

“should be subject to a proper assessment of the borrower’s ability to repay, taking full account of all relevant circumstances”.

The OFT will revise the guidance once the Bill becomes law. With that explanation, I hope that my right hon. Friend will withdraw his amendment. However, I give the Committee the undertaking that, if we can strengthen the position on Report, we will look at that.

John Battle (Labour, Leeds West)

I am grateful to the Minister for his response, and I welcome his sentiment that he understands what I am trying to do. We have come some way, but I should like to go a little bit further. The concept of responsible lending focuses on the lender doing the right thing and—I am being harsh—on the lender covering their back by doing everything according to the spirit and letter of the law. That is good, and should be done, but I want there to be more focus on the borrower.

I want to respond to something that the Minister said. I thought, “Oh my God, the word ‘responsible’,” as I do not want to have a great row about the definition of that word. I defer to colleagues with legal expertise, but I imagine that a massive issue in most court cases is whether a person was responsible for their actions when they carried out a crime.

Someone tried to take me on in a big way because they said that I was not a responsible MP. He had written to me, so I was responsible and responded. I am always conscientious in replying to my constituents, but I received the answer, “Yes, but you did nothing. You didn’t solve the problem.” The problem was that someone else’s cat was infringing on his property, but I did not think that I could solve that very easily. We get all kinds of cases, but I went around for days afterwards wondering whether I was a responsible person. I do not want to go there with the amendment. I do not want courts asking how we defined “responsibly”. I want to focus on people’s ability to pay back.

Reference has been made to the wider economy, and the Opposition spoke about lending. The House has a consensus on lending; we all worry about it when the economy is doing well. The Minister said that people handle credit well when the economy is doing well, but I suspect that they take greater risks and that they push the boat out further. For instance, people now borrow fives time their annual income with their mortgage; it used to be two and a half times. People may say that the bubble in the south-east pushed the figure up to five and that it will all come out in the wash, but I am not so sure. As we all know, if the economy declines and people’s boats are too far out, they could find themselves in incredible financial difficulties.

We should not go down the road of responsible lending but focus instead on people’s ability to pay back. Some might accuse me of saying that the lenders should consider not just the terms and conditions of loans, with their agreements and hidden clauses, but the budget of those to whom they are lending. Some hon. Members might then say, “Ah, if you want a full outlay of their income and outgoings, that is means-testing.” I understand the stigma of means-testing, but it could be argued that tax forms are a type of means-testing—they assess people’s income and their ability to pay; that is how their tax bills get sorted. I suggest that, if we can ask for tax returns, we might consider people’s incomes and be a bit more open about their ability to manage their money.

I warmly welcome the Chancellor’s announcement this morning, but I want the money to be available not only to those in difficulties, whose boats are right out and who cannot pay back. We have to do a heck of a lot to educate people. Indeed, the hon. Member for Wantage (Mr. Vaizey) spoke about the need for financial education and the most basic money management skills. We could all improve our circumstances with a little more of that. We could include the subject in adult education courses. We should be more user-friendly, not simply telling everyone how to manage on a low budget and assuming that everyone is poor, but being a bit more open about financial management and household budgeting. People are not catching on to that as an innate form, and many are falling further and further behind, and that will build up into a debt bubble.

The ability to repay, the ability to pay back, is important. It will enable people to be part of a conversation, instead of lenders simply saying to those who have so far paid their loans and who therefore have a good credit rating that they will lend them more, which will mean borrowers getting further out and wanting more. I cannot think that that is responsible. The letter of the law may say that it is responsible. It may be responsible under the Companies Acts for companies to tell people their terms, to make clear the hidden clauses and to send regular letters letting them know how they are getting on, but I suspect that it is not enough. However, I warmly welcome the Minister’s offer to continue a conversation on the subject.

I shall push a little further in those conversations rather than drive further in a debate about what is meant by responsible. I do not want to go there. If the Government can help by looking at the problem in a more positive way, one that will ensure that the OFT’s guidance is absolutely clear and that it includes information on people’s ability to repay, I shall happily withdraw the amendment.

Charles Hendry (Conservative, Wealden)

I, too, am grateful for the Minister’s comments, but I join the right hon. Gentleman in encouraging the Minister to go that bit further. One has only to look at the wording of the amendment. If the words were changed around, the amendment would become a motherhood and apple pie thing. If companies were to be allowed to lend irresponsibly, we would all say that it must be wrong. Therefore, the thinking behind the amendment is something that we should all support instinctively.

The Minister quoted from the guidelines and highlighted one guideline that said that there should be responsible lending. It is not far from that to saying that we should put in the Bill—in primary legislation—a requirement to lend responsibly. It would make lenders think that we were serious if there were not just guidelines but a measure enshrined in an Act of Parliament.

We all recognise that we cannot take account of all circumstances. We know that some people will not tell the truth about their circumstances—they will not admit to other sources that they have borrowed from. By not telling the truth, they will still be able to build up debts that they cannot afford. Even with better data sharing, I do not think that we could expect lenders to know when people are not telling the truth. We also know that people’s circumstances will change, so that what may be affordable for them when they take out a loan becomes unaffordable in due course. Again, as long as the lending was responsible at the time of lending, the lender would have fulfilled these criteria.

We need to be aware that we live in a world in which advertising is designed to make us think that we can afford anything. The motor pages of our local newspapers contain adverts that say, “You can have a Jaguar for £200 a month”. We might think, “Whoopee! A Jaguar for £200 a month”. The Deputy Prime Minister has probably taken up many of those offers. It is only when one looks at the way in which the loan is structured that one comes across a colossal payment at the end and suddenly realises, “Actually, I can’t afford that and it will cost more than if I went to the garage and bought a car outright.” The advertising is designed to make us all think that the debt is something that we can afford more easily than we can.

We are looking for greater clarification in the Bill. There should be an onus on people to make sure that they lend responsibly. In most cases, they do. In most cases, there is not an issue. However, in too many cases, lenders do not act responsibly. That must be our priority and our concern.

James Brokenshire (Conservative, Hornchurch)

I emphasise again the points made by my hon. Friend the Member for Wealden and the sentiment that lies behind the amendment that was tabled by the right hon. Member for Leeds, West, which is the concept of responsibility. On Second Reading, I highlighted the case of a refinancing transaction in which somebody borrowed some money and was offered additional credit by another provider, which worsened the problem that they got into. The question is: was the person who lent them the money fit to lend? Arguably, they were. Did they act responsibly or reasonably? Probably not, considering the circumstances and the borrower’s ability to continue to repay. It is the concept of responsibility that we want to press the Minister to embody further.

It is all very well saying, “Okay, we’ve set out guidance on whether somebody is fit to obtain a licence”. However, we also need to address and to push further the concept of competence. I hear what the Minister said about that. We also need to push the concepts of responsibility and of demonstrating whether a person will act in a responsible fashion.

In conclusion, this has been an interesting and instructive debate. I hope that the Minister will hear the message from the Committee about people acting responsibly and will follow the matter through.

Ed Vaizey (Conservative, Wantage)

I support the remarks of my hon. Friends and the amendment that was tabled by the right hon. Member for Leeds, West. It is an exciting amendment. Perhaps that is an unhelpful adjective to use, because, when a Minister or his officials hear the word “exciting”, they run for the hills.

In the past few years, the concept of corporate social responsibility has gained ground and credibility in this country. Many trees are felled in order to produce environmental reports showing that a company is socially responsible. As far as I am aware, no legislation enshrines the need for a company to behave responsibly. In my view, there is no more important need for a company to behave responsibly than in the area of consumer credit.

It strikes me as bizarre that someone who applies for a mortgage must jump through several hoops to secure the funds, even though there is a property as security, but that to obtain an unsecured loan there are barely any hoops to jump through. Lenders come knocking on the door. One can, normally, barely open the front door for the amount of junk mail and direct mail that lenders have sent, offering credit cards and loans. It is not possible to drive down a motorway now without seeing an ad-van parked in a field, offering a loan, yet no hurdles have to be jumped so that credit lenders can assess whether the person to whom they are lending has accumulated too much debt, has too many credit cards, or is simply trying to manoeuvre debt along into the never-never. To enshrine the amendment in the Bill, and then in law, would be a wonderful, forward-looking step that the Government could take to send a clear signal to financial institutions that they should start to behave responsibly.

As the right hon. Member for Leeds, West so eloquently put it, although the lenders can look to their own back office functions and tick all the boxes, they must look outwards and check whether they are flogging their customers to death.

Gerry Sutcliffe (Labour, Bradford South)

I congratulate all the hon. Members who took part in the debate, because I understand their sincerity in pursuing their aims. I hope that they do not doubt my sincerity in trying to accommodate those aims in a framework that will allow the Bill to be successful. Relevant to that is the consensus that we discussed at the beginning of our exhaustive discussions on improving the Bill generally, with regard to transparency and undertakings. Aspects of the matter include putting pressure on companies to be more transparent and open about their procedures, and the giving of advice and support to people who are in debt, through the financial inclusion money and through other aspects of what we are doing.

I heartily agree about financial education and support for citizens advice bureaux and all the agencies that pick up the pieces when people have problems. We are trying to pursue that course throughout. However, I got the feeling from the debate that hon. Members think that the OFT lacks teeth and that going along with what it says is almost optional. It is not. Not complying with OFT guidance raises questions about a lender’s fitness and could lead to licensing action, so there are teeth. As to the guidance on non-status lending, concern was raised about the proper assessment of a borrower’s ability to repay; taking full account of all relevant circumstances is the key concern. The OFT guidance includes that, as well as the concept of responsible lending.

In the spirit of what my right hon. Friend the Member for Leeds, West wants to achieve, we shall consider the matter and try to make the provisions clearer. I do not want to play the definition game and talk about what is “responsible” or “reasonable”, or what is unfair or not unfair. The unfairness test is all a matter of relevant circumstances and it could be argued that relevant circumstances include the ability to repay.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister, particularly for letting me interrupt him in full flow. May I get this clear? He talked about the guidelines that say that lending should be responsible. He has implied that his objection to the amendment is that it is unnecessary because the matter is dealt with in the guidelines. He has not, I think, said anything about why he believes the amendment is flawed. I should be grateful to know any particular reasons for his thinking that the requirement for lenders to lend responsibly should not be included in the Bill.

Gerry Sutcliffe (Labour, Bradford South)

For the very reason that we do not want to get into an argument on definitions. There would be a definition of “responsible” and people would be able to hide behind that, because it might not be wide enough to cover all the relevant circumstances. Perhaps the discussion that we should continue is about how to develop the matter. It is in that spirit that I hope my right hon. Friend will withdraw the amendment, on the undertaking that we shall discuss the matter further and see what we can come up with.

Mr. Vaizeyrose—

Gerry Sutcliffe (Labour, Bradford South)

I will give way to the hon. Member for Wantage, but the words “exciting”, “visionary” and so on cause me some concern.

Ed Vaizey (Conservative, Wantage)

If the Minister is happy for the word “unfair” to appear unfettered in the Bill and to allow the courts to define it, surely it should be possible to have the word “responsible” in the Bill and to allow the courts to define that.

Gerry Sutcliffe (Labour, Bradford South)

I hear what the hon. Gentleman says, but I must, unfortunately, disagree with him. We are worried that the amendment would not be workable because guidance cannot impose a duty. I want to discuss that further with my right hon. Friend.

Despite the sincere attempts to persuade me to accept the amendment at this stage, it is not possible for me to do so. I hope that my hon. Friend will recognise that we are trying to be clear about what we mean. I repeat my offer of further discussions to see what we can do and to return to the matter on Report.

John Battle (Labour, Leeds West)

My greatest fear is that the whole business will go to the courts and remain there for years so that people will not receive the basic justice that is in the Bill. I am reluctant for rows about the definition of “responsible” or “responsibility” to clog up the courts for years and for people not to have a good working relationship with lenders. My aim is to protect people who suffer from unscrupulous lenders who should be driven off the park by the OFT. When it comes to the fitness test such lenders should not allowed anywhere near the park to start with and I hope that that will start to happen as a result of the Bill.

However, other lenders are doing a reasonable job and I do not want to drive out all lenders. We need people who lend money to other people. I do not want the problems to go to the courts. I want a reasonable conversation between lenders and borrowers so that things work out for both parties. I want a fairer balance for borrowers. Rather than driving lenders to the courts to discuss whether they have been responsible, I want the OFT to be clearer and more forceful in explaining to lenders that the issue is not about protecting their backs, but about having a decent relationship—it might not be just on paper—with borrowers.

I do not mean that when final payments are due the lenders send a man with a dog to threaten a young woman with a child on the grounds that the arrangements have changed and her loan charges have increased because they forgot to tell her about the extra charge they added, saying, “We have come for an extra £20. Did you not realise that it was due? By the way, my dog barks ferociously so watch your child.” Such conversations are out of order and we want to drive those people out of the marketplace. That puts the onus on those left in the marketplace to have a better and stronger relationship with the people to whom they responsibly lend. In that spirit, I am prepared to withdraw the amendment and to continue the conversation.

I beg to ask leave to withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

I wanted to follow up a point that I briefly alluded to earlier. The Minister might have addressed it, so I apologise if I missed it. The clause inserts proposed new clause 25A into the 1974 Act, but is different from where similar language crops up elsewhere in the Bill. For example, clause 54 inserts into the 1974 Act proposed new section 39C, subsection (3) of which states:

“No statement of policy shall be published without the approval of the Secretary of State.”

No such provision is included in clause 30. Some forthcoming amendments concern the perhaps unfettered nature of the OFT’s powers. Can the Minister explain why that thought process is adopted elsewhere in Bill, but not in clause 30?

Gerry Sutcliffe (Labour, Bradford South)

We had an excellent discussion about the amendment that my right hon. Friend the Member for Leeds, West tabled, but it would be useful to set out the basis of the clause. Clause 29 introduces the broader fitness test, which the OFT uses to decide whether someone is fit to hold a consumer credit licence. Clause 29 requires the OFT to prepare and publish guidance on how fitness will be determined. The OFT will be required to consult on fitness guidance before the new fitness test comes into effect. If the OFT revises its fitness guidance, it must publish and have regard to the most recent version. Hon. Members will see the draft guidance in the information packs which will be subject to consultation after Royal Assent. The basis of that is to explain that the policy decision that comes later is clear and precise about what we are trying to achieve.

The only part of the legislation that requires the OFT to obtain ministerial clearance concerns a statement of policy in relation to civil penalties. That is a special case, which allows the OFT to impose fines for breaches under the licensing regime, which goes beyond its normal role as a market regulator. The Secretary of State’s approval is required in relation to civil penalties. That is the difference. I hope that that helps the hon. Gentleman.

James Brokenshire (Conservative, Hornchurch)

I wonder if I could press the Minister. I suppose that in some respects I am looking for consistency. There is a clear inconsistency. I hear what the Minister says about the distinction between a regulatory and a quasi-judicial approach. However, I think that I am right in saying that three other clauses contain similar provisions. The next one that we shall come to is clause 42, which would insert a new clause 33A into the 1974 Act, in relation to which I shall in all likelihood raise the same issue, as the same point about consistency applies.

That is particularly so as, in clause 30, proposed new section 25A(3) of the 1974 Act says:

“The guidance shall be published in such manner as the OFT thinks fit”

and proposed new subsection (4) says:

“In preparing or revising the guidance the OFT shall consult such persons as it thinks fit.”

That is the concept that I am trying to get hold of. The OFT’s powers are quite wide and the idea of the Secretary of State having a role, which is accepted in subsequent clauses, could be helpfully applied in clause 30 and the other example to which I have referred. I ask the Minister to consider trying to rein in the OFT’s powers and to maintain checks and balances.

Gerry Sutcliffe (Labour, Bradford South)

We will return to the issue in further discussions on the OFT’s powers. If the hon. Gentleman has time, it might help to look at the issues arising from the Enterprise Act 2002; the differences between responsibilities and the reasons the Government tried to prevent Ministers from interfering in pure competition issues. That is where the different roles come from. In the context of the Bill, ministerial involvement relates to civil penalties and similar matters that a regulator should not be able to impose unilaterally. It should come back to the Government for guidance.

The OFT is not unfettered. As I said to the hon. Member for Wealden, it is responsible in terms of the concordat on how it should operate. There is the annual report and the OFT can be challenged. It has regular meetings with the Secretary of State and other Ministers and there is an opportunity to question what it does. It must act reasonably and proportionately.

The difficulty with the clause is that there is clearly a fundamental difference between us, as was proved by the fact that the amendment was pushed to a vote. Whatever I say about this clause will not convince Opposition Members. I hope that I have explained to the hon. Member for Hornchurch why the differences exist and how the issues relating to the Enterprise Act 2002 might be helpful.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister for his comments and I will probably take his advice on the 2002 Act. I am grateful for his guidance and assistance, but I reserve my position on the consistency argument. It is a matter of when something strays between a regulatory function and a penalty-type function. In some ways, that may relate to the second example in terms of requirements, which we will debate later.

Clause 32 - Winding-up of standard licensee’s business

Charles Hendry (Conservative, Wealden)

I would be grateful to the Minister for a small clarification. Would access to premises be gained directly by officers of the OFT or by the local trading standards services acting on behalf of the OFT? If it is the trading standards department, that will impose an additional burden on its work load, which brings us back to who pays for that and whether the trading standards department will be reimbursed for such activities, or will it have to make the money up by cutting back in other areas.

Gerry Sutcliffe (Labour, Bradford South)

As I understand it, officers acting on behalf of the OFT could be trading standards officers, but the cost would not be transferred to the local authority. It would be borne by the OFT.

Clause 34 - Definite and indefinite licences

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 20, in clause 34, page 28, line 40, after ‘fit’, insert (subject to subsection (1E))’.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to discuss Government amendments Nos. 21 and 22.

Gerry Sutcliffe (Labour, Bradford South)

These are technical amendments and I hope that the Committee understands their consequential nature in the light of what was agreed previously.

Clause 35 - Charges for indefinite licences

Charles Hendry (Conservative, Wealden)

Can the Minister give us some additional guidance on the level of charges that he thinks likely for indefinite licences? Also, is there a right of appeal against termination? The explanatory notes state on page 19:

“Failure to pay a periodic charge in respect of a standard licence during the payment period (or extended payment period) results in the licence being terminated and details of licences terminated for this reason must be kept on OFT’s public register.”

Is there a right of appeal against that? Otherwise it would seem that the OFT has a complete decision-making authority for something on which people would have a natural right to challenge it.

Gerry Sutcliffe (Labour, Bradford South)

To help the Committee I shall set out what clause 35 does. Licence applicants and licence holders will be required to pay a charge towards the cost of the functions of the OFT. The clause requires licensees to pay a periodic charge, probably every five years. The periodic charge is necessary, given the move to indefinite standard licences as the norm. The periodic charge will keep the licence current. The OFT will issue a general notice setting a level of periodic charges—that is, the notice to which I referred earlier, which hon. Members have had. It is possible that the licence charge will increase from its current level, but the approval of the Secretary of State and Her Majesty’s Treasury will be required before changes are set.

To reflect the cost of monitoring, the OFT may set licence charges according to the category or sub-category of activity that is entered into. As we said, very narrow licences may attract a reduced charge and licensing very high-risk sectors may attract a higher charge. Sometimes a licensee may not have to pay an application or maintenance charge. Licensees will be required to pay the periodic charge offsetting the OFT’s general notice before the end of their payment period. The charge level will be set out by the OFT in the general notice. That notice will be issued a specified number of days before the end of a licensee’s payment period.

The provision ensures that licensees will get sufficient notice of the level of the charge needed to maintain their licence. I said that a doubling would mean a fee in the region of £550. The payment period must apply and the specified number of days will be set by regulation. The charge, as has been said, will cover more effective monitoring of licensees, to ensure that they remain fit to hold the licence. That will include visits to business premises, where appropriate, and the OFT will be able to use additional powers that the Bill provides to investigate applicants and licensees.

There will be an appeal mechanism, through the appeal tribunal. That is why the guidance sets out clearly the steps to be taken and the time scale for notifications. That will ensure that legitimate businesses know what is expected of them in the relevant period.

Clause 38 - Power of OFT to impose requirements on licensees

Charles Hendry (Conservative, Wealden)

I beg to move amendment No. 16, in clause 38, page 31, line 32, leave out subsection (1) and insert—

‘(1)This section applies where the OFT has reasonable grounds for believing that a licensee or an associate or a former associate of a licensee—

(a)has engaged in conduct which breaches any provision of or under the 1974 Act;

(b)is engaging in such conduct; or

(c)is likely to engage in such conduct.’.

Improving regulation is, of course, a central aim of the Bill. Indeed, improved regulation is essential if we are to eliminate rogue lenders and unfair lending practices, which are the cause of financial difficulties for too many people. We need to recognise that the overwhelming majority of companies act responsibly and with consumers’ interests in mind. However, a minority do not, and those are the ones that we want to get rid of.

Expanding the powers of the OFT to deal with licensees is a major element of the way in which the Bill is intended to improve regulation. As I said on Second Reading, many hon. Members on both sides of the House have reservations about how much those increased powers will achieve the intended aim. Clause 38 is central to our concern.

The clause sets out the powers of the OFT to impose requirements on licensees where it is dissatisfied—the key word—with any conduct of business that is being carried out, or which it is proposed should be carried out, by

“a licensee, or associate or former associate of the licensee”.

It allows the OFT, by notice, to impose special conditions on licensees to deal with such unfit conduct. Those special conditions, such as training, will be specific to a particular licence holder to ensure that the business is meeting its fitness requirements. The breach of a condition could lead to the OFT imposing a financial penalty on a licence holder or, ultimately, revoking, suspending or varying his licence.

In the right circumstances, the powers will be necessary and effective, but as with earlier problems, the clause is vague as drafted. The only guiding principle against which the OFT must consider imposing requirements is whether it is “dissatisfied” with a business or its conduct. That extremely vague description could cover absolutely anything. Indeed, there is no concept of objective justification whatever.

Dissatisfaction is not a term found elsewhere in law. By definition, anything less than full satisfaction involves some element of dissatisfaction. Dissatisfaction is certainly not the same as finding something unsatisfactory, but that is much closer to what we are considering and concerned about. It is not a term that distinguishes adequately between major and minor infringements, but surely it is essential that these actions are to be pursued properly and effectively.

Without greater objectivity, the clause could be dangerous and it leaves us open to the risk of excessive and unnecessary regulation, which will stifle the development of the credit industry and what it can offer the consumer. Indeed, the provisions give rise to serious concerns about their compatibility with human rights legislation. When considering identical provisions before the election, the Joint Committee on Human Rights wrote in its 15th report that it was concerned at the

“entirely unfettered scope of this power”

and believed that the provision gave rise to

“a significant risk of incompatibility”.

Amendment No. 16 is designed to remedy that situation. It introduces the element of objective justification that is so necessary by introducing a test of “reasonable grounds for believing” that something has been done wrongly, and by linking matters that may give rise to the OFT exercising its powers to licensing issues, such as a breach of the 1974 Act, as amended by the Bill.

By increasing objectivity, we will have a better chance of achieving our aim of improving regulation and thus of achieving better protection for the consumer.

Gerry Sutcliffe (Labour, Bradford South)

I always endeavour to satisfy the hon. Gentleman, but clearly I am not going to on this occasion. I should add that I am not a lawyer, but I know that I am in the company of many distinguished lawyers on both sides of the Committee, and I hope that we do not get dragged too far into a debate about definition, although I understand the weight that the hon. Gentleman gives to the issue.

The Government believe that the amendment would severely limit the effectiveness and flexibility of the OFT’s power to impose requirements on licensees by limiting the circumstances in which it could impose those requirements. That would reduce consumer protection, as the OFT’s ability to improve the conduct of licensed businesses would be curtailed.

We believe that the provisions are compatible with the European convention on human rights, and we have said so. Sufficient safeguards are already built into the Bill to stop the OFT abusing the powers in the clause. The OFT will publish guidance on how it will use these powers and, as I said, Committee members have notes on that guidance.

The OFT will have to let licensees know that it is minded to impose requirements, to explain why, and to give them the opportunity to make representations on the proposal. Appeals relating to other requirements can be made to the appeals tribunal, which provides a safeguard against the OFT exercising these powers unreasonably.

Given those guarantees, I hope that the hon. Gentleman will not seek to weaken the excellent consumer protection afforded by the Bill, and that he will withdraw the amendment.

Charles Hendry (Conservative, Wealden)

As predicted, the Minister’s answer has not satisfied me, but we prefer to return to the matter on Report rather than pressing the amendment to a vote. I beg to ask leave to withdraw the amendment.

Gerry Sutcliffe (Labour, Bradford South)

Clause 38 refers to the powers of the OFT to impose requirements on licensees. It enables the OFT to impose intermediate sanctions on licensees. Those sanctions are called requirements. Requirements are an important tool for the OFT to use to ensure an effective targeted licensing regime. The OFT’s powers are currently limited to refusing an application or granting a licence on different terms. It can also vary, revoke or suspend an existing licence.

The effect of those sanctions can be severe. They can, for example, prevent people from trading. The OFT adheres to the Cabinet Office enforcement concordat, and any regulatory action that it takes must be proportionate to the detriment caused. Therefore, it is able to act only in the most serious cases in which a person is simply not fit to hold a licence. In many cases, the OFT is powerless to address consumer detriment without withdrawing a licence, which would be a disproportionate response. For example, if there were problems within one branch of a national company, it would not be justifiable to revoke the whole of the company’s licence. A similar situation would occur if one employee were to intimidate customers when collecting debts. Such cases are not serious enough to call into question the fitness of a person to hold a licence, but the OFT should be able to protect consumers. That is why we have proposed this power to impose a requirement on licensees.

The clause requires the OFT to impose requirements on licensees if it is dissatisfied with a matter relating to the business. The requirement takes the form of a notice requiring the licensee to do, not to do or to cease doing something. It must relate to the licensable business, it must address the matter about which the OFT is dissatisfied and it must ensure that the problem or a similar one does not arise again.

The OFT can use the power to address a wide range of problems. If the problem is with certain employees explaining credit agreements to customers, training for employees might be imposed. It might provide that sales representatives in a named branch be trained to inform consumers how they can cancel their agreements. If a debt collector’s employees are unfairly pressurising consumers by calling very late at night, the requirement could stipulate that they call only between 8 am and 8 pm. The requirement may also refer to a person other than the licensee. However, it will be addressed to and binding on the licensee. It can require a particular person to undertake a specific activity such as not collecting debts in person.

I should like to explain a few details to the Committee. The first is why subsection (1) refers to associates and former associates of a licensee as well as to licensees. That is because a person who is an associate of an unfit person might apply for a licence. For example, a second-hand car dealer might have been refused a licence. If his son then applied for a licence, the OFT might wish to impose a requirement restricting the father’s involvement in the provision of credit.

The second point is that the OFT may take steps to impose a requirement alongside the application process. That would allow a requirement to bite as soon as a licence was issued. It also explains why the clause refers to proposals to carry on a business as well as businesses already in existence. Requirements are a vital new tool for the OFT to ensure a targeted and proportionate licensing regime. I hope that, with that explanation, hon. Members will be able to support the clause.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for that detailed explanation. Earlier in our discussion, when we spoke about the Criminal Records Bureau, he said that he would return to the issue when we were talking about the powers of the OFT. I wonder whether this would be a suitable moment to do that. It seems to me that there is an issue in relation to who would need to be checked by the CRB. We are talking about people who will be dealing with vulnerable people. Therefore it would be appropriate at this stage to have a greater understanding of what the Minister has in mind.

Gerry Sutcliffe (Labour, Bradford South)

For the reasons that the hon. Gentleman has mentioned, discussions need to involve all the relevant authorities. The OFT is currently in discussion with all relevant authorities about the issues—whether police checks or other associated matters.

Clause 39 - Power of OFT to impose requirements on supervisory bodies

Gerry Sutcliffe (Labour, Bradford South)

Because this is a matter of concern to the Committee, I shall explain what the clause does. It concerns the power of the OFT to impose requirements on supervisory bodies, and it enables the OFT to impose intermediate sanctions on group licence holders. Such sanctions are known as requirements. The OFT issues group licences to a particular group of persons involved in a consumer credit-related activity when it is in the public interest to do that rather than issuing many standard licences. The public interest test is usually met when those covered by the group licence undertake licensable business peripherally to their main business. For example, solicitors are covered by the Law Society group licence, and voluntary organisations by the licence of the National Association of Citizens Advice Bureaux.

In such cases, the group licence holder has a supervisory role. In effect, the OFT delegates its responsibility for checking that those covered by the group licences comply with the Act. The OFT’s role is to check that the supervisory bodies do so properly. The Bill contains a power under clause 38 for the OFT to impose requirements on licensees, as we have discussed. This power gives the OFT tools to respond proportionately to problems with a licensable business. It can impose a requirement on the licensee to do, or not to do, something if it is dissatisfied. We are trying to be consistent to ensure that the group licences are covered by this clause.

Clause 40 - Supplementary provision relating to requirements

Gerry Sutcliffe (Labour, Bradford South)

To assist the Committee, the clause sets out details relating to the OFT’s power to impose requirements on licensees, and supervisory bodies which hold a group licence. It provides that a notice imposing a requirement can specify when that requirement should be complied with. This may be a deadline, or a period during which it is in force. A requirement no longer applies when the licence it is related to expires.

Subsection (3) states that no compensation, or other redress, will be required. That is not the function of requirements, which are to ensure that a licence holder’s conduct is satisfactory to the OFT. Compensation, or making amends to individuals, should be pursued through the courts or the alternative dispute resolution mechanism.

Subsections (4) to (7) relate to powers to vary or revoke requirements. The OFT may vary or revoke a requirement on its own motion. Affected persons are also able to apply to the OFT to vary or revoke a requirement. These affected persons are the licensee, or any person who is referred to by name in the requirement. The clause ensures that the power for OFT to impose requirements is an effective tool.

James Brokenshire (Conservative, Hornchurch)

Briefly, subsection (3) says that a person shall not be required under section 33A or 33B to compensate or otherwise make amends to another person. Could that provision be used to prevent a practice from taking place, for example, if there was an improper practice in place for a particular borrower? Could it be used to protect a borrower in those circumstances?

Gerry Sutcliffe (Labour, Bradford South)

Yes, because that would be a matter of fitness and would concern unfair practice. We talked about default issues earlier on in the Bill. The borrower would not be able to collect anything because they had acted in an unfair way.

Clause 41 - Procedure in relation to requirements

Gerry Sutcliffe (Labour, Bradford South)

The clause relates to the OFT’s power to impose requirements on licensees, and supervisory bodies which hold a group licence. That power enables the OFT to respond proportionately to problems with a licensable business. When it is dissatisfied with certain matters, the OFT can impose a requirement on a licence holder to do something, to cease doing something, or not to do something in relation to that business.

The clause sets out the procedure for the OFT to impose requirements. It follows a similar pattern to other licensing decisions under the 1974 Act and it applies to both standard and group licences. If it is so minded, the OFT must issue a notice to the licensee to impose a requirement on him; to refuse to vary or revoke a requirement in the way that a person has requested; or to vary or revoke a requirement of its own motion.

That notice sets out the requirement the OFT intends to impose with the reasons why. The notice must also be issued to affected persons as defined in clause 40 of the Bill. Affected persons are the licensee, or the person who is referred to by name in the requirement who is prevented by the requirement from doing something connected with the licensee’s business.

Once a notice has been issued, the licensee or affected person has the right to make representations and to request an oral hearing under section 34 of the 1974 Act. If a person proposes a requirement to be imposed on himself, the notice procedure is not necessary allowing for a shorter, more convenient process. That means that if the OFT and the licence holder agree on the terms of the requirement, the licensee can propose the requirement and it can be implemented immediately without the period for representations.

The clause ensures a fair procedure for imposing requirements. It complements the implementation of other licensing determinations under the 1974 Act.

James Brokenshire (Conservative, Hornchurch)

I have another quick question. The Minister mentioned that the clause reflects other drafting in the 1974 Act relating to the appeals structure. I draw the Minister’s attention to clause 32, which refers to revocation. In many ways, this clause follows the procedure on revocation of a licence. In clause 32 it says that a revocation shall not take effect before the end of the appeal period. Clearly, that protection is not built in here, and a requirement could be set and enforced even before the appeal had taken place. Would the Minister explain why that timing period has not been allowed for in this provision, while it is allowed if there is an appeal under section 32 of the Act?

Gerry Sutcliffe (Labour, Bradford South)

I do not know the answer to that. If the hon. Gentleman will forgive me, I will come back to him.

Clause 42 - Guidance on requirements

Gerry Sutcliffe (Labour, Bradford South)

Continuing to be consistent, we are talking about the OFT powers to impose requirements on licensees and statutory bodies that hold a group licence. The power enables the OFT to respond proportionately to problems with a licensable business. When it is dissatisfied with certain matters, the OFT can impose a requirement on a licence holder for the reasons that we explained earlier. That is useful when the problem is not sufficient to warrant refusing or revoking a licence.

The clause requires the OFT to publish guidance on how it proposes to exercise its powers to impose requirements. The OFT must have regard to that guidance when exercising its powers under the clause. The Committee has been provided with a note about the OFT’s guidance. That note provides an idea of the scope of the guidance based on the clauses in the Bill. Clearly, once the Bill is passed, the OFT will consult on the guidance, as stipulated in subsection (4).

The guidance will give examples of requirements and more details of the procedure that the OFT will go through. The OFT is able to revise the guidance if new issues arise. The clause will help businesses and consumers to understand how the OFT will use its powers to impose requirements.

Charles Hendry (Conservative, Wealden)

May I press the Minister for a little more clarification? In general, we support what is being suggested, but it seems that, in particular, the way in which the OFT will publicise the guidance is vague. Subsection (3) of the clause says:

“The guidance shall be published in such manner as the OFT thinks fit for the purpose of bringing it to the attention of those likely to be affected by it.”

Clearly one must be vague when setting such a measure out in primary legislation, because the way in which the guidance might be published will change over time. Does the Minister have an idea in his mind of how that will be appropriate? Will publication on the OFT website be sufficient? Will the OFT need to write individually to all licensees? Would it be enough to advertise in the newspapers? It would be useful to have a clear understanding of what the Minister has in mind.

Gerry Sutcliffe (Labour, Bradford South)

The Minister has in mind that the OFT acts in concordance with its normal rules and procedures on how it deals with issues relating to discussion and consultation. The OFT is responsible to the Cabinet Office concordat that sets out how best practice on consultation and discussion should be administered. I am sure that the hon. Gentleman has read the details of that concordat backwards. It is reasonable to expect that the OFT will consult with all relevant stakeholders, which has been the way in which we have dealt with the issue previously on all matters relating to the Bill and to the White Paper.

James Brokenshire (Conservative, Hornchurch)

I return to the point that I raised earlier. I rehearsed the argument there and I will say it formally again. The issue is the lack of checks and balances in the form of the approval of the Secretary of State of any guidance published under section 33E. There is also the consistency point that I made earlier looking forward to clause 54 of the Bill. In that case, a statement of policy would not be published without the consent of the Secretary of State. I hear what the Minister said on my earlier comments, but I ask that the issue be considered again in the context of clause 42.

Gerry Sutcliffe (Labour, Bradford South)

I do not know whether this answer will be helpful to the hon. Gentleman. One of the reasons is that this clause relates to the conduct and normal, regulatory function, which describes what the OFT should do. The requirement for guidance is subject to consultation. That may assist him, or not.

Clause 43 - Consequential amendments relating to requirements

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 23, in clause 43, page 34, line 39, leave out from beginning to ‘(particulars’ in line 5 on page 35 and insert ‘( )In section 35(1) of the 1974 Act’.

This is a technical amendment and I hope that the Committee will support it. It aims to avoid any confusion suggesting that people could be prosecuted twice for certain unlawful acts. Obviously that is not the intention. That is what the amendment makes clear.

Clause 44 - Provision of information etc. by applicants

Gerry Sutcliffe (Labour, Bradford South)

The information provisions in the Bill give the OFT improved powers to obtain the information that it needs to assess and monitor fitness. The clause deals with the information that the OFT may require from licence applicants. The OFT will issue general notices to specify the information and documents that must accompany initial applications.

In the course of considering the application, it will also be able to request further relevant information from the applicants. The type of standard information required by it may change from time to time. For example, the OFT may decide that in future all applicants should submit evidence of their complaints procedure. It is possible that a change in the required information could happen while an application is being processed. If that is the case, the applicant would have to provide the extra information required by the OFT’s general notice.

I have covered the changes in the OFT’s information requirements. The next part of the clause deals with changes to the information provided by applicants. It is important that the OFT works on up-to-date information; for example, when assessing whether an applicant is fit to hold a licence. Therefore, if information submitted by an applicant changes between application and determination, they must inform the OFT within 28 days of the change occurring. If the applicant becomes aware of any errors in the information submitted, they must inform the OFT within 28 days of the error coming to light.

However, the Government do not want applicants to have to notify the OFT of every comma in the wrong place. That would be time consuming for the applicant and a waste of resources for the OFT. Therefore, an applicant is not required to notify the OFT of clerical errors or omissions that do not affect the substance of the document. Also, the applicant does not need to notify the OFT of anything they are required to give notification of for the public register under section 36 of the 1974 Act. Taken together, the provisions mean that the OFT will be able to assess applicants on the basis of up-to-date and comparable information.

Charles Hendry (Conservative, Wealden)

My colleagues and I think that the provisions are sensible and we support them in general, but can the Minister clarify just one small aspect? What happens if a notification of a change or an error is not made within the 28 days as specified? What penalties can be imposed? Does the applicant have the right to appeal against a decision to impose a penalty or a fine in such circumstances? In general, we support the need for information to be up to date, but what would happen if somebody did not fulfil their obligations within the time scale? Does the OFT have any powers to shorten or lengthen the time if it felt that another time scale would be more appropriate?

Gerry Sutcliffe (Labour, Bradford South)

I have tried to be very flexible about the arrangements for notification, but the information must be provided within the required time. Any delay may inform a decision on whether to grant a licence. There will be flexibility, but we have been very clear about the time scales. I appreciate the hon. Gentleman’s support for the clause.

Clause 46 - Power of OFT to require information generally

Gerry Sutcliffe (Labour, Bradford South)

The clause is key to ensuring that the OFT has sufficient powers to gather information so as better to monitor and enforce the licensing regime. The clause enables the OFT to require a person to provide specified information and documents at a specified time and place.

The OFT must give reasons for requiring the information and documents. It would be able to require such information or documents only if they were reasonably required for the exercise of the OFT’s functions under the legislation to undertake routine monitoring of licensees.

The OFT may also require information from third parties. To protect such third parties, the clause contains safeguards. The OFT can request information from non-licence holders only if certain acts or omissions have occurred, or if it believes that certain events have occurred. Such events must cast doubt on the fitness of a licensee, lead to a requirement being placed on the licensee or trigger a civil penalty. In the case of a group licence, the OFT must consider events that prompt questions as to whether the public interest is best served by the group licence remaining in place. Such requested information must also be reasonably required by the OFT to help it carry out its duties under the Bill. The clause ensures that there are adequate procedural safeguards for third parties.

Charles Hendry (Conservative, Wealden)

The way in which the OFT will interpret its regulatory role and carry out its powers in practice remains relatively vague in many areas, despite the additional guidance. For example, the OFT guidance states:

“From time to time the OFT may publish guidance on its interpretation of aspects of the Act and how it will enforce these. In some circumstances guidance is required by legislation...In other instances, OFT has the power to issue such guidance as it thinks appropriate. Guidance may be of a general nature...or it may relate to particular categories of activities or business.”

The extent to which and the circumstances by which the OFT will enforce its powers remains unclear. This is unhelpful both to the industry and to consumers and I should be grateful if the Minister clarified that. I should also be grateful if he talked further about the role of trading standards services because their duties will, to some extent, be carried out on behalf of the OFT. Does the Minister believe that trading standards services have the capacity to cope with their new work load? Will they be able to carry that out effectively and efficiently to fulfil the Bill’s commitment to improve the licensing and regulatory regime and to sift out unscrupulous lenders and those operating bad practice?

Can the Minister also clarify what additional resources will be made available to trading standards services? We need further assurances on that, despite his earlier comments. Does he accept that the delegation of responsibilities from the OFT to trading standards services will inevitably dilute accountability? That will run contrary to the Bill’s aim of improving transparency and will prove detrimental to consumers.

Gerry Sutcliffe (Labour, Bradford South)

We shall come to the enforcement of the powers and the effect on trading standards services when we discuss clause 49, so it might be more appropriate to deal with that matter then.

Throughout our discussion, the hon. Gentleman has made the charge that the Bill is vague, but he will accept that under the parliamentary process the Bill sets out the framework and follows a White Paper that has been consulted on with all stakeholders. Discussion of the details takes place in relation to secondary legislation and guidance. That is necessary to enable people to understand fully the implications of the Bill.

That is how the details will be looked at. That will take place as soon as possible after the Bill receives Royal Assent. I accept that the hon. Gentleman feels that many aspects of the Bill are vague, but that is usually because of the parliamentary process that has stood us in good stead in much of the legislation that has been introduced. Secondary legislation covers the details and there is a great deal of negotiation before that secondary legislation is introduced. I hope that he will accept that explanation and my assurance that we will discuss the issues involving trading standards services and so on when we come to clause 49.

Clause 47 - Power of OFT to require access to premises

Gerry Sutcliffe (Labour, Bradford South)

The clause gives the OFT powers to enter premises to obtain information and documents and enables it to carry out routine monitoring visits when enforcement officers will be able to observe business operations. It also enables the OFT to investigate more effectively suspected lapses of fitness. The OFT must first issue a notice requiring a licensee to ensure that an authorised officer can enter premises at a reasonable time. The clause does not apply to premises used only as dwellings.

The notice issued must set out the reasons why access is required. The authorised officer may observe the business or inspect any documents on the premises that have been specified or described in the notice and are present. An authorised officer may also require anyone on the premises who is involved in the licensee’s business to help them in their duties.

The OFT can access the premises only of standard licence holders and the original applicant for group licences and may do so if that is reasonably required to help it to carry out its duties under the legislation. There may be times when the OFT needs to access premises of third parties. In such cases, the OFT may require access to the premises of someone other than the licensee only if he thinks that an act or omission concerning fitness has occurred. Such an inspection must be reasonably required to enable the OFT to take or to consider taking licensing action. Again, that does not apply to premises used only as dwellings.

With that explanation, I hope that the Committee will support the clause.

Charles Hendry (Conservative, Wealden)

The clause provides distinctive powers for the Office of Fair Trading. We agree in principle that it should have those powers, but I would be grateful if the Minister clarified a couple of points of detail.

New section 36C(4) states:

“The licensee shall secure that the required access is given at such times as the OFT reasonably requires.”

How does he define “reasonably”? For example, would it essentially mean working days and working hours or could it include weekends or the middle of the night? We need a clear definition.

New subsection (3)(b) states that it does

“not include premises which are used only as a dwelling.”

What happens if the premises are a dwelling? Do they come under clause 48, which gives powers to inspect premises under a warrant, or are dwellings more permanently excluded from such investigations? That would be rather surprising.

New subsection (8) states:

“A requirement may be imposed under subsection (1)...only if the observation or inspection in question is reasonably required for purposes connected with the OFT’s functions under this Act.”

Again, can he define “reasonably” for us? That would provide us with the greater clarity that we are seeking.

Gordon Banks (Labour, Ochil and South Perthshire)

To reinforce what the hon. Gentleman has said, I sought a definition of “reasonably” and “reasonable”, particularly with reference to new new section 36C(5):

“The OFT shall give reasonable notice of”

times for inspection. What is considered reasonable and who is it considered reasonable by?

Gerry Sutcliffe (Labour, Bradford South)

Sometimes notes are intended to be helpful, but not always. I am grateful for the acceptance of the hon. Member for Wealden that the clause is necessary to allow the OFT to carry out its functions in the way that we would all expect.

The reasonableness test applies to any other such licensing procedure, in the sense that it should be proportionate and reasonable. The OFT has to be effective in getting the required result and it has the discretion within the concordats that operate. Premises that are dwellings will come under clause 48, as the hon. Member for Wealden said—I now understand the nod that I was given. Dwellings fall under the warrant aspect of that clause, which we will discuss later. The OFT will be directed to maximise its opportunities to get the required results within the concordats.

Clause 48 - Entry to premises under warrant

Gerry Sutcliffe (Labour, Bradford South)

The clause covers the circumstances and procedures that allow an enforcement officer to enter premises under a warrant obtained by the OFT. In certain circumstances, the OFT can apply to a justice of the peace for a warrant to search premises; in Scotland, it can apply to the sheriff. It must have reasonable grounds to believe that information on those premises might be required under new section 36B and that, if a requirement to provide information were imposed, it would not be complied with or that the documents or information in question would be tampered with.

The officer responsible for carrying out the warrant would be able to enter and search the premises. They could seize and detain the information or documents of the description specified in the warrant and take steps to secure the protection of the information or documents in question and prevent interference with them, including the use of reasonable force. The officer may be accompanied by any person he thinks necessary and take any equipment that he thinks necessary.

Clause 50 - Officers of enforcement authorities other than OFT

Gerry Sutcliffe (Labour, Bradford South)

In response to the questions asked by the hon. Member for Wealden, I will outline the clause for the rest of the Committee.

New sections 36C and 36D inserted by clauses 47 and 48 will enable the OFT to ask offices of other enforcing authorities to carry out information gathering on its behalf. In practice, those other local enforcement authorities are likely to be local authority trading standards offices. They should be able to act as the OFT’s legs on the ground, carrying out routine monitoring visits and executing search warrants obtained by the OFT.

Under new section 36F inserted by this clause, anything done by an enforcement officer in the course of this activity will be treated as though it has been done by the OFT. That will not apply if the enforcement officer does anything that results in criminal proceedings. The OFT will enter into an arrangement with the trading standards authorities to carry out such activities. Trading standards officers must not disclose any information obtained as part of the such activity without the approval of the OFT, although that does not apply if the officer is under a duty to disclose the information.

In Northern Ireland, the Department of Enterprise, Trade and Investment carries out the function performed by trading standards officers in England, Scotland and Wales. The Bill will enable the OFT to work with the Northern Ireland body to carry out information-gathering activity in Northern Ireland. Trading standards officers have both the local knowledge and the proximity to carry out information and investigation work on behalf of the OFT, and they already have the expertise to take on the role. However, the OFT will also provide training and support. Working in partnership, the OFT and trading standards officers will be able to monitor licensees to ensure that they remain fit to hold consumer credit licences. The new powers will mean that the resource is used more effectively. The OFT will remain the primary enforcement body under the legislation and licensing decisions will still rest with it. That will improve standards and result in better protection for consumers.

Trading standards officers already enforce part of the 1974 Act, and they will work with the OFT to provide additional training. The OFT will fund trading standards activity under clause 50, and the OFT and trading standards staff will operate under appropriate agreements, so there will not be an on-cost to local trading standards authorities. We will debate later the role of trading standards in the wider context of the Hampton review. With that explanation, I hope that hon. Members will feel able to support the clause.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for that clarification. In the course of his comments, he said that it is likely to be trading standards officers who do the work. Does that mean that it will either be OFT officers or trading standards officers? Is there a third way?

Gerry Sutcliffe (Labour, Bradford South)

There is always a third way.

Charles Hendry (Conservative, Wealden)

The Minister says that there is always a third way. I thought that we had moved away from that concept.

Are there circumstances in which the work could be subcontracted out to other organisations? Could it be subcontracted to a private sector organisation? It would cause some anxiety if such work were done by people who were not regulated either by the Government or by local government.

Earlier, we spoke about the credentials that would be needed by those who provide credit. What credentials will the enforcement officers need, particularly if they are people who are outside the remit of the trading standards offices, and, once again, will they be people who will need to be checked by the Criminal Records Bureau?

Gerry Sutcliffe (Labour, Bradford South)

I hope to help the hon. Gentleman. The work cannot and will not be subcontracted out. It will be done by officers of the OFT or of trading standards acting on its behalf, who will be trained to deal with the issues in a sensitive and reasonable manner. The question of police checks does not arise, because the work will not be subcontracted to anybody else.

Clause 51 - Consequential amendments relating to information

Gerry Sutcliffe (Labour, Bradford South)

This clause makes consequential amendments to the 1974 Act as a result of provisions relating to the provision of information to the Office of Fair Trading. Several information provisions in the Bill require applicants and licensees to notify the OFT if they become aware of errors or omissions in information provided. Applicants and licensees must also notify the OFT if certain documents change or are superseded. The clause inserts new section 7 to the 1974 Act to ensure that, if a licensee knowingly provides any information, not just with an application, that is false or misleading, he commits an offence. However, general clerical errors, which do not affect the applicant’s fitness, do not breach the requirements. The clause also states that the breach of a requirement imposed by clauses 38 and 39 and certain information provisions inserted by clauses 45 to 47 will not trigger OFT’s powers under section 162 of the 1974 Act.

Any power in the Act to require that information shall be produced also includes the power to take copies of the information. The clause gives the power to an enforcement officer to require an explanation of any information he requires. It makes clear that the information powers in the 1974 Act do not override legal professional privilege. Criminal liability under section 165 for giving false information or assistance to investigating officers will also not be triggered by breach of the new information requirement provisions. I commend the clause to the Committee.

Standing Committee D

Clause 52 - Power of OFT to impose civil penalties

Alan Reid (Liberal Democrat, Argyll and Bute)

I beg to move amendment No. 36, in clause 52, page 44, line 8, leave out from first 'is' to 'it' in line 10 and insert—'either—

(a) satisfied that a person (the ''defaulter'') has failed or is failing to comply with a requirement imposed on him by virtue of section 33A, 33B or 36A, or

(b) dissatisfied with the conduct of the licensee,'.

I am concerned that there is a loophole in the Bill. Amendment No. 36 was designed as a probing amendment to establish the Government's intentions. Under the Consumer Credit Act 1974, the Office of Fair Trading has the power to suspend or revoke a licence, but it was recognised that such a sanction might be too severe for certain offences, so the Bill is introducing a new sanction of requirements.

The clauses that we debated this morning include provisions that gave the OFT new powers to impose requirements on licensees in cases in which it is dissatisfied with the conduct of a licensee or any of his associates. The procedure for requirements is that the OFT must first identify the fact that the licensee is carrying out bad practice before it can take any action. An example of bad practice could be late-night doorstep pressure-selling. Having identified the fact that a licensee is carrying out a bad practice, the OFT will write to the licensee imposing a requirement that that bad practice be stopped. However, only if the licensee continues in that bad practice—the bad practice specified in the requirement—can the OFT impose a civil penalty. In other words, this is a two-stage process that involves handing out a yellow card first, and only if the written warning is ignored and the bad practice continues can a penalty be imposed.

I believe that there is a loophole in the procedure because there appears to be no sanction available to the OFT until after it has served the requirement. There appears to be no deterrent to bad practices committed before the OFT has identified the fact that the licensee has been guilty of bad practice and served the requirement. Civil penalties can be imposed only for continuation of the bad practice.

Without a deterrent for first offences, I can imagine the boss of a rogue credit business saying to his salesmen and collectors, ''OK lads, go out, twist arms and pressure-sell all you like. We've nothing to worry about until the OFT finds out and gets round to serving a requirement on us.''

In practice, it could take a long time for the OFT to identify the fact that a particular rogue agency is carrying out bad practices. It will have to identify the practices, collect evidence and serve the requirement. Moreover, victims may be too frightened to complain. The credit business will, of course, deny any allegation of wrongdoing, and so, in practice, it could take the OFT a long time to identify the pattern of bad behaviour, collect evidence and serve the requirement. Until that point, the rogue credit business would have nothing to worry about and it could continue with any bully-boy tactics it liked, without fear of penalty.

I therefore believe that there must be a deterrent to prevent such behaviour from occurring. Giving the OFT the power to impose a civil penalty for unsatisfactory conduct, as specified in the amendment, would plug that loophole. I accept that the amendment might not be sufficiently detailed to be added to the Bill, but it is intended to be probing so as to give the Minister the opportunity to respond to what we believe to be a loophole—the lack of deterrent against any bad practice before the OFT serves a requirement.

Gerry Sutcliffe (Labour, Bradford South)

I welcome you to the Committee's proceedings, Mr. Taylor, at the appropriate time of 4.30 pm. I believe you were here at 4 o'clock, alongside other members of the Committee, in anticipation of an exciting, challenging and forward-looking debate.

I also welcome the hon. Member for Argyll and Bute (Mr. Reid) to the Committee, and am grateful for the spirit in which he moved the amendment. I hope to point it out to him that the amendment is not necessary, although I understand its probing nature. He is right that the clause is designed to allow the OFT to impose penalties if licence holders do not comply with a requirement placed on them by the OFT. Clause 38 introduces requirements to give the OFT the ability to deal with practices that cause consumer detriment but are not serious enough to mean that a licence will be revoked. The requirement must relate to the licensable business. It must also address the matter with which the OFT is dissatisfied, or it must ensure that the problem, or a similar problem, does not arise again. The OFT can impose a requirement on licensees when it is dissatisfied with their conduct.

Requirements are a targeted and proportionate tool for dealing with problems. The amendment would allow the OFT to impose a financial penalty when dissatisfied with a licensee's conduct, without having first to impose a requirement to try to sort out the problem. We do not consider that a proportionate response and feel that it would be less likely to have the desired effect of improving the licence holder's performance.

The OFT can issue a stop now notice under the Enterprise Act 2002 if the conduct is bad enough, which covers the point raised by the hon. Gentleman. The OFT may also revoke or suspend a licence if consumers are seriously at risk. We believe that the OFT has enough power to deal with ongoing situations, and it has the power to revoke licences if necessary.

I hope to have shown with those assurances that the amendment is not necessary. I therefore ask the hon. Gentleman to withdraw it.

Alan Reid (Liberal Democrat, Argyll and Bute)

The amendment is probing, as I said, and I shall examine what the Minister said about the 2002 Act. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Alan Reid (Liberal Democrat, Argyll and Bute)

I beg to move amendment No. 37, in clause 52, page 44, line 20, leave out '£50,000' and insert

'10 per cent. of the licensee's gross annual turnover in the year in which the fine is imposed'.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss amendment No. 35, in clause 52, page 44, line 20, at end insert—

'(3A) The amount specified in subsection (3) shall be reviewed by the Secretary of State within five years of the passing of this Act, and thereafter at five year intervals.

(3B) The Secretary of State may, by regulation, amend the amount specified in subsection (3) following a review in accordance with subsection (3A).'.

Alan Reid (Liberal Democrat, Argyll and Bute)

As I was saying in the debate on the previous amendment, I support the principle that the OFT should have the power to impose civil penalties on those who default on the conditions of their licence or any conditions imposed by the OFT, but I am concerned that the proposed maximum civil penalty of £50,000 might be too low in certain circumstances.

It is important that fines should be whatever is sufficient to secure compliance. To follow that principle, it should always be cheaper for rogue companies to comply with the licence than to pay the penalty. The penalty should always be bigger than the gain that companies could make from breaching the licence or any requirements, and it should not be hampered by a cash limit. For many large companies, £50,000 would be a drop in the ocean and it would not serve as a deterrent for bad practice. We should remember that bad practices could adversely affect some of the poorest and most vulnerable in society.

The amendment would enable the OFT to impose a fine of up to 10 per cent. of a company's gross turnover. It would provide the OFT with the discretion to impose a fine proportionate to the offence, rather than the fine being capped at £50,000, which could be low for some companies. We took the figure of 10 per cent. of gross turnover from the Utilities Act 2000. There, too, it is the penalty for contravening the conditions of a licence, and I believe this formula to be appropriate to the Bill.

Charles Hendry (Conservative, Wealden)

I welcome you to the Chair, Mr. Taylor.

We have heard from the hon. Member for Argyll and Bute that clause 52 provides the OFT with the power to impose a civil penalty on a licensee that has failed or is failing to comply with a requirement. Subsection (3) provides that that amount should not exceed £50,000. We agree in principle with the measure and with the level at which the cap has been set, and we are not persuaded by the Liberal Democrats' argument.

A fine of 10 per cent. of gross turnover would almost certainly lead to the closure of an organisation and it represents a punitive punishment, although other aspects such as criminal negligence could be involved. None the less, it is not right to fix the cap in primary legislation. In 10, 20 or even 30 years, the top rate of financial penalty will be the same, but, due to inflation and economic growth, it would be a much lesser penalty than it would be today.

It is 31 years since consumer credit legislation was last passed and £50,000 today is the equivalent of £7,000 in 1974—a sevenfold increase of equivalent value. People would be deterred by a penalty of £50,000 today, but it is far from clear whether a £7,000 fine would have any such effect. In the same way, if it is another 31 years until consumer credit legislation is next passed, a £50,000 fine will more than likely be regarded as a much lesser penalty than it is now. Indeed, if inflation is on average the same over the next 30 years as it has been over the past 30, the cap would need to be set at £350,000 in 2035 just to stand still. The Bill makes no provision for that to happen.

Amendment No. 35, to account for that problem, would allow the Secretary of State to review the cap on the financial penalty at intervals of five years after the passing of the Bill. Further, it would grant the Secretary of State the power to adjust the cap by regulation, subject to his or her consideration of the review. That is a better way to ensure that the financial penalties imposed on licensees remain as significant and continue to have effect throughout the life of the legislation.

I urge the Minister to break with the tradition of the past couple of days and accept amendment No. 35, due to the good sense it offers.

Gerry Sutcliffe (Labour, Bradford South)

May I say at the outset that I am tempted by the offer made by the hon. Member for Wealden (Charles Hendry)? However, amendment No. 35 is not quite as excellent as the amendment we refused very early in our proceedings and again, although it is heading in the right direction, it is unnecessary. I shall explain why shortly.

First, however, to help the hon. Member for Argyll and Bute, we believe that the £50,000 limit is proportionate. We considered using the Competition Act 1998 and the figure of 10 per cent., but we decided that that would be disproportionate. We are not talking about cartel activity or the abuse of a monopoly or dominant market position, which is what that legislation tackles and which is the reason for using the figure of 10 per cent. of turnover. We are talking about individual infringements of specific conduct requirements. Fines of £50,000 will hit lenders where it hurts—in their pockets—but there must be a limit to ensure compatibility with human rights obligations.

We should also bear it in mind that the cap of £50,000 is a limit, not a target. Some lenders will be fined less than £50,000, so it is possible to set a penalty that is proportionate both to the breach and to the licence holder's ability to pay. Also, multiple penalties will give rise to questions relating to the fitness of the licence holder. The figure of £50,000 is appropriate and we ask the hon. Gentleman to withdraw the amendment.

On amendment No. 35, as the hon. Member for Wealden said, the OFT is already required under the 1974 Act to advise the Secretary of State on the working and enforcement of the legislation, including the civil penalties. A set timetable would not add anything to the efficient use of the civil penalties provision and might suggest that the penalty should be reviewed only at five-yearly intervals, when, under current provisions, it will be reviewed whenever necessary.

The power to amend the £50,000 limit is already in the Bill under proposed new section 39B(3) of the 1974 Act, in clause 53. The maximum penalty may be changed by order of the Secretary of State, as approved by an affirmative resolution in both Houses. We do not need to go down the route suggested by the hon. Gentleman, and I hope he does not press amendment No. 35.

Alan Reid (Liberal Democrat, Argyll and Bute)

I still believe that the £50,000 limit is too low. We need a higher figure—I am bearing it in mind that the 10 per cent. figure is a cap—but I do not detect any support in the Committee, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

David Taylor (Labour, North West Leicestershire)

The question is that clause 52 stand part of the Bill—

Charles Hendry (Conservative, Wealden)

What about amendment No. 35?

David Taylor (Labour, North West Leicestershire)

Amendment No. 35 does not get called separately. When amendment No. 37 was withdrawn, the hon. Gentleman's amendment was also withdrawn, as he did not say that he wanted to press it to a Division separately.

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

Gerry Sutcliffe (Labour, Bradford South)

In the spirit of openness and trying to keep the Committee informed about what each clause does, I shall set out the power of the OFT to impose civil penalties, which we touched on in discussions on amendments. The clause means that licence holders who do not comply with requirements placed on them by the OFT will face civil penalties. There is a need for powers to censure licence holders exploiting consumers where withdrawal of their licences would not be proportionate. The requirements, which can be imposed through the provisions in clauses 38 and 39, will do that.

I shall refresh hon. Members minds regarding clauses 38 and 39. Clause 38 provides that the OFT may impose requirements on a licensee if it is dissatisfied with a matter relating to its licensed business. The requirements take the form of a notice requiring the licensee to do, not do, or stop doing something related to the licensable business in order to address the matter with which the OFT is dissatisfied or to ensure that the problem, or a similar one, does not arise again.

Clause 39 enables the OFT to place requirements on supervisory bodies that hold group licenses. It can use its requirement powers to address a wide range of problems. As I said earlier today, if there were problems with the way in which certain employees explain credit agreements to customers, a requirement to train them could be imposed. Such a requirement might provide that sales representatives in a named branch should be trained to inform consumers how they can cancel agreements. If a debt collector's employees unfairly pressurise people by calling late at night, a requirement could stipulate that they should call only between 8 am and 8 pm. Such requirements may relate to persons other than licensees, but will be addressed to and be binding on licensees. They may require that particular people should not undertake specific activities, such as not collecting debts in person.

The OFT must also be able to monitor licensees' fitness on the basis of up-to-date information, so penalties can be imposed for breach of information requirements through provisions in clause 45, which deal with duties to notify changes in information.

I return to clause 52. Civil penalties will deter firms from not complying with OFT requirements. The OFT will impose penalties by issuing penalty notices to defaulting licensees. Any such notice must set out the OFT's reasons for imposing the penalty, the amount of the penalty and why it has been set at that level, and the deadline by which it must be paid. Any decision to impose a financial penalty is subject to the same procedural safeguards as other licensing decisions, such as the licence holder's right to a hearing before an adjudicator and to appeal to the Consumer Credit Appeals Tribunal, which is established under clause 55. The deadline for paying a penalty must not be earlier than the end of the appeals period.

The maximum penalty that can be imposed by the OFT is £50,000 for each breach of a requirement. Penalties of £50,000 will hit rogue lenders where it hurts. Some hon. Members expressed concern that the limit is too low, and some that there is a limit at all, but it is right that licensees who may be subject to financial penalties should know the extent of the penalties that they may face. The limit also ensures that the legislation is compatible with human rights legislation. The £50,000 limit is proportionate.

The limit in the Competition Act 1998 of 10 per cent. of turnover, which I used as an example earlier, would be disproportionate. We are not looking at companies with a monopoly market share built up over years, which is what the Act deals with. We are looking at smaller infringements. Some hon. Members suggest that the limit should be set by secondary legislation, but that power is introduced in clause 53(3). If the defaulter does not pay the penalty, the OFT may recover it, and the unpaid balance will incur interest.

Some hon. Members suggest that firms will face penalties for dealing in extortionate credit. Penalties will be imposed only where OFT requirements have been breached. They are not fines for firms that have entered into unfair relationships—that issue will be dealt with by the courts and through other procedures. It is for the courts to decide the appropriate form of redress in such cases. Neither are they fines for firms whose cases have been dealt with through alternative dispute resolution. It is for the Financial Ombudsman Service to decide the appropriate form of redress in such cases. If licensees are subject to several court cases, or if the alternative dispute resolution finds against them, the OFT is likely to reconsider their fitness to hold a licence.

Civil penalties are sanctions for breaching OFT requirements, and licensees can easily avoid them by complying with the requirements. The penalties are a necessary deterrent to licensees causing consumer detriment, and a vital part of the OFT's new licensing regime.

Charles Hendry (Conservative, Wealden)

We are generally happy with the clause, but I would be grateful if the Minister clarified a few aspects of it. How does he envisage that the OFT will decide on appropriate levels of penalty? He said that the maximum penalty for each breach would be £50,000; where there have been several breaches, could there be several fines of £50,000? How will the OFT go through the process of establishing what the right sort of penalty would be for individual actions that had been taken? Who would it consult in the process of doing that, and to what other bodies would it look to bring into the discussions on that? What sort of right of appeal is there against the OFT when it imposes such civil penalties?

Could the Minister also go a little further in clarifying what range of penalties would be available to the OFT? A fine is one element and revoking a fine would be another, but how many other options would it have, such as issuing warnings and, ultimately, if the breach of the rule and regulations were particularly serious, could it lead to imprisonment? In general, we are happy with the clause but some more clarification would be helpful.

Gerry Sutcliffe (Labour, Bradford South)

I welcome the broad acceptance of the clause. As we have said before in relation to other clauses, the OFT is the responsible body and has to operate within the confines of the Cabinet Office concordat. It has to respond to Parliament in its annual report. Anything that it does must be proportionate. The hon. Gentleman is right to say that the maximum fine for each breach is £50,000. Each breach of the requirement brings into play the OFT looking overall at the licence, and whether the holder is a fit person. The OFT statement of policy is subject to consultation with the Secretary of State and the Treasury, but it would be up to the OFT to consider each case on its individual merits within the framework and the appeals mechanisms that exist: appeals to the adjudicator or, if necessary, to the tribunal. The safeguards are in place. Under the 1974 Act, it was disproportionate: it lead to the revocation of a licence and nothing else. This gives an opportunity for refinements and improvements. There are issues under the Enterprise Act 2002 in terms of the stop-now orders that can be put in place. The OFT can use a range of tools proportionately and reasonably in different circumstances. The level of any fine would reflect that, with a maximum of £50,000.

There are other ways in which the OFT can deal with matters. It can consider action within the licensing regime, or the requirements that it outlined. It can also issue informal warnings about the conduct of individual companies, but there will be no prison sanction within the framework of the Act. However, if people commit fraudulent actions, criminal sanctions would be appropriate.

I hope that, with those assurances and explanations, the hon. Member for Wealden will support clause 52.

Question put and agreed to.

Clause 52 ordered to stand part of the Bill.

Clause 53 - Further provision relating to civil penalties

Gerry Sutcliffe (Labour, Bradford South)

Clause 53 describes the further provision relating to civil penalties. Clause 52 means that licence holders who do not comply with the requirements placed on them by the OFT will face civil penalties, and clause 53 sets out the procedure that the OFT must follow when deciding to impose a penalty. Under clause 52, the OFT may impose penalties by issuing a penalty notice to the defaulting licensee. The OFT must inform the licensee that it is minded to impose a penalty notice, and must set out the reasons why, set the amount of the penalty and give reasons why it has been set at that level. The OFT must also invite the defaulter to submit representations to an adjudicator. If any other penalties have been imposed for the same conduct, which the OFT is investigating, that must be taken into account. The OFT must also take into account any other steps that it might take in relation to the conduct in question, such as the revocation or suspension of a licence.

Where a penalty is imposed on a person who is responsible for group licences, the OFT must give general notice, which must set out what is required by the Act. Clause 53 is necessary to allow the OFT to inform the licence holder that it is minded to impose a penalty, and adjust the maximum amount of the penalty. It gives the defendant the power to make representations to the OFT in relation to the imposition of the penalty. The clause also enables the maximum penalty to be amended, if that proves necessary in time.

Licensees can easily avoid civil penalties by complying with the OFT requirements. Penalties are a necessary deterrent to prevent licensees from causing consumer detriment. They are a vital part of the OFT's new licensing regime.

Question put and agreed to.

Clause 53 ordered to stand part of the Bill.

Clause 54 - Statement of policy in relation to civil penalties

Gerry Sutcliffe (Labour, Bradford South)

Clause 52 means that licence holders who do not comply with requirements placed on them by the OFT will face civil penalties. Clause 54 requires the OFT to prepare and publish a statement of policy, setting out how it will impose those penalties and the determination of amounts. The statement must be approved by the Secretary of State before it can be published and before any penalties can be imposed. The OFT must publish the statement, so that it comes to the attention of the people who might be affected. The clause requires the OFT to consult interested parties on the preparation or revision of the statement, and the OFT must publish the most recent version.

The clause means that the OFT must also have regard to the statement of policy when issuing penalties. It prevents the OFT from issuing a penalty to a licensee before the statement is published.

Charles Hendry (Conservative, Wealden)

The guidance note from the OFT states that the draft Bill requires that as soon as practicable after the commencement of the relevant provisions the OFT will prepare and publish a statement of policy on the imposition of penalties under proposed new section 39A of the Consumer Credit Act 1974 and the determination of the amount of such penalties. When does the Minister envisage that that will be published? Clearly, the question of when is as soon as practicable and will be a matter of importance to those people who need to understand the full force of the Bill before they can comply with it.

How often would the Minister expect the statement of policy to be revised, and how would he expect it to be publicised? Would it be sufficient for revisions to be sent to all licensees, or would an advertisement have to be put in certain publications? Would further action be needed to ensure that those who needed to know of changes were informed about them?

Gerry Sutcliffe (Labour, Bradford South)

This morning we became involved in definitions of reasonableness, responsibleness and unfairness. I should hope that the OFT would operate within its service agreements to get the required information speedily to the relevant stakeholders. There would be an onus on it to do so, because it could not impose penalties unless it had done so; it would be in its interest to do it, in so far as it was reasonably practicable. It would be done in the same way as the OFT operates when it ensures that stakeholders are made aware of the variety of methods of regulation and development.

I hope that the hon. Gentleman will accept that, and understand why the statement is necessary. All applicants will have the statement brought to their attention, and it will be available through the OFT website. I am sure that the hon. Gentleman will be pleased about that. The OFT will undertake publicity before the new provisions come into force, so that existing licensees will understand the new provisions and know where to find out more. They will be revised when necessary.

Question put and agreed to.

Clause 54 ordered to stand part of the Bill.

Clause 55 - The Consumer Credit Appeals Tribunal

Gerry Sutcliffe (Labour, Bradford South)

Clause 55 establishes the Consumer Credit Appeals Tribunal as a new, independent tribunal, which will hear appeals against determinations made by the OFT under the relevant provisions. Those include appeals against decisions to revoke, vary or suspend a licence, or impose a requirement or financial penalty. Under the 1974 Act, appeals are made to the Secretary of State and heard by a specialist panel on his behalf. We are removing the link with the Secretary of State to follow best practice on appeals. The independent tribunal will come under the supervision of the Department for Constitutional Affairs and the Lord Chancellor will make rules on appeals. More detail about proceedings before the tribunal is given in proposed new schedule A1 to the 1974 Act. This clause concerns the various possible treatments of businesses, which will always have the opportunity to submit representations against an OFT determination and will be able to appeal a determination to an independent tribunal. I beg to move that the clause stand part of the Bill.

Question put and agreed to.

Clause 55 ordered to stand part of Bill.

Schedule 1 - Schedule A1 to the 1974 Act

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 28, in schedule 1, page 57, line 33, after 'limits', insert

'(including the period specified for the purposes of section 41(1) of this Act)'.

The amendment ensures that the power of the tribunal to make procedural rules allows it to extend the time limit within which an appeal must be brought. That is in line with the current appeal system under which the time for an appeal can be similarly extended. I hope that the Committee will support the amendment.

Amendment agreed to.

Question proposed, that this schedule, as amended, be the First schedule to the Bill.

Gerry Sutcliffe (Labour, Bradford South)

This schedule provides further detail about the Consumer Credit Appeals Tribunal, established in clause 55. The tribunal has been set up to hear appeals against determinations of the OFT, replacing the current system of appeals to the Secretary of State. For example, appeals might be heard against decisions to revoke, vary or suspend a licence, or to impose a requirement or a financial penalty. The schedule establishes the posts of president and deputy president of the tribunal, and appoints a panel of chairmen and a lay panel. It enables the removal of panel members in the case of incapacity or misbehaviour. Paragraphs 5 and 6 enable the Lord Chancellor to appoint and pay for the staff of the tribunal and to pay the president, deputy president and members. It also includes arrangements for the structure of the tribunal and its hours and procedures.

Paragraph 10 lists some of the matters on which the Lord Chancellor may make rules. They are primarily practical arrangements for appeals such as timing, who may appear on behalf of a party, hearings and disclosure of information. It also covers problems such as non-compliance with the rules, administrative errors and what happens if a member of a tribunal becomes unable to act. The list is not exhaustive.

Paragraph 12 sets out the courses of action that the tribunal can take in disposing of an appeal. It is able to confirm, quash or vary the OFT's decision, remit the matter to the OFT for consideration and determination and give directions to the OFT to give effect to the decision. Paragraph 13 states that decisions may be taken by majority, and paragraph 14 enables the tribunal to order that the OFT pay costs to the appellant in a number of given circumstances. In summary, the schedule provides the nuts and bolts of how the tribunal may work. As is usual in the case of tribunals, that will be elaborated on in rules made by the Lord Chancellor. I beg to move that the schedule be agreed to.

Charles Hendry (Conservative, Wealden)

I thank the Minister for his clarity in setting out those details with regard to tribunals. I shall be grateful if he will respond to a few questions, so that we have a little more information before we decide whether the schedule be agreed to.

First, on panels, paragraph 3(3) states:

''The Lord Chancellor shall also appoint a panel of persons who appear to him to be qualified by experience or otherwise to deal with appeals of the kind that may be made to the Tribunal.''

What sort of qualifications do we think that the Lord Chancellor will look for? It is important to understand what expertise will be expected. Or will those people involved just be old mates from his chambers, as seems to have happened in other cases?

Secondly, in paragraph 5, we read on remuneration and allowances:

''The Lord Chancellor may pay to a person in respect of his service—as the President . . . as a member of the Tribunal, or as a person appointed under paragraph 7(4), such remuneration and allowances as the Lord Chancellor may determine.''

Have we any indication of how much we are considering paying? Will people be taking on what is essentially a full-time job, or will they be performing a role for a day or two a week? I have no sense of how much time is going to be involved for those who take part in the tribunals' and, therefore, whether we will be paying them reasonable salaries or simply reimbursing them for losses of earnings elsewhere. How many members does the Minister envisage being involved in the tribunals? Also under paragraph 14 on costs, has he any sense of the level of cost that may be paid if the OFT is deemed to have acted inappropriately? Elsewhere in the Bill a limit of £50,000 is set. Does he envisage there being a limit for the maximum level of a fine or penalty cost that can be imposed on the OFT when it is deemed to have acted inappropriately?

Gerry Sutcliffe (Labour, Bradford South)

Again, I am grateful for the hon. Gentleman's broad welcome for the setting up of the new tribunal. On the way the members are chosen, he is right to say that the Lord Chancellor has many friends, but the Lord Chancellor is subject to the same rules as anybody else. Members will be appointed by the Lord Chancellor in accordance with the qualifications stipulated in the schedule. Members of the panel of chairmen must have been qualified lawyers for at least seven years. Members of the lay panel must appear to the Lord Chancellor to be qualified by experience to deal with appeals made to the tribunal.

Members of the existing panel will be able to transfer to the new tribunal with the skills that they brought to the Secretary of State's panel. The provision for that is in paragraph 26 of schedule 3 and the normal remunerations would be made. Again, if the hon. Gentleman would like me to, I will set out in a letter the details such as the likely frequency of meetings. It will not be a full-time requirement and will be based on the number of members who are required to hear a case. That would have to be reviewed after a period of time, depending on the number of cases and the number of issues to be dealt with. I will let the Committee have the details. With those explanations, I hope that the Committee will support the schedule.

Question put and agreed to.

Schedule, as amended, agreed to.

Clause 56 - Appeals to the Consumer Credit Appeals Tribunal

Gerry Sutcliffe (Labour, Bradford South)

Clause 56 relates to the new Consumer Credit Appeals Tribunal. The tribunal is being established to hear appeals against determinations of the OFT. It replaces the current system of appeals to the Secretary of State. The clause amends section 41 of the 1974 Act, which contains the existing provisions for appeals. The clause repeals subsections (2) to (5) of section 41 and inserts new subsections.

An appeal should be made by sending the tribunal a notice of appeal in the form specified by the rules. The appeal is by way of a rehearing. This means that the merits of the case are considered by the tribunal on the day that the appeal is heard. The tribunal is able to consider evidence which was not available to the OFT when it made its determination. I hope that hon. Members will support the clause.

Charles Hendry (Conservative, Wealden)

I have a few further questions on the appeals to the Consumer Credit Appeals Tribunal. What guidance does the Minister expect to be given on the time limits for appeals? Clearly there has to be a final time limit. Does he have anything in mind? Will he give us some further examples of the sort of things that people might appeal against? Could a prospective licensee appeal against a decision not to issue a licence? Could it be against a decision to revoke a licence? Would it be against the level of charges? Could it even be on matters that might otherwise have gone to the courts? We had a lot of discussion on the earlier stages of the Bill about trying to keep things out of the courts. Are there elements of the debate about fairness and unfairness that can be resolved in this way without the need to go to court?

Gerry Sutcliffe (Labour, Bradford South)

Again, the hon. Gentleman is heading in the right direction with his questions. He asked me how long after a determination a person can appeal to the tribunal. The rules will set limits in relation to anything that is to be done for the purposes of an appeal and for the extension of such time limits. The rules are likely to specify that an appeal must be lodged within 28 days. That is the period under the current regulations and is also in line with normal tribunal practice.

On the question of who can appeal and on what grounds, the relevant sections of the 1974 Act and clauses of the Bill set out who can bring appeals to the tribunal. In general, appeals can be brought by those to whom the OFT's determination relates. As the hon. Gentleman says, they can be brought by a person whose licence has been refused, suspended, revoked, granted in different terms or varied. Likewise, a person who had a licence requirement imposed on him, which was not the same as the one he had suggested or varied, could appeal. Similarly, those named in requirements or whose employment was in some way affected by a requirement may appeal. The penalties imposed for breach of requirements and licences or of the information provisions can also be appealed.

I hope that having heard that explanation hon. Members will support the clause.

Question put and agreed to.

Clause 56 ordered to stand part of the Bill.

Clause 57 - Appeals from the Consumer Credit Appeals Tribunal

Gerry Sutcliffe (Labour, Bradford South)

Clause 57 deals with appeals to the new Consumer Credit Appeals Tribunal. The tribunal is being set up to hear appeals against determinations of the OFT. It replaces the current system of appeals to the Secretary of State. The clause inserts a new section 41A after section 41 of the Act. It enables appeals on a point of law to be made from the tribunal to the Court of Appeal in England and Wales and in Northern Ireland, and the Court of Session in Scotland. Appeals can be brought by either the appellant or the Office of Fair Trading. Leave to appeal can be given by the Consumer Credit Appeals Tribunal; or, if the tribunal refuses to give its leave, an application for leave to appeal can be made to the Court of Appeal or the Court of Session directly.

The higher court may, if it considers that the tribunal's decision was wrong, quash or vary the decision. It may also substitute its own decision, or remit the matter to the tribunal for a rehearing. Under the clause, tribunal rules may make provision in relation to consequential matters on appeals. Those rules might relate to the form of requests for leave to appeal, or time limits. Leave to appeal to the House of Lords can also be given. I hope that the Committee will accept the clause.

Question put and agreed to.

Clause 57 ordered to stand part of the Bill.

Clause 58 ordered to stand part of the Bill.

Clause 59 - Financial services ombudsman scheme to apply to consumer credit licensees

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 27, in clause 59, page 48, line 25, after 'licence', insert

'or was authorised to carry on an activity by virtue of section 34A of the Consumer Credit Act 1974'.

The amendment will ensure that customers or a business acting in authorisation under clause 32 have access to the financial ombudsman scheme. It ensures that provision for authorisations work properly without diminishing consumer protection and I hope that the Committee will support it.

Amendment agreed to.

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

Gerry Sutcliffe (Labour, Bradford South)

The clause deals with the financial services ombudsman scheme to apply to consumer credit licensees. Consultation showed that consumer and industry groups strongly support the introduction of an ADR system for consumer credit. In most cases, consumers currently have no other option than to go to the courts to seek redress against unfairness, which often proves daunting and expensive for consumers and industry. Most credit provided by banks and building societies is already covered by ADR, and some trade associations run their own ADR schemes. However, access for consumers to ADR is not universal and businesses can in many cases opt out. ADR will provide wider and easier access for both consumers and industry to an efficient and cheap process of dispute resolution. It means that most consumers no longer have to be worried about going to court to challenge unfairness. It allows disagreements to be settled quickly and simply, and consumers have a better chance of obtaining fair redress against unfair practices. It will encourage fair standards throughout the industry. Ultimately, these changes will increase consumer confidence in the market, which in turn benefits the industry.

The ADR will be provided by the Financial Ombudsman Service. The FOS was chosen as the ADR provider for consumer credit matters because it already deals with the financial services sector generally. Under the Financial Services and Markets Act 2000, the FOS provides ADR for two existing jurisdictions, the voluntary jurisdiction and the compulsory jurisdiction. The clause adds a third—the consumer credit jurisdiction. About 80 per cent. of people who responded to the consultation said they would like the FOS to provide ADR under the Consumer Credit Act 1974.

The FOS's existing experience and expertise will ensure a smooth transition to the new ADR scheme, more so than if another provider were used. Clause 59 describes the conditions that must be satisfied for a complaint to be dealt with by the FOS and also shows how different activities will be made subject to the consumer credit jurisdiction.

The Secretary of State for Trade and Industry will introduce types of credit business into the consumer credit jurisdiction by order. The order will be agreed with Her Majesty's Treasury Ministers. It will set out one or more of the types of business for the new licence categories: consumer credit business, consumer hire business, credit brokerage, debt adjusting, debt counselling, debt collecting, debt administration, credit information services and credit reference agencies. Different types of business will be introduced on a staggered basis.

The rate at which businesses are introduced into the consumer credit jurisdiction will be agreed with the Treasury after consultation with the FOS and the Financial Services Authority. That will ensure that the FOS can cope with the additional work load and will not risk being overloaded.

Once a type of business is introduced, the FOS will make rules setting out the activities that it will consider within that type of business. That will provide maximum symmetry between the existing compulsory jurisdiction, covering banks and building societies, and the new consumer credit jurisdiction, covering other consumer credit firms. Those rules will ensure that a consumer's ability to obtain redress is balanced with the capacity of the FOS to deal with extra work. The FOS will also make procedural rules for the operation of the consumer credit jurisdiction. The FOS must hold a public consultation before making any rules, and rules must be approved by the FSA.

For the FOS to become involved, a consumer must want it to deal with the complaint and must be eligible. A person is eligible if they are the individual or are directly related to the individual through the agreement and they are covered by FOS rules. The credit business must have been holding a standard licence when the complaint occurred, and the complaint must fall under a type of business included in the consumer credit jurisdiction. The complaint must not be able to be dealt with under the existing compulsory jurisdiction of the FOS. That ensures that businesses do not become subject to multiple jurisdictions.

A consumer who wants to complain about a firm can take their complaint to the FOS. On receiving a complaint from a consumer, the FOS will first check that the firm's internal complaints handling procedures have been exhausted. Firms currently have eight weeks to settle complaints before the FOS will become involved. At the end of that period, if the complaint has not been resolved, the firm will be obliged to let the consumer know about the FOS. Then, if all the criteria that I mentioned have been met, the FOS will consider the complaint.

Before opening a case, the FOS will try to settle the complaint informally. If that is unsuccessful, the FOS will open a case to investigate the complaint. Much of the work of the FOS is carried out by correspondence, so that neither consumers nor businesses need appear at a hearing. After considering the case, the FOS will issue an adjudication. That stage of the case may be handled by a member of FOS staff other than the ombudsman. If either party is unhappy with the adjudication, they can request that the ombudsman review that assessment and make a determination.

The FOS makes decisions based on what is fair and reasonable in each case. It takes into account the law, regulations, the regulator's rules, relevant codes and good industry practice. That ensures that, within the legal framework, the FOS can come to a practical common-sense solution that has a better chance of being acceptable to all parties involved. It can order a range of imaginative redress mechanisms from either party to bring things to a just and amicable solution. If the consumer accepts the ombudsman's final decision, it is binding on the business. The FOS decision can be enforced through the courts, and the FOS can inform the OFT of its determinations so that it can take any necessary regulatory action.

The clause is necessary to provide consumers with better and more accessible opportunities for redress against unfair practices. I hope that, with that explanation, the Committee will accept the clause.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for such a detailed exposition of the clause, which is a very important aspect of the Bill. I would be grateful, though, if we could return to the types of business. Mr. Taylor, you were sadly absent from the Room this morning when we had a lively and interesting—I would not go as far as saying ''riveting''—discussion about the types of business, and it just seems unfair that because you were out of the Room you should not be given a chance to be part of it.

Paragraphs (a) to (i) of proposed new section 226A(3) list a range of types of business. The concern that we discussed this morning, on which we did not quite reach a conclusion, is that although that is an exhaustive list of types of business as we currently know them, we cannot be certain that they will still be the types of business that exist 30 years ahead. New types of business may or may not have been started.

The Minister asked me what types of business I had in mind that could be started up in the years to come. If I had that degree of vision and knew what multi-billion pound businesses there would be in 30 years' time that no one had yet thought of, I would not be sitting here in Committee but would be out there starting one, or, at the very least, I would be down at William Hill's putting a few pounds on the 2.40 pm at Lingfield park tomorrow afternoon.

Expecting us to know what types of business will exist is perhaps unreasonable, but it is not unreasonable to say that we cannot all have the foresight to say what new types of business might arise, and that we should perhaps be covered by the ombudsman's services.

I therefore ask the Minister to go away and reconsider the matter. I do not want to be rude by telling him to go away today, but I do ask him to think further about it after this sitting and before Report to ascertain whether it would not be unreasonable to amend the Bill so that the list could be reviewed every five years.

After each five-year period, we will know the types of business that might be emerging and whether they are services that should be considered. My simple concern is that the Bill should give us the scope to protect consumers, which we are all trying to do, against the types of business that are not currently major players but that will come along in years to come offering credit services.

If we tie up the legislation as it stands, we deny ourselves the chance to keep it up to date and to give consumers the length and breadth of protection that we seek to offer them. I simply ask the Minister to say that he will reconsider the possibility of the Secretary of State reviewing the list every five years, and that if new types of business have opened up, the Secretary of State should have the power to include them in the list.

Adrian Bailey (Labour, West Bromwich West)

I welcome the measure, but will the Minister clarify further how the scheme would apply, bearing in mind the remarks made on Second Reading by my right hon. Friend the Member for Leeds, West (John Battle), which I endorsed, about the need for a complaints procedure that would enjoy the confidence of potential victims of unfair credit practices, and be mindful of the fact that many of the people who fall foul of credit companies have low levels of education, a great fear of any court or judicial processes and a great fear of the organisation that is lending them money?

According to the provisions, people have to exhaust the internal procedures of the credit company before they can use the financial ombudsman's service. I understand the reason for that, which is the need to avoid the ombudsman's service being swamped by sometimes trivial or inconsequential cases. On the other hand, we must ensure that the person who perceives that they have been unfairly treated does not feel intimidated in undergoing a process that would enable them to redress their grievance.

Will the Minister reassure us that everyone who enters into a credit agreement must be informed in the simplest and clearest way of the avenues that are open to them if they feel unfairly treated, and that there should be severe penalties for any company that uses any form of intimidation that stops anyone using the provisions that are available to them?

James Brokenshire (Conservative, Hornchurch)

I shall build on the point about ease of access to the ombudsman's scheme and on the several comments made about the need to ensure that the scheme efficiently and effectively gives access to justice, which is a phrase that we have used many times in this debate, so that people can resolve issues.

I understand that the subtle little amendment in new section 226A(2)(f), which states that

''the complaint cannot be dealt with under the compulsory jurisdiction'',

is intended to cover situations in which a firm is regulated under the Financial Services and Markets Act 2000. I want an assurance that there is an interconnection between the two regimes and some link between the Financial Services Authority and the Office of Fair Trading. If someone has a complaint, they want it to be dealt with efficiently and effectively. They do not want to be passed round the houses, with the ombudsman saying that the problem has nothing to do with that service and that they will have to launch a separate complaint to the FSA under the regime set out in the Financial Services and Markets Act 2000. That is the last thing that we would want to happen.

If someone has a legitimate concern, they are likely to be under a great deal of pressure and wanting to get things resolved quickly. They will feel at the end of their tether, so I want some assurance that there will be a joined-up approach. I know that the Minister kindly has circulated papers on the joint working memorandums that have been agreed between the OFT and the FSA. However, there must be something in the system to ensure that if people have legitimate complaints, they are dealt with efficiently and effectively.

Gerry Sutcliffe (Labour, Bradford South)

Again, I welcome the contributions from all hon. Members in trying to ensure that we get the provisions right, as they are a significant step forward from what is in the 1974 Act. It is right and fair for individuals to go through a company's internal complaint procedures, and I agree with my hon. Friend the Member for West Bromwich, West (Mr. Bailey) that that should not be about intimidation. There is also an eight-week time limit for that procedure.

Consultation showed that, for most people involved, the FOS was the preferred option because of its experience in equities. To answer the question of the hon. Member for Hornchurch (James Brokenshire), the consumer credit jurisdiction under the FOS will not fall within the regulatory scope of the FSA, so there will be no duplication or confusion. The consumer credit jurisdiction will cover only cases that are not currently dealt with under the compulsory jurisdiction. There are three jurisdictions, and it will be clear what falls within each.

James Brokenshire (Conservative, Hornchurch)

I am sorry to press the Minister on this point. If that is the case, information should be made available to borrowers so that they know that, if the ombudsman scheme is not available to them, what their rights of redress are. A problem is likely to occur when some form of remedy should have been followed, and I would like an assurance that some information will be provided so that people can make a proper complaint.

Gerry Sutcliffe (Labour, Bradford South)

Information needs to be provided to the borrower or the borrower's representative through citizens advices bureaux or whoever else takes up the individual cases, which relates to the point made by my hon. Friend the Member for West Bromwich, West about people's inability in times of hardship and concern to understand fully the redress mechanisms that are available. That is where the advice services can come into play. We would also want the information to be included on the OFT information sheets that we mentioned earlier in relation to dispute resolution.

It is important that the system works. Most of the FOS work is done through correspondence, so the process should be speedy and less threatening to the individuals participating. I would hope that the ADR will be what we intend: a quick, common-sense system that meets all requirements.

That brings me on to the hon. Member for Wealden. He seems to like five-year cycles, as they keep recurring in his amendments. Much as I have sympathy with his line of thought, his proposal is not needed. The scope of the ADR is to cover all consumer credit licence businesses, except holders of group licences, for all disputes arising under the Consumer Credit Act. We do not envisage any unforeseen circumstances in terms of the ADR's coverage, and it is not dissimilar to what we were discussing this morning.

With those explanations, I commend the clause to the Committee.

Question put and agreed to.

Clause 59, as amended, ordered to stand part of the Bill.

Schedule 2 - Part 3A of Schedule 17 to the 2000 Act

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 29, in schedule 2, page 60, line 41, at end insert—

'( ) Consumer credit rules under sub-paragraph (3) may authorise the scheme operator to dispense with or modify the application of such rules in particular cases where the scheme operator—

(a) considers it appropriate to do so; and

(b) is satisfied that the specified conditions (if any) are met.'.

Before complaints are dealt with by the FOS, firms are allowed time to resolve them directly; most complaints are resolved in that way. It is, however, necessary that firms deal with complaints expeditiously, and the FOS will have powers to set rules for that purpose.

There will be occasions when it is appropriate for a firm to have longer to resolve a complaint or a particular type of complaint, and the amendment will give the FOS the power to waive the rules when appropriate. An example of such a situation would be when the FOS is dealing with a case that has wider implications. Firms will be allowed longer to respond to similar complaints so that the FOS can make a decision on the case with wider implications first, and firms will then be able to respond to complaints in line with the FOS decision. I hope that the Committee will accept that explanation and support the amendment.

Amendment agreed to.

Question proposed, That this schedule, as amended, be the Second schedule to the Bill.

Gerry Sutcliffe (Labour, Bradford South)

Schedule 2 will be inserted into schedule 17 of the Financial Services and Markets Act 2000. It sets out more detail about the operation of the consumer credit jurisdiction introduced by clause 59.

The schedule will require the FOS to make procedural rules for the operation of the consumer credit jurisdiction. The rules must set down a time limit within which complaints can be referred to ADR, which can be extended only by an ombudsman. The FOS can also require all holders of standard licences to establish and maintain internal complaints handling procedures, and it can make rules to say that a complaint will not be dealt with until the consumer has exhausted those procedures.

Within the rules, the FOS will set out the process to be followed for the reference of complaints, their investigation, their consideration and their determination by an ombudsman. The FOS will be able to dismiss frivolous or vexatious complaints and provide that, in the early stages, the complaint can be handled by a member of FOS staff other than the ombudsman.

The schedule enables the FOS to make rules specifying the fees that licensees must pay for the ADR scheme and provides that the payment of any compensation awarded by the ombudsman may be enforced through a court. It also sets out the procedure that the FOS must follow when making, amending or revoking any rules. The FOS is required to hold a public consultation before making any rules. Before the rules can be made final, they must be approved by the Financial Services Authority. The FOS must also take steps to make the approved rules available to the public. Finally, new paragraph 16F sets out the steps the FOS must take to verify the rules.

The schedule is necessary to ensure that the FOS rules and procedures are clear and comprehensive. It allows the FOS to make the rules it needs to ensure the ADR scheme is as effective and transparent as possible for both consumers and business.

Charles Hendry (Conservative, Wealden)

I would be grateful for a couple of points of clarification.

First, the fee section in new paragraph 16C states:

''Consumer credit rules may require a respondent to pay to the scheme operator such fees as may be specified in the rules.''

Can the Minister make it more clear what those fees will be for? Will they be penalties or fines? What will they be for and why will people be paying those fees to the scheme operator?

Secondly, the paragraph on procedure for consumer credit rules, new paragraph 16E, reads:

''If the scheme operator makes any consumer credit rules, it must give a copy of the them to the Authority without delay.''

What does the Minister mean by the reference to making consumer credit rules? There has been a lot of debate and discussion as the Bill has gone through Committee, and that may be the clarification that we have all sought. Is there the scope to avoid issues going to court, for example, by having rules and guidelines clarified and set down so that both lenders and borrowers have a clearer understanding of what is permissible under the legislation? If that is the case, that would be very welcome.

Gerry Sutcliffe (Labour, Bradford South)

The fees for the ADR will make it work and will cover the costs of the scheme. It will be possible, I think, for the first two cases to be free for businesses, but the fees relate to the cost of the overall scheme.

The overlap with the courts can arise in two ways. First, the consumer might want to make a complaint to the FOS, but the firm might start court proceedings. Where the court considers it appropriate, it can stay those proceedings while the consumer makes the complaint to the FOS. Secondly, the complaint might be taken straight to the FOS, but the ombudsman might consider that the courts would be better suited to deal with it. However, the FOS can informally discuss things and try to reach an informal arrangement. It can also decline to deal with a case if it involves a third party over which it has no jurisdiction or if the complaint appears to be solely about the legitimate exercise of a firm's commercial judgment in setting an interest rate and it would be more appropriate for the court to consider the rate-setting on the basis of expert evidence.

In general, there is no prescribed mechanism for how the FOS and the courts will work together in practice, but we anticipate that they will co-operate and complement each other. The idea is to have an informal set of circumstances before the case proceeds to the formal FOS decision. If the FOS cannot deal with the case, it can go to the court. Equally, the court can refer an issue to the FOS.

That is a good way of dealing with these difficult situations. The process will not be off-putting for consumers, because most things will be in writing, and their representatives can be involved. That is a good way of trying to resolve difficulties within the context of the Bill's overall aim of achieving greater transparency, with pressure on lenders to lend responsibly and on people fully to understand their rights.

Charles Hendry (Conservative, Wealden)

I am genuinely grateful to the Minister for that clarification. To use his own words, it was good, but not excellent. I would be grateful, however, if he could go into a bit more detail about the fees. Is he saying that people might be charged for using the financial ombudsman service? When we refer constituents to the local government ombudsman or the parliamentary ombudsman, there is no charge for using them. I am not clear whether the fees that we are talking about are for people who make an application to the ombudsman to have their case reviewed or whether they are for something entirely different. Are other ombudsmen able to charge fees in the same way?

Gerry Sutcliffe (Labour, Bradford South)

Again, I am grateful to the hon. Gentleman, and I apologise to the Committee for not explaining the point clearly. The fees are a levy on business. The business world will have to pay a levy towards the cost of the ADR scheme, but there will be no cost to the individual who makes a complaint to the FOS. As I said, the levy will sometimes mean that the first two cases are free for business and will not attract a charge, although subsequent cases will. I make it clear, however, that the service is free to consumers. I hope that that clarifies the point.

Question put and agreed to.

Schedule 2, as amended, agreed to.

Clause 60 - Funding of ombudsman scheme

Gerry Sutcliffe (Labour, Bradford South)

I hope that my remarks on clause 60 will further clarify the funding of the ombudsman's scheme for the Committee. The clause sets out the arrangements for the funding of the compulsory ADR. In line with the best practice principles underpinning the funding of the ADR scheme, it should be self-funding and free to the consumer. As the clause states, all standard licence holders not already covered by the compulsory jurisdiction will pay to cover the costs of the FOS in setting up and running the consumer credit ADR.

Those costs will be met in two ways. First, businesses under the jurisdiction of the FOS will be charged a small levy, which will be set by the FOS with the approval of the Financial Services Authority. The levy is likely to be between £10 and £20 per year.

Secondly, a case fee will be payable by those businesses whose complainants are considered under the ADR scheme. The fee will also be set by the FOS with the approval of the FSA and is likely to be about £360 per case. The majority of firms will never pay the case fee. It is unlikely that all complaints will require ADR, and those firms that now come before the FOS get the first two cases a year free. The ADR levy will be collected by the OFT with the licence fees, and the money will be passed on to the FOS. The OFT is best placed to collect the money, as it already has details of the all Consumer Credit Act licences. The OFT can charge extra for costs incurred in collecting the levy, and the FOS will periodically reimburse the OFT. The clause is necessary to provide funding for the ADR scheme. I hope that I have made it clear to the Committee what we seek to achieve.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister for that explanation. I draw his attention to proposed new section 234A(9), which states:

''As soon as practicable after the end of—

(a) each financial year of the scheme operator, or

(b) if the OFT and the scheme operator agree that this paragraph is to apply instead of paragraph (a) for the time being, each period agreed by them, the scheme operator must pay to the OFT an amount representing the extent to which collection costs are covered in accordance with subsection (2) by the total amount of the contributions paid by the OFT to it during the year or (as the case may be) the agreed period.''

I take it that that means that the OFT should be reimbursed by the ombudsman for its costs. What happens with trading standards departments? As we heard earlier, they will be carrying out some of that work on behalf of the OFT. Will they be eligible to have their costs covered for work that they have done for the OFT? In that regard, subsection (10) of the proposed new section would appear to be a difficulty, because it states:

''Amounts received by the OFT from the scheme operator are to be retained by it for the purpose of meeting its costs.''

That suggests that the OFT would not be able to pass on funds to trading standards departments. Will they be covered for the costs that they incur? Will subsection (10) allow money passed to the OFT to be passed on to trading standards departments to reflect the work that they have done?

Gerry Sutcliffe (Labour, Bradford South)

I can understand where the hon. Gentleman is coming from, but we are talking about the working of the ADR scheme, and it is not envisaged that trading standards departments will be involved in the collection process. The OFT will do that, so there will be no need for the OFT to reimburse trading standards departments.

Question put and agreed to.

Clause 60 ordered to stand part of the Bill.

Clause 61 - Consequential amendments relating to ombudsman scheme

Gerry Sutcliffe (Labour, Bradford South)

The clause makes consequential amendments to the 1974 Act and the Financial Services and Markets Act 2000, to allow for the introduction of an alternative dispute resolution scheme.

The clause makes various amendments to the 2000 Act. It adds references to the consumer credit jurisdiction alongside references to the voluntary and/or compulsory jurisdiction where appropriate. That ensures that the consumer credit jurisdiction can operate effectively alongside the existing jurisdictions—that deals with the point raised by the hon. Member for Hornchurch. An amendment to the 2000 Act will allow the FOS to specify the maximum limit of compensation that can be awarded under the consumer credit jurisdiction.

Another change provides for regulations to be made to allow the FOS to disclose information about cases and the decisions to the OFT. That information can be used by the OFT in deciding whether a lender is fit to hold a licence. Under the clause, the OFT can also provide information and advice to licensees on the introduction and operation of the ADR scheme. That information will be agreed in advance with the FOS. Further details on how the OFT and the FOS will work together will be set out in a memorandum of understanding between the two organisations, a draft of which has been seen by the Committee.

The clause is necessary to ensure the consequential amendments are made to the 1974 and 2000 Acts. I hope that the Committee will support it.

Question put and agreed to.

Clause 61 ordered to stand part of the Bill.

Clause 62 - Monitoring of businesses by OFT

Gerry Sutcliffe (Labour, Bradford South)

I know that the monitoring of businesses by the OFT has been of concern to some hon. Members. The clause imposes a general duty on the OFT to monitor businesses being carried out under licence.

The clause amends section 1 of the 1974 Act, which sets out the OFT's general functions. That means that the OFT will have a clear and ongoing duty to monitor the fitness of licensees. The OFT will be able to take a risk-based approach. Those business sectors that pose a higher risk to consumers will be subject to more intensive monitoring. The OFT will use the information-gathering powers in the Bill to fulfil the duty to monitor licences. That will result in better protection for consumers and more effective use of OFT resources. I hope that the Committee will support the clause.

Question put and agreed to.

Clause 62 ordered to stand part of the Bill.

Clauses 63 to 69 ordered to stand part of the Bill.

Schedule 3 - Transitional Provision and Savings

Gerry Sutcliffe (Labour, Bradford South)

I beg to move amendment No. 24, in schedule 3, page 64, line 7, leave out 'payable' and insert

'that are required to be paid'.

This is a technical amendment designed to make the wording of the paragraph consistent with section 130A of the 1974 Act, to which it relates. It is a straightforward amendment, and I hope that the Committee will support it.

Amendment agreed to.

Question proposed, That this schedule, as amended, be the Third schedule to the Bill.

Gerry Sutcliffe (Labour, Bradford South)

The schedule concerns transitional provision and savings. It makes certain transitional provisions for the coming into operation of many different parts of the Bill. It is important to ensure the smooth commencement of the provisions, especially where they apply to existing agreements.

Question put and agreed to.

Schedule 3, as amended, agreed to.

Clause 70 ordered to stand part of the Bill.

Schedule 4 - Repeals

Gerry Sutcliffe (Labour, Bradford South)

The schedule repeals various sections of different legislation. The changes are important as a consequence of the Bill.

Question put and agreed to.

Schedule 4, as amended, agreed to.

Clause 71 - Short title, commencement and extent

Charles Hendry (Conservative, Wealden)

It would not be appropriate for us to reach the end of the Bill without having a further point of clarification from the Minister, to which he will probably say, ''I hear where you're coming from'', and then explain why he did not really understand where I was coming from at all. There are a couple of points here, which I hope that he can clarify.

Subsection (2) says that different provisions can be introduced at different times, which is welcome, but can the Minister tell us what consultations he will now have with the industry to ensure that he fully understands which measures require a longer period before implementation? As he will appreciate, significant software changes will be required before the Bill can be enacted. It was some six years before all aspects of the last Act came into force. Clearly, we would not expect this to take six years, but there is a strong case for showing flexibility about different provisions coming into force at different times. I hope that the Minister will be prepared to have constructive discussions with the industry to ensure that that can be done properly.

Can the Minister also say a little about the Northern Irish aspects of the Bill? Normally, this would have been a devolved matter for the Assembly, but because it is suspended, that is not possible. What will happen when, we hope, the Northern Ireland Assembly is reformed? Will it pass its own legislation in this area, and will it pass its own amendments? How would that take place? We hope that the suspension of the Northern Ireland Assembly is only temporary. I can see that a furious amount of scribbling is going on, and I am going on so that the Minister can obtain more guidance before he has to respond. Can he tell us what will happen when the Assembly is brought back into being, and how can Northern Ireland adapt the Bill to the needs of the Province?

Gerry Sutcliffe (Labour, Bradford South)

I understand where the hon. Gentleman is coming from; he is heading in the right direction. I appreciate the points that he makes. He will know from the previous discussions on the regulations that flow from the White Paper that the industry had concerns about the need to change systems. The Government listened to those concerns as well as to those about the size of companies involved. Because the Bill has had widespread consensus and has been welcomed by all sides, it would only be fair to ensure that we did not impose burdens on business. Where there is a legitimate case for a timeframe to be put in place, we are happy to discuss that with the industry. Consultation will take place with all the interested stakeholders, ranging from small businesses and lenders to large companies that can accommodate change quicker than the rest. The hon. Gentleman will know that in the context of better regulation, the Government are required to ensure that all changes that take place are proportionate. Changes will be implemented after secondary legislation, and following full discussion and consultation with all necessary stakeholders.

On the question of Northern Ireland, I agree with the hon. Gentleman that the sooner the situation can be resolved for the Assembly, the better; it is in the best interests of all concerned. On this Bill, Northern Ireland Ministers specifically requested that jurisdiction be extended to Northern Ireland. That will be reviewed following any subsequent change in the circumstances in Northern Ireland.

Given those explanations, I hope that members of the Committee will support this, the final, clause.

Question put and agreed to.

Clause 71 ordered to stand part of the Bill.

New clause 1 - OFT'S GENERAL DUTIES

Charles Hendry (Conservative, Wealden)

I beg to move, That the clause be read a Second Time.

The new clause relates to the OFT's general duties. On Second Reading, hon. Members of all parties expressed concern about the wide and open powers provided to the OFT in the Bill. The OFT has scope to discharge those powers, and to regulate the conduct of licensees practically unfettered, as we have discussed. It is given a free rein to impose requirements and penalties based entirely on loose concepts of unacceptable conduct. What the OFT says is what goes. With such wide-ranging powers, it is striking that the Bill contains no provision specifying the objectives and purposes towards which the OFT must act, particularly in a Bill that sets out to achieve so much.

By introducing an objects clause, new clause 1 provides an important means of ensuring that the Bill achieves the purposes that Parliament has in mind. It is also a vital means of maintaining parliamentary control over the OFT—again, something that is distinctly lacking in the Bill. There is no good reason why such provision should not be included in the Bill. Indeed, it is invariably the case that Parliament controls the exercise of the discretion enjoyed by a regulatory body. The Financial Services and Markets Act 2000 is perhaps the best example. In the opening sections, the ground rules with which the Financial Services Authority has to comply are made clear.

I challenge the Minister to give a single suitable reason why the OFT should not be subject to the same control in this Bill. Surely the interests of consumers will be better protected if the body that seeks to protect them is clear about what it is trying to achieve. The dangerous alternative is to leave the OFT to make things up as it goes along. That is not good regulation, and could be immensely damaging for consumers. Such a provision would also ensure that the industry was much clearer about what was expected of it by the OFT. At present, that clarity is not there.

Gerry Sutcliffe (Labour, Bradford South)

The hon. Member for Wealden is less vociferous in his opposition to the OFT than was the hon. Member for Hornchurch, who spoke from the Front Benches on the last occasion on which we discussed the matter. His hon. Friend was concerned because anything to do with the OFT excited his well-known interest in horse racing and the OFT's deliberations to that effect, to the point at which his opposition to the OFT became almost obsessive.

As I reminded the hon. Member for Hornchurch this morning, hon. Members would do well to look at the Enterprise Act 2002 and the Competition Act 1998 with regard to the need to separate Ministers from interfering in markets that are performing well. It is right that we set the framework, and I do not believe that the OFT is completely unfettered, as the hon. Member for Wealden suggests. The way the OFT should act with regard to its consumer credit functions is set out in sections 1 to 5 of the 1974 Act. That includes keeping under review both the Act and the relevant social and commercial developments; enforcement and working of the Act; production of information; advice; and annual reporting obligations on the operation of the Act.

The provisions of the Bill should be read in conjunction with the provisions of the Enterprise Act 2002 relating to corporate governance and the OFT board requirement for annual reports. The OFT's general functions are set out in sections 1 to 8 of that Act. The ground rules for the operation of the OFT were laid down when Parliament debated the 2002 Act. The OFT is subject to the usual range of accountability measures, such as scrutiny and appearance before Committees of the House. In addition, as a signatory to the Cabinet Office enforcement concordat, it is under an obligation to act proportionately. It is committed to minimising the cost of compliance for business by ensuring that any action that it requires is proportionate to the risk, and by taking into account the circumstances and the attitude of the operator.

The OFT is, therefore, already required to do what is required by the new clause. I hope that, having heard that explanation, the hon. Gentleman will withdraw the new clause—unless he, too, has an obsession about the powers of the OFT going too far.

Charles Hendry (Conservative, Wealden)

The Minister should be well aware that the modern Tory party has nothing to do with obsession. We have moved on. Many of us here are so modern that if it were not for our respect for the Chair, we would not be wearing ties, and the suggestion that we have obsessions is simply out of date. I understand where the Minister is coming from—he is heading in the right direction. However, at this stage we are clearly not going to get the degree of clarity that we seek. There is a case for the new clause; I shall not push the matter to a vote, but perhaps the issue could be reviewed further in light of their lordships' experience when the Bill goes to another place. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 2 - OFT GUIDANCE

Charles Hendry (Conservative, Wealden)

I beg to move, That the clause be read a Second time.

The Minister and I could almost swap places, as we know each other's phrases so well. I am sure he will know where I am coming from on new clause 2. He has stressed time and again that improving transparency is one of the fundamental aspects of the Bill. We all support that aim, but certain aspects of the Bill will not achieve it; indeed, some will serve only to blur the legal situation.

Far too many significant policy areas have been left to secondary legislation and guidance from the Office of Fair Trading. That not only creates uncertainty for consumers, businesses and enforcers but means that Parliament does not have the opportunity to consider vital detail that is relevant to the Bill. That issue was raised many times on Second Reading and has been raised many times in Committee.

As drafted, the detail of key features of the Bill has been left to be developed by the OFT, which is an agency over which the Government have no ministerial control and which operates as the regulator in its area. The result is that the OFT could become both judge and jury. That is bad legislation and not how we should move forward in trying to protect consumers. Instead, we should try to ensure the transparency that the Minister said that he wants.

The new clause will achieve just that, by requiring approval from the Secretary of State before OFT guidance is published and requiring the OFT to consult relevant stakeholders on the content of that guidance. That builds in essential safeguards, by enabling the Secretary of State to ensure that the OFT acts in accordance with Parliament's wishes, while not interfering with the detail of that work, and ensures that those affected have the chance to influence the OFT's direction before it is set in stone.

Gerry Sutcliffe (Labour, Bradford South)

The new clause undermines the independence that Parliament gave to the OFT under the Enterprise Act 2002. When that Act was passed, Parliament concluded that the OFT should be independent of the Government and exercise its functions independently of Ministers. To that end, it was constituted as a non-ministerial department, under the control of a chairman and a board.

The new clause goes against that approach and would require the OFT to submit its guidance on issues under the legislation to Ministers for their approval. That would mean that the OFT would no longer be independent and that, before it could publish documents, it would have to obtain ministerial clearance indicating how it could enforce consumer credit legislation and which issues it could take into account when doing so. The OFT would no longer be a regulator independent of the Government.

The only aspect of the legislation that requires the OFT to obtain ministerial clearance concerns the statement of policy in relation to civil penalties. That is a special case, which allows the OFT to impose fines for breaches under the licensing regime. That goes beyond the OFT's normal role as a market regulator. The other guidance provided for by the legislation is not the same, and nor is the requirement made in respect of the guidance provided for in the Enterprise Act 2002.

Proposed new section 183A(2) in new clause 2 permits the OFT to consult such persons as it thinks fit when preparing guidance. The proposal is unnecessary, because the relevant provisions of the Bill and the Enterprise Act concerning unfair relationships already require the OFT to consult on the guidance. In light of that information, I hope that the hon. Gentleman will withdraw the motion.

Charles Hendry (Conservative, Wealden)

I am grateful to the Minister that it is clear where his thought processes are going. He is not prepared to shift, but we have made the point. In the light of that I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 3 - CREDIT TOKENS

Charles Hendry (Conservative, Wealden)

I beg to move, That the clause be read a Second time.

Although the new clause refers to credit card tokens, it concerns the issue of credit card cheques, which was raised several times on Second Reading in this Parliament and in the previous Parliament. The new clause is a simple, probing new clause. It is designed to outline our dissatisfaction with how credit card cheques work and to see whether something can be done to tighten the process up in the interests of the consumer.

The new clause is intended to stop the sending of unsolicited credit card cheques. I accept that some have some benefit. For example, in buying something, there is no transaction fee. If one uses a credit card to buy something, one sometimes pays a transaction fee to use the card; with a cheque that does not apply. It is also useful when someone needs money desperately: perhaps the plumber has come to do some emergency repairs, but will not take a credit card. A credit card cheque makes it possible to settle that bill without taking the money directly from one's account.

However, there is a great temptation to overspend. The credit card cheques are not time limited and can sit in a drawer for year after year, until, when times get a bit tough, they can be used. People might be inclined to use them at times when they are not thinking of the consequences. I recognise, however, that people cannot spend beyond their existing credit limit. [Interruption.] I am sorry that the hon. Member for Eccles (Ian Stewart) is finding this a bit tiresome, but it is important. I noticed that he was yawning while the Minister was speaking, too, so it is not just me.

David Taylor (Labour, North West Leicestershire)

Order. Could we return to new clause 3?

Charles Hendry (Conservative, Wealden)

We want to make lenders more responsible. The banking code rules have been tightened to cover some of the relevant issues. Can the Minister confirm that the cheques can no longer be issued to people who are nearing their credit limit or struggling to pay? Those are the sort of assurances that we want. Will he also consider the idea that customers should have to opt into receiving credit card cheques, rather than opting out of them? At the moment, when they enter a new credit card agreement, they must say, ''I do not want to receive these.'' That means that they can be sent without ever being requested.

Michael Jabez Foster (Labour, Hastings and Rye)

Is not the bigger problem something that the hon. Gentleman has mentioned already—the fact that as long as spending is within the limit there is not an increased credit obligation, but that the practice is, I understand, sometimes to send the cheques with an invitation to increase the limit? That increased limit is the problem. It is unsolicited, and that may be the aspect of the matter that should give rise to concern.

Charles Hendry (Conservative, Wealden)

The hon. Gentleman may have seen that new clause 4 covers exactly those issues of the raising of credit card limits without the agreement in advance of the proposed recipients. I agree that that is where the practice is at its most dangerous. The fact that someone can still spend only up to their limit is protection, but if it is possible to spend significantly beyond that, there is a risk of spending money that cannot realistically be paid back.

The restrictions would not apply to invitations to apply for credit cards in general. They would specifically relate to credit card cheques. Many representations were made on Second Reading about the need to tackle this matter—as, indeed, happened when the Bill was introduced previously. I hope that the Minister can give the Committee some reassurances.

Gerry Sutcliffe (Labour, Bradford South)

The Government will resist the new clause, but not because we do not know where the hon. Gentleman is coming from—we do. He admitted that the provision might be too widely drafted so that it would encompass all credit tokens, which was not his intention. He explained his focus and the reasons for it.

The hon. Gentleman will know, because he has read the debates and will have heard me say so on Second Reading, that during the previous Parliament a vast range of hon. Members were concerned about credit card cheques. In response, I undertook to consider the need for secondary legislation to improve transparency in the matter of credit card cheques. As I said then, the issue is more one of transparency than anything else. Just receiving a cheque will not increase a consumer's indebtedness, but consumers should know what they are about and the implications of using them. Consumers should have clear information when an agreement is made, including information about charges.

We are considering what information—including warnings—should be provided at the time when the cheques are provided. The DTI is having discussions with the industry and consumer groups to reach a solution that will provide appropriate protection for consumers. We are actively considering what to do and the best way of addressing many of the issues that the hon. Gentleman has mentioned, but I am confident that we can deal with that through secondary legislation.

James Brokenshire (Conservative, Hornchurch)

The Minister said that indebtedness would not increase as a consequence, but there could obviously be a difficult situation as consumers might not necessarily be aware that higher rates of interest may apply or that there could be shorter interest-free periods. Indebtedness could increase through that, hence the need for more warnings when the cheques are issued to protect consumers. I welcome the Minister's comment that he will look at that seriously, although we would say that it is better to act in the Bill rather than later.

Gerry Sutcliffe (Labour, Bradford South)

I am again grateful for the hon. Gentleman's remarks, and I know that he is sincere in his comments, as are the Government in our undertakings. The new clause is not drafted appropriately to work in the way that he would want, but we will deal with the issues that it raises. We believe that secondary legislation is most appropriate, and when we are in a position to consult on the regulations, that will be a useful time to speak to the Opposition parties about whether we were right or not.

With that assurance, I hope that the hon. Member for Wealden will not pursue his new clause.

Charles Hendry (Conservative, Wealden)

I am grateful for the Minister's assurances. All Members will be pleased to know that the Government are considering how to address the issue. I accept that the new clause is not drafted correctly and, in the light of that, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 4 - CHANGES IN CREDIT LIMITS

Charles Hendry (Conservative, Wealden)

I beg to move, That the clause be read a Second time.

We are making good progress, and we have perhaps reached the debate when the Minister will not just say that something is excellent but go along with us on it.

Again, the proposal deals with an issue raised on Second Reading. In that debate, I referred to my experience of having a credit card that I used only for petrol, perhaps spending £200 a month on it. Without any request from me, the card issuer has raised the limit on several occasions so that it is now £3,500. The issuer has never checked whether I could afford to spend to that limit, and the hon. Member for Hartlepool (Mr. Wright) expressed concern about that issue, too.

I recognise that the banking code has been changed, but I hope that the Committee will see that there are grounds for doing more. The banking code says that all issuers must assess a customer's ability to repay before increasing a limit and must make appropriate checks on the customer's risk profile and apply proportionate increases. They must not apply increases to accounts in arrears or those that fall below credit scoring thresholds, they must consider emergency limit increases individually—when a specific transaction will go over the customer's pre-agreed limit—and they must always assess the customer's ability to repay.

What the code does not include is any requirement to contact the customer. Banks can just go through records, contact credit agencies and find out what the person's credit rating has been. They do not have to contact the person to ask whether such an offer would be welcome and reasonable or to ask what assurance they could give that they could repay the money. The new clause would put the onus on the lender to ensure that the customer can afford a higher limit and to get the customer's agreement in writing before finalising an increase.

The new clause must be seen against the background of concern about rising debt levels, which we discussed earlier. There is growing anxiety in the Bank of England about debt levels, and we are right to address that now. We are seeing a growth in the number of people who cannot pay their debt and a growth in mortgage arrears and repossessions. All that should make us wary of allowing a situation to continue in which people can simply have their credit card limit increased. As the hon. Member for Hastings and Rye (Michael Jabez Foster) said, before those people have such a limit available to them, it must be certain that they can repay the money. Currently, the debtor's circumstances are currently not checked when those limits are raised. That cannot be considered responsible lending.

Gerry Sutcliffe (Labour, Bradford South)

It is appropriate that we end our deliberations on new clause 4. I thank the hon. Member for Wealden for drawing the attention of the Committee to this important issue. I know where he is coming from and where he intended to go, but he went too far, I am afraid. The new clause goes beyond prohibiting unsolicited increases and also bans solicited requests for increases not made in writing.

As for the sentiment underlying the amendment, the concern expressed by the hon. Gentleman is not new, as he says. Unsolicited credit limit increases have been an issue of concern for some time. During the last Parliament, the Treasury Select Committee examined the issue in some detail and expressed its concern, and businesses undertook to improve the processes through self-regulation.

As the hon. Gentleman said, the industry has done much through improvements to the banking code to improve the processes through which credit limit increases are made. The changes were included in the new version of the code, published in March. At the time the Government welcomed the new guidelines, as did the Committee. We look forward to seeing the industry's response to the Committee's recommendation to restrict unsolicited increases in credit limits.

The Government welcome effective self-regulation by business when it improves the quality of business practices, serves to protect consumers and enhances the services that they receive. Effective self-regulation is as critical to the proper functioning of the market as formal regulation through legislation. The industry is on notice on the matter, and we look forward to its taking an effective approach to address the concerns expressed by hon. Members, which have existed for some time.

Michael Jabez Foster (Labour, Hastings and Rye)

Will the Minister assure us how he will present his position if the industry does not come good? This is the opportunity to do so, and it may not arise again.

Gerry Sutcliffe (Labour, Bradford South)

As I have said, we believe there are opportunities to deal with the matter through secondary legislation. However, it is only fair that we give the banking code, since it came in in March, an opportunity to prove its worth as the industry reaction to the severe strength of feeling from the Treasury Committee and other hon. Members. The industry is on notice. If it does not deal with the issue in the way that the code offers it the opportunity to do, we will take action. I give my hon. Friend that commitment.

I hope that the hon. Member for Wealden, who was quite right to raise the issue in the way he did, will withdraw the new clause because of the assurances that I have given and the opportunities that will arise in future to take action if things do not improve.

Charles Hendry (Conservative, Wealden)

We have come from every direction, and we now know that I have finally gone too far. In many ways, I am disappointed by the Minister's response. He referred to the banking code, but the code is still inadequate because there is no requirement to talk to the borrower or the debtor. All the research into finding out whether somebody can afford to repay a higher level of borrowing will simply be based on information that can be obtained from credit rating agencies and other people like that. No check is required to find out whether the person involved thinks it affordable.

The people we are most concerned are those who are most honourable and would not use credit most of the time. However, they will suddenly think that because it is Christmas, they want a holiday, or to buy a present, and because they know that their limit has been extended, they will go and spend beyond it. We have seen some terrible cases. The Minister referred, as did I, to one where someone ultimately committed suicide because they had over-borrowed and had a range of different cards—that leads us to issues of data-sharing, which we will come back to on Report. We know that there were not enough safeguards in place. The Minister says that the banking code has been tightened up since then, but I hope that he would be prepared to go further, and that if he believes the approach is right but the amendment goes too far, we might work with, say, the hon. Member for Hastings and Rye to find an alternative form of words in which to draft a Government amendment on Report. I believe that the whole House wants this issue to be addressed.

Gerry Sutcliffe (Labour, Bradford South)

I see some merit in having a discussion not only with the hon. Member whom the hon. Gentleman identified but with the industry itself. Perhaps then we can persuade the industry to tell us why it believes that the banking code will meet the requirements, as it has already told the Government. It is not, however, practical to meet interested Members and the industry to try to hammer out a solution that we can bring back on Report.

Charles Hendry (Conservative, Wealden)

I am most grateful for that offer and that reassurance. In the light of that, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Gerry Sutcliffe (Labour, Bradford South)

On a point of order, Mr. Taylor. It is usual at this juncture to thank you and your co-Chairman, Mr. Conway, for your excellent chairmanship of our proceedings on a Bill that has been brought before the House before but that needed to be scrutinised in detail by Committee members. I pay tribute to that scrutiny, to the amendments tabled by the Official Opposition and the Liberal Democrats, and to the contribution made by all Committee members in trying to get the Bill through appropriately. I recognise that there are some issues that we shall return to on Report, and I am sure that the Bill will be given a good airing in the other place.

I also thank the Committee secretariat, the Hansard reporters, the police, the Committee Clerks, my DTI team who have supported me throughout the proceedings, and the Labour members of the Committee, including my hon. Friend the Member for Eccles, who has a tendency to yawn on numerous occasions, particularly when I am speaking.

Ian Stewart (Labour, Eccles)

I was not yawning, I was stretching.

Gerry Sutcliffe (Labour, Bradford South)

Whether yawning or stretching, he still has the propensity to do whatever he does.

This is an important Bill, which is likely to be the first to receive Royal Assent in the new Session, once all passages are complete. That shows the Government's commitment to ensure that consumer credit is made actively transparent in the way that we have set out.

I also thank the Government Whip, who is the most important person on the Government Benches, for ensuring that a majority has always been in place and that we have had a good discussion through the usual channels with the Opposition Whip.

Charles Hendry (Conservative, Wealden)

May I associate myself and my hon. Friends with the Minister's tribute to you, Mr. Taylor, and to Mr. Conway for the way in which you have chaired the Committee? I, too, thank the Clerks and the members of the other House of Commons teams for the support that they have given us, and the DTI team for the support that it has given the Minister.

The Committee has been enjoyable and productive, and I am particularly grateful for the way in which the Minister has conducted it. He has been courteous at all times, as well as extremely open and friendly. He has, however, said no rather too often. He described one of my amendments as excellent, and another as good but not excellent, so I was clearly getting worse as we progressed. ''Heading in the right direction'' has been the predominant comment, which is a little like ''could do better'' on my children's reports. At least we are heading in the right direction, which is something to be encouraged about.

We put a tremendous number of questions to the Minister, and I am grateful that he will reply in writing to some of them, because we do need greater clarity before the Bill reaches Report, and certainly before it goes to another place.

I am very grateful to my hon. Friends for their support. They have shown a tremendous amount of legal expertise and great understanding of the issues involved. All members of the Committee have brought constituency experience to the debate. These issues affect all our constituents, and I am particularly pleased that the Government saw fit to put on their side of the Committee people who might not always make helpful comments but whose sincerity cannot be doubted. I think particularly of the right hon. Member for Leeds, West, whose depth of experience in dealing with these issues has the admiration and respect of the whole House.

We are also grateful that the Liberal Democrats popped in from time to time—[Laughter.]

David Taylor (Labour, North West Leicestershire)

Order.

Charles Hendry (Conservative, Wealden)

It has been a productive Committee, Mr. Taylor, and we have made progress. I am most grateful to you and Mr. Conway for chairing us so effectively.

Alan Reid (Liberal Democrat, Argyll and Bute)

It has been a friendly Committee, at least until now, and we have had some interesting discussions. I shall not rise to the bait, Mr. Taylor, but simply thank you and your co-Chairman, Mr. Conway, for the efficient way in which you chaired our proceedings. I also thank the Minister; he may always have said no, but he never failed to give a full explanation and he always handled matters courteously.

The Bill is important for our constituents. As someone new to DTI business, I found our discussions interesting. The Committee certainly dealt with the Bill effectively and efficiently. We shall return to the one or two items that remain outstanding on Report. I am pleased that, as the Minister said, it will be on the statute book quickly.

Bill, as amended, to be reported.

Committee rose at twenty-six minutes past Six o'clock.

The rest of the debate is in Hansard.